University of Southern California
Center for Systems and Software Engineering
Outsource, System
Acquisition
CS 510 Software Engineering
Supannika Koolmanojwong
University of Southern California
Center for Systems and Software Engineering
Outline
• Business Process Outsourcing
• IT Outsourcing
• System Acquisition
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University of Southern California
Center for Systems and Software Engineering
When to Outsource
PricewaterhouseCoopers Model
Strategic
Competitive
Non-Competitive
Non-Strategic
Not
Outsourced
Grey
Area
In House
if Possible
Outsource
University of Southern California
Center for Systems and Software Engineering
Outsourcing Life Cycle
www.theiia.org/
University of Southern California
Center for Systems and Software Engineering
Business Process Outsourcing
• Contracting of the operations and responsibilities
of specific business functions (or processes) to a
third-party service provider.
– Such as HR, finance, accounting
• In 2010, the Philippines surpassed India as the
largest BPO industry
• Example
– Customer Support Services: voice, e-mail and chat on a
24/7 and 365 days basis.
– Data Entry Services / Data Processing Services
– Book Keeping
– Form Processing Services: Insurance claim form
http://en.wikipedia.org/wiki/Business_Process_Outsourcing
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University of Southern California
Center for Systems and Software Engineering
Business Process Outsourcing
Opportunities for BPO
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Accounting
Advertising
Customer service
Document management
Finance
Facilities management
Human resources
Information technology
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Internal audit
Legal
Logistics
Manufacturing
Marketing
Product service
Research and development
Etc.
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University of Southern California
Center for Systems and Software Engineering
Email Outsourcing
“The total cost of ownership for an in-house email system is
likely to be in the range of $200 to $400 per user per
month……. Outsourcing should reduce TCO by 10% to
30%.” Ferris Research, June 2001
Typical Services
• Email Hosting
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Email@yourdomain
POP3 access
IMAP4 access
Outbound SMTP
Virus Scanning
External POP Access
www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt
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24x7 Web-based Support
Spell Check
Email Forwarding
Unlimited Attachment Size
Unlimited Storage Folders
Multiple attachments
University of Southern California
Center for Systems and Software Engineering
Typical Services
• Custom Webmail
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Customizable, private-label WebMail interface
Wireless WAP Access
Automated User Signups
Integrated Ad Server
Customizable to any language in the world
Programming API's for front and back end system
integration
www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt
University of Southern California
Center for Systems and Software Engineering
Costs
• Web Based Email Services with POP 3 access up to 6 Mailboxes Per Month
•0-5,000 Mailboxes
$0.99 each
•5,001-7,000
$0.90 each
•7,001-10,000
$0.75 each
•10,001 and up
$0.55 each
•Minimum Monthly Fee Per Domain is $79.00
• Large Install - Setup Fee $199.00 at launch
Other Options
• Wireless Access - $0.30 per mailbox per month
• Outgoing SMTP - $0.20 per mailbox per month purchased in blocks of 50.
• Design Services - $100 flat charge for color scheme consulting. $70 per hour for custom
design consulting.
• Additional Storage - Units of 2mb $0.99 per mailbox per month.
Acadea has customizable email solutions for schools, universities, government agencies
and businesses.
http://www.acadea.com/WebmailPrice.htm
University of Southern California
Center for Systems and Software Engineering
Costs
Example 4: 100 User Multi Server, Multi Location Network
In-House Cost
Salary For Sr Level Network Engineer
$65,000.00
Salary For Software / Hardware Support Technician
$40,000.00
Medical Benefits and Payroll Expense
(assume 1 married 1 single)
$ 18,100.00
Office Space and Expenses
$ 10,000.00
Continuing Education
$ 5,000.00
Hardware Repair Parts
$ 10,500.00
=========
$148,100.00
Sullivan Data will provide on-sight technician during regular business hours for
between $90,000.00 and $100,000.00 annually depending on equipment chosen
http://www.sullivandata.com
University of Southern California
Center for Systems and Software Engineering
http://www.kpmginstitutes.com/shared-services-outsourcing-institute/insights/2013/pdf/state-of-outsourcing-2013-exec-findings-hfs.pdf
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University of Southern California
Center for Systems and Software Engineering
System Acquisition
“The process of obtaining a system product
or service.”
ISO/IEC 2008
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University of Southern California
Center for Systems and Software Engineering
Types of Contract
• Product Contract
– Product labels
• Purchased Order
– 5 copies of MS Office 2012
• Service Contract
– Concerns: flexibility level, evaluation criteria, indemnities, and
scope definition
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University of Southern California
Center for Systems and Software Engineering
Software Development Life
Cycle (SDLC) Model
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University of Southern California
Center for Systems and Software Engineering
Contracting for IT and Software
Projects
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https://learn.dau.mil/CourseWare/43_4/scopage_dir/l13_contiss/l13_t4rfp.html
University of Southern California
Center for Systems and Software Engineering
System Acquisition Cost
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University of Southern California
Center for Systems and Software Engineering
Software Development Contract
Styles
• Fixed price, fixed scope
– Risk: High risks will be on the supplier side,
especially when the budget is underestimated.
– Variation:
• fixed-price with economic price adjustment
(labor, material)
• fixed-price incentive contracts (adjusting
profit)
• fixed-price with prospective price
redetermination. (fixed for initial period)
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University of Southern California
Center for Systems and Software Engineering
Software Development Contract
Styles
• Cost-plus or Cost reimbursement or Incentive or
award-fee
– suppliers can reimburse on their time and material
– Risks: if buyer has a strict budget.
– Variation:
• cost –plus-fixed-fee
• cost-plus-incentive-fee
• cost-plus-award-fee (award for good performance)
• cost-plus-percentage-of-cost
• cost-incentives, performance incentives, and delivery
incentives.
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University of Southern California
Center for Systems and Software Engineering
Software Development Contract
Styles
• Variable time and variable costs
– Major risks are handled by the client
– The client needs to put extra effort on checking whether
only legitimate effort and expense are invoiced
– Supplier has little incentive to keep the costs down
– Variation:
• Variable time
• Variable scope and cost ceiling
• Variable time and materials with fixed scope and cost
ceiling.
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University of Southern California
Center for Systems and Software Engineering
Software Development Contract
Styles
• Evolutionary Acquisition or Phased
Development or Incremental Delivery
– Gets paid at the end of each increment/phase
– Fund or reward of the next increment depends
on the supplier’s performance
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University of Southern California
Center for Systems and Software Engineering
Collaborative agreements
• Vested Outsourcing
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Focus on outcomes, not transactions
Focus on what, not how
Define clear and measurable outcomes
Use pricing model incentives that optimize
cost/service trade-offs
• Avoid fixed fee or cost-plus
– Has governance structure with insight, not
oversight
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University of Southern California
Center for Systems and Software Engineering
Award-Fee Contracts for
Evolutionary Acquisition
• To increase flexibility in contracting system
– Flexibility – tailor to fit your project
– Responsiveness – Use technology to facilitate
the acquisition process
– Innovation – continuously develop and
implement initiatives to streamline and improve
the process
– Discipline – cost, schedule, performance
metrics
– Streamlined and effective management
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University of Southern California
Center for Systems and Software Engineering
Evolutionary Acquisition
Variants and Invariants
Invariants
Variants
Accommodates evolving requirements
Degrees of flexibility employed
Degrees of time phasing utilized
Multiple deployments to the field
supported
Overlapping versus non-overlapping
O&M versus RDT&E funds used
Considerations in each cycle … PLUS
technology insertion opportunities
Choice of development process
Choice of contract vehicle and type
Nature of incentives used to stimulate
performance
Choice of risk resolution techniques
Emphasis is on total life cycle
The variety of tasks included in the life
cycle
Decision point at the end of each
increment involves multiple stakeholders
Choices of decision-making method
employed (risk-based funding, etc.)
Content of deployment is driven by risk
consideration (market, operational, etc.)
Trade space used for deciding what to
deploy
Managing stakeholder life cycle
commitment is done via anchor points
How teamwork issues are managed
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University of Southern California
Center for Systems and Software Engineering
Seven Critical Success Factors
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Schedule Preservation
Continuous Integration support
Cost Containment
Technical Performance
Architecture and COTS compatibility
Program management
Risk Management
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University of Southern California
Center for Systems and Software Engineering
Rating Guide for Seven Software
Critical Success Factors
Criteria
Score
Factor I – Schedule Preservation
Weight Weighted
Score
0.20
Factor II – Continuous Integration Support
0.15
Factor III – Cost Containment
0.20
Factor IV – Technical Performance
0.10
Factor V – Architecture and COST compatibility
0.15
Factor VI – Program Management
0.10
Factor VII – Risk Management
0.10
TOTAL SCORE
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University of Southern California
Center for Systems and Software Engineering
Typical Timelines and Award
Fee Amount
Evaluation
Period
From
To
First
Upon Contract Award
25% of Development Schedule
Available
Award
Fee
25%
Second
25% of Development Schedule
50% of Development Schedule
25%
Third
50% of Development Schedule
75% of Development Schedule
25%
Fourth
75% of Development Schedule
End of Award Fee period of
performance
25%
TOTAL
100%
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University of Southern California
Center for Systems and Software Engineering
ICSM
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University of Southern California
Center for Systems and Software Engineering
BPO Advantages
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Productivity Improvements
Cost Savings
Improved HR
Focus on Core Business Competency
Increased Capability
University of Southern California
Center for Systems and Software Engineering
BPO Disadvantages
• Recent Studies
• Knowledge Disappears and is Transferred
to the Outsourcing Partner
• Poor Quality Control
• Restoring Operations is Complicated
• Lack of Loyal Employees
• Reduction in Strategic Alignment
University of Southern California
Center for Systems and Software Engineering
5 Managerial Steps That Pay Off
1. Go Offshore for the right reasons
•
Shifting a broken process overseas may not
fix it
2. Choose your model carefully
•
Could cost more…..(I’ll fix this part)
3. Get your people on board
•
Employees and middle managers can make
the bold move happen….or stop you in your
tracks
University of Southern California
Center for Systems and Software Engineering
5 Managerial Steps That Pay Off
4. Be prepared to invest time and effort
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Often what is lacking in offshore partners is a
lot of deep process knowledge
5. Treat your partners as equals
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Telling your partners exactly what to do and
how to do it is not conducive to the entire
process