Cost, Benefit & Risk

Assessment for
outsourcing venture
 6 step process for project
development
• Conduct feasibility study
• Do detailed analysis of requirement
• Define parameters of vendor
relationship
• Build & evolve relationship
• Monitor the relationship
• Conclude or renew the relationship
•
 Conduct feasibility study
• Core Competency Screen-Critical vs
Core
• Cost of Control Screen –for a
vendor ,contract key to monitor
vendor
• Goals Screen
• Scope Screen – total or selective
 Detailed analysis of
requirement
• Understand relative benefits
• Selecting a team -Champions
•
 Parameters of vendor
relationship
• Focus on: vision/mission of company
under evaluation, balance sheets of
previous years, Client lists,
Infrastructure
• Due diligence Process
– Examine the previous accounts co
handled
– Scrutinize the vendor expertise and
business strategy; willing to facilitate
knowledge transfer
– Analyze technical core competency;
contact references
– Review resources of vendor/visit
site/evaluate resources
 Measuring Performance :
capability of Internal and
external resources
• Service levels
• Price/Performance benchmark
• Customer satisfaction survey
• Quantify expectations
• Inventory in house skills
• Infrastructure and tool assessment
• Opportunities for improvement

 Specific outsourcing cost
benefit criterion
• Quantitative outsourcing
consideration
– Cost saving
– Cost avoidance
• Qualitative consideration of
outsourcing
– Time
– Risk
– Staffing
 Outsourcing Cost Benefit Analysis: Seeing
Unseen Costs
Quantitative Direct costs Insourcing considerations Outsourcing
Direct Costs Consideration
Personnel Costs Y Y
Fringe benefits Y sY- embedded
Material suppliers Y in
Y the contract
Maintenances/ licenses Y Y
Training Y Y
Contracts Y Y
Telecommunications Y Y
New equipment costs Y Y
New software costs Y Y
Rent Y Y
Utilities Y Y
Travel Y Y- embedded
in the contract
Quantitative Direct Insourcing Outsourcing
Benefits
Dollar value of staffconsiderations
Y Considerations
Y
time
Dollarsaved
value of new Y Y- May be evaluated
operating on the basis of
efficiencies (eg . No different technical
of additional solutions proposed by
licenses to be internal or external
processed ) resources

Quantitative Indirect Insourcing Outsourcing

costs
Administrative considerations
Y Considerations
Y-embedded in
overhead overheadY
Divisional contract
Y- in some cases
Quantitative Indirect Insourcing Outsourcing
benefits
Cost to other agencies considerations
Y Considerations
Y- this is a project
or citizensadministrationN
Contract cost
Y- will include
Service improvement to Y internal resources &
Y
citizens
Support of architecturesY time
Y
Flexibility of solution Y Y
Qualitative Project Insourcing Outsourcing
Benefits & Costs considerations Considerations
Availability Y Y
Quality of service Y Y
Impact on staff, Y Y
agencies ,citizens
Legal Environment Y Y
Security Y Y
Sensitivity Y Y
Planning time Y Y
Project time Y Y
Operational Risk Y Y
Technology Risk Y Y
Relationship Risk Y Y
 Typical outsourcing costs
• Project: labor, time, s/w, h/w
• Management :Internal project
manage OR corporate mangers to
oversee the project
• Post project :
– Maintenance & Enhancement cost
– Knowledge transfer plan and place
corporate staff for maintaining the
system
 RISK CRITERION: 4 FOLD
PROCESS
• Identify
• Understand
• Prioritize
• Address
 Buyer Risk
• Operational :
– ability to meet deadlines, outcomes and
required skill set;
– Respond to change in
legislation/mission./service definition
• Technology
– Ability if a project to respond to new
technology changes
• Relationship
– Expectation on service delivery
– Unexpected cost of outsourcing
arrangement
– Vendor responsiveness to need the need for
improvements
– Staff: Job satisfaction, morale workload
 Outsourcing Staffing Issues
• Internal Human Resources: impact on
motivation, skills, retention ;if
expertise then time available
• External Human Resources: capabilities
evaluation staff , turnover, same work
hrs, culture and initiative
• Contingency Planning: staffing levels to
manage change (methods, contract)
• Access to Expertise: knowledge transfer
plan to avoid dependence on vendor
•
Global Sourcing Maturity

Maturity
Level 5

Level 4

Level 3

Level 2

Efficient Effective Optimized Transformational

Level 1

Ready

Cost Performance
Performance Knowledge
advantage optimization
enhancement leverage
Productization
Multiple stages in Value mapping
global sourcing

16
Capability Model