Anhnhat Tran & Nam NguyenComp 589 Spring 2009 CSUN

Outsourcing Metrics

Outsourcing BenefitsAccording to the latest Global IT Outsourcing Study

from DiamondCluster for the year 2006:

Current Outsourcing Trends

Current Outsourcing Trends (cont.)

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.

Cost MetricsFinancial 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.

Analysis Phase Costinternal staff that will be enlisted to

conduct the assessmentthird-party professional support: BPO

consultants, market research specialists, and change-management consultants

fear-induced performance declines

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

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

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

TCM applied to Outsource Project’s Phases

Provider Risk MetricsProvider’s financial stabilityProvider’s track record for quality, on-time

delivery, and serviceMaturity level of the provider’s processesMaturity of the provider’s service or

productClarity and effectiveness of communication

with the provider

Provider’s financial stabilityDun & Bradstreet rating/reportCash Flow and Banking RelationshipsAccounting SystemsNet worth of the businessAccounts Receivable/Payable Status

Provider’s History

Customer referencesProduct or service performance metrics :

field fault history, percent on-time delivery, average response time for customer calls.

Maturity level of the provider’s processesProof of certifications to industry standards

such as TQM, ISO 9001 and SEI CMMiManagement experienceTechnical capabilityQuality assurance program

Service/Product Maturitylength of time the provider has been

providing the service to similar projects total number of production months for the

productcustomer defect reporting history on the

productexpected product life

CommunicationTime zone differences: Overtime costCulture differences. Approach and

management style fits our strategy & culture ?

Travel cost Onsite present cost

Integration Risk MetricsLevel 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?

Risk Levels

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

Performance Metrics

ProgressAre all schedule commitments on track to be

met? percent of effort completedpercent of modules completed and/or

inspected, and unit or multiunittesting progress (percent test cases

executed and passed).

QualityAre quality targets going to be met? Have

they been met? technical performance measures:

transaction throughput or user response time

number of open defectsmean time to failurelevel of fault on fix.

ResponsivenessAre 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.

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.

Thank YouPlease ask us questions for the parts that

you are unclear or confused.