Outsourcing Metrics

1. Outsourcing Metrics Anhnhat Tran & Nam Nguyen Comp 589 Spring 2009 CSUN

2. Outsourcing Benefits According to the latest Global IT Outsourcing Study from DiamondCluster for the year 2006:

3. Current Outsourcing Trends

4. Current Outsourcing Trends (cont.)

5. Why ? Companies are reducing outsourcing for three primary reasons: • Mistakenly outsourced a process or function that is core to their business and are now bringing those back in-house. • Their provider over-promised and under-delivered. • The complexity of managing and measuring outsourcing projects and relationships overshadowed the benefits.

6. Cost Metrics • Financial costs. Hard costs associated with activities that must be undertaken to assess, launch, and maintain a Business Process Outsource (BPO) project. • Strategic costs: loss of organizational learning in the outsourced activity.

8. Analysis Phase Cost • internal staff that will be enlisted to conduct the assessment • third-party professional support: BPO consultants, market research specialists, and change-management consultants • fear-induced performance declines

9. Implementation Phase Cost • hire a third-party intermediary, or • time spent in crafting an Request For Proposals, distributing it to vendors, managing and responding to queries, and evaluating proposals (meetings with the leadership teams of the top two or three candidates, including site visits to their facilities) • work with an legal team when developing the contract

10. Transition Phase Cost • Depth of relationship: costs associated with developing and maintaining a strategic relationship with the vendor • Breadth of the relationship: range of processes that are outsourced. Working with a single provider for multiple processes may reduce costs as familiarity and trust increase, but the potential costs associated with vendor failure increase as dependence on the vendor increases. • third parties: to assist in the integration of both the vendor’s and the initiating organization’s systems • process adaptation: Employees may experience a period of adjustment as the process is transitioned and they need to interface with new people and unfamiliar systems

11. Operational Phase Cost • Impact on Productivity: Most BPO initiatives result in some job displacement or layoffs. Remaining employees will be concerned about whether their unit is a future BPO: drop-off in productivity. Productivity measures: Output per employee, Overhead cost per unit of output, Output per capital expenditure, Output per asset • Customer satisfaction levels during BPO implementation. Variations beyond the norm must be carefully analyzed • Competition: Competitors will respond to new moves. • Reactions of shareholders and other major organizational stakeholders: extensive reengineering or restructuring that includes a technology component may meet with anxiety and doubt

12. TCM applied to Outsource Project’s Phases

13. Provider Risk Metrics • Provider’s financial stability • Provider’s track record for quality, on-time delivery, and service • Maturity level of the provider’s processes • Maturity of the provider’s service or product • Clarity and effectiveness of communication with the provider

14. Provider’s financial stability • Dun & Bradstreet rating/report • Cash Flow and Banking Relationships • Accounting Systems • Net worth of the business • Accounts Receivable/Payable Status

15. Provider’s History • Customer references • Product or service performance metrics : field fault history, percent on-time delivery, average response time for customer calls.

16. Maturity level of the provider’s processes • Proof of certifications to industry standards such as TQM, ISO 9001 and SEI CMMi • Management experience • Technical capability • Quality assurance program

17. Service/Product Maturity • length of time the provider has been providing the service to similar projects • total number of production months for the product • customer defect reporting history on the product • expected product life

18. Communication • Time zone differences: Overtime cost • Culture differences. Approach and management style fits our strategy & culture ? • Travel cost • Onsite present cost

19. Integration Risk Metrics • Level of customization—How much new development specifically done for our project is needed? • Level of integration/dependence—How tightly coupled is the provider’s work to ours?

20. Risk Levels

21. Current System Metrics • Capture specifications on workload • Average size of each transaction (consider both inputs and outputs) • Largest historical size of a transaction, and largest forecast future size of a transaction • Largest historical number of transactions at peak times • Largest forecast number of transactions at peak times • Total current storage capacity requirements for data • Total forecast storage capacity requirements for future data • Peak utilization of the central processing unit at particular times during the 24-hour day

22. Performance Metrics

23. Progress Are all schedule commitments on track to be met? • percent of effort completed • percent of modules completed and/or inspected, and unit or multiunit • testing progress (percent test cases executed and passed).

24. Quality Are quality targets going to be met? Have they been met? • technical performance measures: transaction throughput or user response time • number of open defects • mean time to failure • level of fault on fix.

25. Responsiveness Are delivery of on-demand services and fixes to problems being handled in accordance with your project’s needs? • Time (average, maximum) to restoration (getting us moving forward even if it is with a temporary work around) • Time to permanent fix delivery.

26. References • Laird, Linda M., Software Measurement and Estimation A Practical Approach • Schniederjans, Marc, Outsourcing management information systems • Duening,Thomas N., Essentials of business process outsourcing • DiamondCluster International, “2006 Global IT Outsourcing Study.” Available from www.diamondcluster.com.

27. Thank You • Please ask us questions for the parts that you are unclear or confused.