Success Tip Determine The Business Case To Renew Renegotiate Or Terminate

Once the IT outsourcing agreement is up for reconsideration, there are three options: renew, renegotiate, or terminate. Renewal accepts the terms of the existing contract. It often occurs if the customer feels the delivery of services is satisfactory or better.

Renegotiation often occurs over dissatisfaction with the contents of the contract (e.g., it is too long in duration, or it is too costly). Increasingly, many firms are renegotiating because the technology is changing the needs for a service (e.g., movement from a mainframe-centric environment to a client/server one) or the pricing for services is not ma rket driven. Termination occurs because the service is no longer necessary, is unsatisfactory, or costs too much. Terminations occur much less often than renegotiations.

Whether renewing, renegotiating, or terminating, it is important for the organization to conduct as comprehensive a study as when making the initial business case for or against outsourcing. It should use objective criteria, and make evaluations using data collected during the course of the initial contract. The data may come from metrics and documentation of past service delivery. If renegotiating or terminating, the organization should make sure the team and senior management support the decision, and understand the rights described in the contract to take such action.

When forming a reevaluation team, the organization should be sure to:

■ Define each member's roles and responsibilities

■ Designate a project manager

■ Determine the objectives of the team (e.g., renegotiate or terminate the contract)

■ Determine the required knowledge and skills (e.g., accounting, technical, legal, or business management)

When conducting the internal review, the organization should be sure to:

■ Define the scope and objectives of the review

■ Determine if capabilities exist for moving currently outsourced services in-house

■ Determine the requirements of internal customers

■ Determine which services are and are not currently being outsourced

■ Determine which services are mission critical, which are important but not critical, and which are nonessential

■ Document the quality of the past delivery of services

■ Evaluate the current delivery of services, using the metrics that were collected

When conducting the external review, the organization should be sure to:

■ Define the scope and objectives of the review

■ Determine the research approach (e.g., market analysis or benchmarking)

■ Develop criteria to determine what vendors look at

When performing the cost/benefit analysis, the organization should be sure to:

■ Account for the time value of money

■ Calculate the different pricing options, such as cost plus, fixed price, or time and materials

■ Determine the payback period

■ Determine the desired type of outsourcing agreement (e.g., co-sourcing or outtasking)

■ Develop alternatives

■ List assumptions and constraints

■ Make a recommendation

Understanding Outsourcing

Understanding Outsourcing

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