Sourcing Issues in outsourcing.

Analysis of Alternatives Indicate alternatives approaches Include “do nothing” option Consider purchased products and outsourcing Descriptive name Narrative model Essential data and process changes from the current system Costs and benefits

Feasibility: TELOSS Technical: how can we do it? Economic: is it cost justifiable? Legal: are there legal issues? Operational: does this fit the way we want to do business? Schedule: can we get it done on time? Security: what are the risks?

Costs and Benefits Costs are easier to identify than benefits Include intangible and tangible costs Business benefits include reduced costs and increased revenue Include competitive positioning Consider business focus: low cost, differentiation, focus

Costs and Benefits (cont.) Differentiate ongoing from one-time costs Separate development cost from operating cost. Costs and benefits should be detailed for each alternative. There should be a separate summary table to compare alternatives.

Do make a recommendation and support it. Choose the best option or options. Consider business as well as technical arguments. You may leave some options or a choice between equivalent systems Provide a statement of work Do make a recommendation and support it.

Request for Authorization Ask permission to continue to next stage Estimate cost and schedule for next stage, as well as total project costs. Proceed Hold Cancel Frequently a pre-written memo of authorization.

Is this a reengineering project? Reengineering requires a mandate to change the way you do business, and requires a major commitment from all participants. Most information systems are written to support existing processes.

Determinants of Outsourcing Success Core vs. commodity Partner vs. vendor Tight vs. loose contract Success: Economic, Technical, Strategic, Overall Satisfaction with Contract

Primary Reasons for Outsourcing Technological considerations Cost Savings Strategic considerations (infrastructure building - quickly) Human resource considerations Mandated by central office/Acquired by another company Consolidate Data Centers Efficiency Cash Infusion

What happens in purchased systems Lease arrangements and components Customization (total cost often 10 times purchase price) Data conversion Installation and cutover

Purchased System Advantages Allows internal resources to be allocated to more critical applications Developed and debugged code Standard practice Shorter time to delivery (but don’t forget setup and training) Available support

Purchased Systems Disadvantages Loss of flexibility and customization Loss of ownership Requirement to adapt practice to someone else’s system Version control Reliance on a third party

Outsourcing What happens in outsourcing? What the reasons for outsourcing? How do you manage an outsourcing agreement?

Outsourcing The purchase of a good or service that was previously provided internally Farm out data center operations (facilities management) Farm out tasks and services Farm out systems development May transfer IS function to vendor

Aha! Need tight contracts May be successful for core functions… especially if linked to tight contract Can have successful partnerships

Outsourcing Disadvantages Reliance on vendor/partner Loss of control Considerations about security/confidentiality Evaporation of cost savings Loss of competitive advantage Slight of hand with employees

Outsourcing strategies

Outsourcing strategies