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Certification in Outsourcing Management for IT

Body of Knowledge

First Edition in October 2008 Singapore Computer Society 53/53A Neil Road Singapore 088891 Website: http://www.scs.org.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher.

Acknowledgements

Author Institute of Systems Science, National University of Singapore Chief Editor Ms Wu Choy Peng Group Chief Information Officer, Neptune Orient Lines Ltd Deputy Editor Dr Kwong Yuk Wah Chief Information Officer, National Trades Union Congress Review Panel Mr Lau Soon Liang Chairman, COMIT Resource Panel/Project Director, Network For Electronic Transfers (S) Pte Ltd Ms Lau Lai Quen Client Solution Executive, Strategic Engagement Application Management Services, Asia Pacific, IBM Singapore Pte Ltd Mr Ng Beng Lim General Manager, NCS Pte Ltd Ms Ng Tok Sung Consulting Manager, Singapore Computer Systems Ltd Mr Tan Peng Wei Account Executive, EDS International Pte Ltd Ms Teng Soon Lang Executive Vice President, OCBC Bank Ltd Dr Toh See Kiat Chairman/Director, Goodwins Law Corporation Ms Tung Ya Shan Deputy Director, JTC Corporation Mr Yong Teck Thong General Manager, Infrastructure Management & Solutions, NCS Pte Ltd Contributors Mr Daniel Boey, Programme Director, Institute of Systems Science Mr Dave Hufton, Programme Director, Institute of Systems Science Ms Loong Chay Ching, Programme Director, Institute of Systems Science Mr Howard Russon, Senior Programme Director, Institute of Systems Science Mr Tan Tzann Chang, Programme Director, Institute of Systems Science Secretariat Support Ms Jennifer Ong, Executive Director, Singapore Computer Society Ms Seah Mee Ling, Certification Manager, Singapore Computer Society Co-sponsor Infocomm Development Authority of Singapore i

Certification in Outsourcing Management for IT Body of Knowledge

Foreword
In recent years, the IT outsourcing market in Asia Pacific has grown at a phenomenal rate amidst a constantly evolving business landscapes. The outsourcing trends are challenging IT professionals in many areas, especially for the development, production and maintenance of IT solutions. As the national body for infocomm professionals, the Singapore Computer Society must continue to keep pace with the technological advent and changes in needs and expectations of the industry.
Mr Wilson Tan
President Singapore Computer Society

The Certification in Outsourcing Management for IT (COMIT) was introduced in 2006 to equip IT outsourcing professionals with critical IT-centric management skills. COMIT aims to validate IT outsourcing professionals, corroborating the IT experience and knowledge they possess in designing, implementing and managing outsourcing initiatives. In a short span of two years, COMIT has become a widely accepted benchmark for the IT outsourcing managers. It has also been cited as a preferred criterion for government IT projects. This Body of Knowledge (BOK) is therefore a welcome and timely compilation. Aimed at IT outsourcing professionals, the BOK seeks to provide its readers with a broad overview of the skills essential for effective IT outsourcing management and give insights on how outsourcing initiatives can be best implemented. The Singapore Computer Society congratulates all contributors authors, editors and reviewers - of the BOK for their efforts in making this available for study by professionals in the industry. I commend this publication to IT service providers, infocomm professionals and to all others with an interest in the effective management of IT outsourcing projects.

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Preface
IT outsourcing is here to stay. IT outsourcing will not go away; the only question is what will be outsourced, and what will be retained within the IT function of the organisation. Sometimes, CIOs and IT professionals think IT outsourcing will stop, when the labour cost differential between countries narrows. But we are wrong. There are deeper reasons for IT outsourcing the ability of a non-IT company to attract and retain IT talents who have deep, broad and up-to-date technical and implementation knowledge, skills and experience; the demands of our business to get their hands on new IT systems and features; the vast talent pools in some countries and regions; and the economies of scale and scope that large IT companies can develop and deliver IT services and systems cheaper, better or faster. IT outsourcing causes a lot of angst amongst CIOs and IT professionals. First, there is a sense of loss of control. How can I be accountable for the output and deliverable of someone who does not report to me? Why cant I interview every person in my service providers account and delivery teams? Second, there is a requirement for a whole new set of skills. How to define requirements, Statement of Work and Service Level Agreements? How to select a service provider? Am I supposed to understand IT contracts, and all the legalese associated with a commercial contract? Last but not least, there is a deep suspicion that my service provider is always trying to figure out how to charge me more. How do I know I am not being taken for a ride? The relationship between the client and the service provider in an IT outsourcing deal can be a mutually beneficial one, built on open communications and mutual respect. But it only comes about if the IT outsourcing deal has been planned properly before contracting, the contractual terms and conditions thoroughly worked through during negotiation, and the outsourced services properly managed during execution. And we must always remember the people factor; the IT team in the client organisation and the Delivery Team in the service provider need to work with one another as colleagues, not adversaries. This Body of Knowledge (BOK) is a valuable repository on managing IT outsourcing, focusing on the needs of the client, not the service provider. Although the BOK is targeted at candidates of the Certification in Outsourcing Management for IT (COMIT), it is highly readable and suitable for all IT professionals. I am impressed by the tremendous amount of thought and work that has gone into the BOK and its comprehensive coverage. It is indeed my pleasure and privilege to be associated with this publication. I am confident you will gain much from this excellent book.
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Ms Wu Choy Peng
Chief Editor COMIT BOK

Certification in Outsourcing Management for IT Body of Knowledge

Contents
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1.1 1.2

The COMIT Structure


Introduction Body of Knowledge

1 1 2 5 5 6 6 6 7 7 7 8 8 8 9 9 10 10 11 12 13 13 14 14 15 15 15 16 17 17 17 18 18 19 20 21 21 21 22 22 23 24 26 26 26 26 27 28 28

2.1 2.1.1 2.1.2 2.1.3 2.1.4 2.2 2.2.1 2.2.2 2.2.3 2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.3.6 2.3.7 2.4

Outsourcing Planning and RFP Development

Defining Outsourcing Objectives and Scope Outsourcing Concepts Strategic Business Drivers of Outsourcing Risks Associated with Outsourcing Critical Success Factors of Outsourcing Planning for Outsourcing Determining the Outsourcing Strategy Types of Sourcing Relationships Key Service Provider Activities Developing the RFP Client and Service Provider Roles and Responsibilities The RFP Process Forming the Outsourcing Project Team Strategies for Information Gathering Definition of Outsourcing Scope and Requirements Service Provider Evaluation Strategy and Process Key Service Provider Activities Summary Soliciting Potential Service Provider Proposals Client and Service Provider Roles and Responsibilities Issuing the RFP Providing Information to Potential Service Providers Facilitating Potential Service Provider Due Diligence Key Service Provider Activities Evaluating Proposals and Selecting Service Providers Client and Service Provider Roles and Responsibilities Evaluation Framework for Service Provider Proposals Assessment of Potential Service Provider Presentations Assessment of Proposals Risk Assessment Making the Selection Decision Key Service Provider Activities Summary Forming the Outsourcing Contract Basic Elements of Contract Law and Common Types of IT Contracts Key Requirements in Forming IT Outsourcing Contracts Handling Contractual Changes and Disputes Key Service Provider Activities Conducting Contract Negotiations Preparing for Contract Negotiations Negotiation Strategies and Techniques Best Practices in Negotiating Outsourcing Contracts Key Service Provider Activities iv

3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.1.5 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.3

Service Provider Evaluation and Selection

4.1 4.1.1 4.1.2 4.1.3 4.1.4 4.2 4.2.1 4.2.2 4.2.3 4.2.4

Contract Formation and Negotiations

4.3 4.3.1 4.3.2 4.4

Reviewing and Finalising the Contract The Contract Review Process Key Service Provider Activities Summary

28 28 29 29 30 30 31 31 32 32 33 34 34 34 35 35 36 36 36 37 37 37 38 38 38 39 40 40 40 41 42 42 42 43 43 43 44 44 45 45 45 46 46 46 47 48 48 48 50

5.1 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2 5.2.1 5.2.2 5.2.3 5.2.4 5.2.5 5.3 5.3.1 5.3.2 5.3.3 5.3.4 5.3.5 5.3.6 5.4

Contract Initiation, Transition and Transformation Management


Initiating the Contract and Planning for Transition Client and Service Provider Roles and Responsibilities Governance Structure for Outsourcing Management The Transition Plan Major Activities in Transition Phase Key Service Provider Activities Managing the Transition Process Client and Service Provider Roles and Responsibilities Communications Management During Transition Managing Transition Issues and Risks Monitoring and Tracking Activities During Transition Key Service Provider Activities Managing the Transformation Process Client and Service Provider Roles and Responsibilities Governance Structure for Managing Transformation Identifying Possible Areas for Transformation Major Activities During the Transformation Phase Measuring Transformation Results Key Service Provider Activities Summary

6.1 6.1.1 6.1.2 6.1.3 6.1.4 6.1.5 6.2 6.2.1 6.2.2 6.2.3 6.2.4 6.3 6.3.1 6.3.2 6.3.3 6.3.4 6.3.5 6.4

Relationship Management and Dispute Resolution


Establishing the Outsourcing Governance Structure Client and Service Provider Roles and Responsibilities Outsourcing Governance Framework Principles of Effective Outsourcing Governance Issues and Concerns in Outsourcing Governance Key Service Provider Activities Managing and Assessing the Outsourcing Relationship Client and Service Provider Roles and Responsibilities Principles of Successful Outsourcing Relationships Considerations in Relationship Assessment Key Service Provider Activities Resolving Contractual Disputes Client and Service Provider Roles and Responsibilities Handling Disputes Internally Alternative Dispute Resolution (ADR) Mechanisms Types of Legal Remedies Key Service Provider Activities Summary

7.1 7.1.1 7.1.2 7.1.3

Service Quality Management and Performance Monitoring


Monitoring and Reviewing Service Provider Performance Client and Service Provider Roles and Responsibilities Management Structure for Steady-State Operations Performance Measurement, Monitoring and Review Processes v

Certification in Outsourcing Management for IT Body of Knowledge

7.1.4 7.1.5 7.2 7.2.1 7.2.2 7.2.3 7.2.4 7.3 7.3.1 7.3.2 7.3.3 7.3.4 7.3.5 7.4

Monitoring and Managing Risks Key Service Provider Activities Managing Service Changes Client and Service Provider Roles and Responsibilities Contract Change Management Processes Negotiating with Service Provider for Service Changes Key Service Provider Activities Managing Service Delivery Client and Service Provider Roles and Responsibilities Planning and Tracking of Delivery Activities Verification and Validation Processes Dealing with Non-conformance in the Service/Product Key Service Provider Activities Summary

50 51 51 51 52 52 52 53 53 53 54 54 55 55 56 56 57 57 58 58 59 59 59 59 60 61 61 62 62 62 63 64 64 64 65 65 66 66 67 67 68 68 68 69 69 69 70 70 70

8.1 8.1.1 8.1.2 8.1.3 8.1.4 8.1.5 8.2 8.2.1 8.2.2 8.2.3 8.2.4 8.3

Contract Migration and Handover Management

Planning and Managing Contract Completion and Termination Client and Service Provider Roles and Responsibilities Managing Contract Completion Issues Related to Contract Termination Managing Contract Renegotiations Key Service Provider Activities Planning and Managing Contract Migration Client and Service Provider Roles and Responsibilities Issues to be Addressed in the Migration Plan Legal and Practical Considerations During Migration Key Service Provider Activities Summary Planning for Resources and Estimating Cost Client and Service Provider Roles and Responsibilities Cost Estimation and Budgeting Key Service Provider Activities Controlling Cost Client and Service Provider Roles and Responsibilities Processes for Project Cost Control Managing Project Costs Through Change Management Key Service Provider Activities Summary Identifying Risks Client and Service Provider Roles and Responsibilities Risk Management Concepts Sources of Risks Key Service Provider Activities Assessing and Quantifying Risks Client and Service Provider Roles and Responsibilities Qualitative Assessments Quantitative Assessments Building the Risk Register vi

9.1 9.1.1 9.1.2 9.1.3 9.2 9.2.1 9.2.2 9.2.3 9.2.4 9.3

Cost Management

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10.1 10.1.1 10.1.2 10.1.3 10.1.4 10.2 10.2.1 10.2.2 10.2.3 10.2.4

Risk Management

10.2.5 10.3 10.3.1 10.3.2 10.3.3 10.3.4 10.4 10.4.1 10.4.2 10.4.3 10.4.4 10.5

Key Service Provider Activities Developing the Risk Mitigation Plan Client and Service Provider Roles and Responsibilities Risk Treatment Strategy Factors Influencing the Choice of Risk Mitigation Strategy Key Service Provider Activities Executing the Risk Mitigation Plan Client and Service Provider Roles and Responsibilities Risk Monitoring Performance Measurement Key Service Provider Activities Summary

71 71 71 72 72 73 73 73 73 74 74 74 75 75 76 76 76 77 77 78 78 78 79 79 79 79 80 80 81 81 82 82 83 84 84 84 84 85 86 87 87 87 88 88 89 89 90 90 91 91

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11.1 11.1.1 11.1.2 11.1.3 11.1.4 11.2 11.2.1 11.2.2 11.2.3 11.3 11.3.1 11.3.2 11.3.3 11.3.4 11.4

Human Resource Management

Planning Human Resources Client and Service Provider Roles and Responsibilities Identifying HR Needs Managing Staff Transition Issues Key Service Provider Activities Building the Project Team Client and Service Provider Roles and Responsibilities Team Selection Key Service Provider Activities Managing Team Performance Client and Service Provider Roles and Responsibilities Managing Performance Team Development Key Service Provider Activities Summary Developing the Communications Plan Client and Service Provider Roles and Responsibilities Communications Plan Scope and Coverage Project Communications Channels Key Service Provider Activities Executing the Communications Plan Client and Service Provider Roles and Responsibilities Operational Communications and Feedback Key Service Provider Activities Summary Diversity and Conflict Management Diversity Management Cross-cultural Issues Conflict Management Effective Interpersonal Skills Leadership Approach in Outsourcing Negotiation Skills Communications Skills Problem Solving and Decision Making Skills Summary vii

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12.1 12.1.1 12.1.2 12.1.3 12.1.4 12.2 12.2.1 12.2.2 12.2.3 12.3

Communications Management

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13.1 13.1.1 13.1.2 13.1.3 13.2 13.2.1 13.2.2 13.2.3 13.2.4 13.3

Interpersonal Skills

Certification in Outsourcing Management for IT Body of Knowledge

The COMIT Structure

This document provides an overview of the body of knowledge upon which the Certification in Outsourcing Management for IT (COMIT) certification scheme is based. The purpose of the document is to define the aspects of IT outsourcing management in which certification candidates would need to demonstrate proficiency.

1.1

The Singapore Computer Society (SCS), with the support of the Info-Communications Development Authority of Singapore (IDA), launched the Certification in Outsourcing Management for IT (COMIT) programme on 5 October 2006. With the increasing reliance on outsourcing to meet business needs, there is a high demand for IT professionals with the relevant skills to manage outsourced projects. Such skills are vital for ensuring that outsourcing is well aligned to realise an organisations business imperatives. The COMIT programme aims to support these growing demands for outsourcing services amongst businesses and organisations by providing a skills upgrading and development path to professionals involved in the various aspects of IT outsourcing. With training and upgrading of skills through certification, outsourcing professionals can better help their organisations to succeed. For the outsourcing professional, being COMIT-certified attests to having the depth and breadth of knowledge and experience in outsourcing management. It also gives professional recognition to an individual in the marketplace. There are three levels of COMIT certification as follows: Certified Outsourcing Manager, IT (Senior) or COMIT (Senior) Certified Outsourcing Manager, IT or COMIT Certified Outsourcing Manager, IT (Associate) or COMIT (Associate)

Introduction

As IT outsourcing managers have a professional obligation to themselves, to their employers and to the profession to sustain their skills and knowledge through ongoing professional development, it is required that the certified IT outsourcing managers be recertified every five years. It is through recertification that both COMIT and employers can be ensured that the knowledge and competency of the certified IT outsourcing managers remains formally current and relevant. The main thrust of the knowledge defined in this document is from the clients perspective. A separate sub-section is created for each chapter highlighting some key service provider activities at various phases of the outsourcing engagement and is differentiated in highlighted boxes. IT outsourcing managers must appreciate both client and service provider perspectives if they wish to build and maintain successful partnerships.

1.2

To achieve certification, candidates must demonstrate their knowledge and competence in the following twelve (12) subject areas of IT outsourcing management: a. b. c. d. e. f. g. h. i. j. k. l. Outsourcing Planning and RFP Development Service Provider Evaluation and Selection Contract Formation and Negotiations Contract Initiation, Transition and Transformation Management Relationship Management and Dispute Resolution Service Quality Management and Performance Monitoring Contract Migration and Handover Management Cost Management Risk Management Human Resource Management Communications Management Interpersonal Skills

Body of Knowledge

The twelve key knowledge and competencies of IT outsourcing management can be subdivided into two main categories as shown in the diagram below.

Figure 1.1 COMIT Certification Competencies The key IT outsourcing management competencies include planning, RFP development, service provider selection, contract formation and negotiations, transition and transformation management, relationship management, service quality management and handover management.
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Certification in Outsourcing Management for IT Body of Knowledge

The general management skills expected of an outsourcing manager encompass cost management, risk management, human resource management, and communications management, with an emphasis on relevant interpersonal skills. The phases in the Outsourcing Project Life-cycle can best be illustrated by the following diagram.

Figure 1.2 Outsourcing Phases The major activities at each phase of the outsourcing engagement are as follows: Engagement phase RFP development, service level definition, service provider selection and contract negotiations Transition and transformation phase Transition and transformation management Ongoing operations phase Service provider management and service delivery management Exit phase Contract migration and handover management

At the end of the engagement phase the contract is signed. Once the transition phase is completed, the systems or services outsourced should be in steady state mode. For those projects with a transformation phase built in, the systems or services outsourced will be running in the new futurestate mode once this latter phase is completed. Outsourcing managers are expected to actively manage projects from the engagement phase onwards.

For each phase of the outsourcing project, various IT outsourcing competencies are applied as shown in the following diagram.

Figure 1.3 Outsourcing Phases and Related Competencies Management competencies are applied throughout every phase of the outsourcing life-cycle. These include cost management, risk management, human resource management, communications management and interpersonal skills, and they are important components of the service delivery process. The key knowledge and competencies that are required to be demonstrated by COMIT candidates in each of these areas are described in the following chapters.

Certification in Outsourcing Management for IT Body of Knowledge

Outsourcing Planning and RFP Development

The aim of this subject area is to ensure that candidates understand the basic outsourcing concepts and their application in the planning and development of the outsourcing strategies. This involves the definition of the objectives and goals to be achieved and the identification of suitable outsourcing strategy to support those objectives and goals. It also involves the development of Request for Proposal (RFP) that defines the appropriate scope of outsourcing required to achieve the given objectives and goals. The key knowledge areas are as summarised in Figure 2-1 below. Outsourcing Planning and RFP Development

Defining Outsourcing Objectives and Scope Outsourcing concepts Strategic business drivers of outsourcing Risks associated with outsourcing Critical success factors of outsourcing

Planning for Outsourcing Determining the outsourcing strategy Types of sourcing relationships Key service provider activities

Developing the RFP Client and service provider roles and responsibilities The RFP process Forming the outsourcing project team Strategies for information gathering Definition of outsourcing scope and requirements Service provider evaluation strategy and process Key service provider activities

Figure 2.1 - Outsourcing Planning and RFP Development Overview

2.1

In recent years, there has been a dramatic change in attitude towards outsourcing such that it has become the norm as businesses and other organisations seek new ways to better deliver business value to all stakeholders. The greater use of outsourcing by organisations challenges IT professionals to better understand this phenomenon and the business drivers behind its ascendancy. Knowledge of outsourcing will also allow IT professionals to understand the factors that lead to successful outsourcing and to better manage its inherent risks.
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Defining Outsourcing Objectives and Scope

2.1.1 Outsourcing Concepts Outsourcing is the contracting out to an external service provider of services traditionally performed by internal staff and resources. Under this arrangement, the service providers responsibility is to achieve the required result at the contracted price and terms. There are different forms of outsourcing. Offshoring, for example, refers to the situation where the client company, whose activities are located in one country, agrees to a contract with a service provider company where the bulk of the outsourcing work is to be performed in another country. 2.1.2 Strategic Business Drivers of Outsourcing The rapid spread of globalisation and increased competitive pressures in recent years have resulted in companies seeking new ways to reduce costs and improve overall performance. As the IT function has traditionally been viewed as a cost centre, it has become one of the prime targets for outsourcing in the new competitive environment. The main strategic drivers behind IT outsourcing include: Addressing management concern about costs and quality of IT services Focusing on organisational core competencies Staying abreast with latest technology to achieve business goals Reducing time-to-market Providing a catalyst for major business changes that cannot be achieved internally Focusing on business strategies and policies without expanding internal resources on day-to-day operations

Given these strategic drivers, it is critical that the objectives to be achieved by outsourcing are clearly identified and communicated so that a proper evaluation can be made as to whether they can be attained given an organisations circumstances. To assist in the definition of objectives and goals, the following questions may be considered: Are cost savings being sought? Are IT service improvements being sought? Are the required IT skills available in-house? Is there a need to free up internal staff to pursue more strategic activities?

2.1.3 Risks Associated with Outsourcing As the contracting out of services always involves some level of risk, it is important that candidates understand and appreciate the different types of risks that are associated with outsourcing such as financial, operational, contractual and technical risks. These include: High cost of taking back outsourced operation Security breach Leakage in proprietary information Dependence on service provider Contractual problems Loss of control over outsourced operation Loss of internal capability Low staff morale
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Certification in Outsourcing Management for IT Body of Knowledge

Having understood the risks associated with outsourcing, organisations are in a better position to take steps to mitigate them so as to improve the chances of successful outsourcing. 2.1.4 Critical Success Factors of Outsourcing Given the strategic business drivers of, and risks associated with, outsourcing the factors that have the most impact on the successful outcome of outsourcing engagements can be identified. These may include: Setting realistic expectations Having clear objectives Having sufficient knowledge on processes to be outsourced Identifying and managing risks throughout the outsourcing life-cycle Having well-managed internal and external communication Selecting a service provider with the right capabilities, who has a clear understanding of requirements and can be a trusted partner Establishing well-defined contracts Forming an experienced team to manage the outsourcing service provider throughout the contract life-cycle Ensuring there is sufficient budget to carry out the services A sound understanding of these critical success factors will allow an organisation to determine the feasibility of IT outsourcing to meet its business needs and to better manage the outsourcing engagement.

2.2

Once the decision to proceed with outsourcing has been made, an outsourcing team led by an outsourcing manager will be appointed to plan and execute the project. They will need to understand the outsourcing objectives set by the senior management, assess the current situation, identify the outsourcing requirements and then select the appropriate outsourcing relationship for achieving the desired outcomes. 2.2.1 Determining the Outsourcing Strategy In order to formulate a suitable outsourcing strategy, the team will need to start with a thorough understanding of the processes and systems that have been targeted for outsourcing, analyse the current situation and identify needs relative to the outsourcing objectives. Besides this, they should also work out the dependencies and interrelationships between the processes to be outsourced and other related processes within the organisation, as this will help determine interoperability requirements, identify potential risks and management issues. In addition, the skills and competencies that are available in-house has to be determined so that gaps may be identified and the additional skills to be acquired through outsourcing be defined. Based on the requirements, budget and schedule, the team can then determine the best strategy to outsource, whether fully or partially, and whether to engage an offshore service provider for the project, after weighing the associated risks and benefits. The information gathered during this planning stage will be used as inputs for developing the request for proposals.
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Planning for Outsourcing

2.2.2 Types of Sourcing Relationships Besides understanding the internal requirements of outsourcing, it is important to understand the various forms of sourcing relationships and their respective benefits and risks. The sourcing relationships typically fall into one of the following categories: a. Single sourcing/Traditional: A single service provider delivers the service to a single client. b. Co-sourcing: Two service providers working together to deliver the service to a single client. Often, one of these service providers is internal while the other is external to the client. c. Multi-sourcing: Multiple service providers provide the services to a single client. The client takes responsibility for managing and integrating the services of the various service providers. d. Alliance: A single service provider delivers service to a single client where the two organisations have formalised some form of long-term collaborative agreement. e. Joint Venture: The service provider and client form a collaborative business venture to serve other clients. Both will combine their respective strengths to add value by selling jointly developed IT products and services to the external market place. In addition, it is important to be aware of the evolving trends in the outsourcing world which may influence the organisations outsourcing strategy and plan. 2.2.3 Key Service Provider Activities During the planning stage, the service providers main function is to provide relevant information to the potential client in order to assist the latter in its planning and selection of outsourcing strategy. The service providers initial task is to identify the potential clients key strategic issues and business drivers, understand clients requirements, as well as the key players in its organisation. Once this is done, it will have to conduct an internal assessment of its ability to meet client needs as well as determine clients readiness for outsourcing and then formulate a preliminary strategy to win the account. Part of the strategy will involve establishing a clear value proposition and communicating it effectively to the potential client. To assist the potential client in its planning process, the service provider may present the range of service options that it can offer and respond to the clients request for information (RFIs) and proactively provide budgetary proposals.

2.3

A Request for Proposal (RFP) is a formal request for service provider proposals which has the aim of communicating the clients outsourcing requirements to the service providers. In developing the RFP, the client organisation would follow a process that typically includes forming the outsourcing project team and defining its roles and responsibilities, defining the scope of the project as well as formulating the selection process and evaluation criteria for choosing qualified service providers.

Developing the RFP

Certification in Outsourcing Management for IT Body of Knowledge

2.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 2.1 below. Client a. Define the RFP process and project schedule b. Define the outsourcing project team organisation and its role and responsibility c. Determine criteria for selecting members of the project team d. Determine strategies for information gathering e. Define outsourcing scope and requirements f. Write the RFP Clearly establish service definitions, service levels, expectation, requirements and service level agreement (SLA) g. Develop service provider evaluation strategy and criteria Service Provider a. Establish scope of outsourcing b. Provide information to support client to develop the right requirements and service level agreement (SLA) c. Determine if scope is within its core competencies d. Establish value proposition and a sales strategy e. Identify potential key partners and alliances f. Identify high-level risks g. Determine competitive position h. Estimate the total cost required to support the project (during presales and delivery) i. Evaluate if the project should be pursued j. Identify team members with the right expertise to respond to the RFP, when issued

Table 2.1 - Roles and Responsibilities in the RFP Development Process For the client, the key result to be achieved is to develop an RFP that will accurately reflect its requirements that will allow service providers to offer cost-effective solutions. For the service provider, the key result to be achieved is to understand the clients requirement and establish a strong competitive position for winning the project. 2.3.2 The RFP Process The RFP process is a structured method for developing and communicating the requirements and deliverables of an outsourcing project to external service providers. It allows an organisation to understand and evaluate the range of sourcing options available from the marketplace and to choose the most suitable solution based on its needs. While it may vary according to the needs of different organisations, the RFP process typically has these following steps: Setting up the project organisation Developing the project schedule Identifying relevant technology options and potential service providers Estimating the project budget Performing a cost and benefit analysis Developing evaluation criteria
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Developing the RFP Defining strategies for service provider due diligence Reviewing and approving the RFP for release to the service providers

2.3.3 Forming the Outsourcing Project Team The outsourcing project team should ideally be multidisciplinary in nature, with members from different functions and business units within the organisation, so as to ensure a complementary set of skills and views in the execution of the RFP process. While different configurations may be needed depending on a given projects requirements, the team should have representation from the following core groups: a. Business operations This is the user group who will be using the system or services and hence providing the business requirements. b. Information Technology (IT) This department is responsible for the technologies that are needed to support the organisations business objectives. c. Finance and Legal These groups are responsible for providing legal and financial advice, especially in the area of contract management. d. Human Resource This group will assist in the planning for staffing matters related to the project as well as internal communications. Some of the criteria that may be used for the selection of team members include: Experience and skills needed to perform the project tasks Availability of time to be an effective contributor to the project team Ability to be a team player with good communications skills

Once the team has been formed, meetings should be convened to work out the roles and responsibilities of the various team members. The outsourcing manager will be responsible for the overall execution of the project. In addition, lines of communications between the project team and various stakeholders should also be clearly established early in the process so that there will be exchange of relevant information to keep all parties informed of developments. 2.3.4 Strategies for Information Gathering To ensure that the organisations outsourcing objectives are realistic and achievable, it is necessary for the project team to begin by gathering information on the types of available solution from various sources. This can be done using the various methods outline below. a. Request for Information (RFI). An RFI can be used by the client organisation to find out the range of solutions that are available from different service providers who respond to the request. It can also be a pre-qualification exercise to shortlist interested service providers before the tender exercise. It would also be a useful way for the client to check whether its requirements are realistic and to gather more detailed information based on initial high-level requirements. b. Engaging a Consultant. Where the client lacks the required skills to manage the outsourcing project, it may choose to engage a consultant with the necessary expertise and experience, for example, to help scope out the requirements and manage the procurement process. This method would allow the client organisation to bring in the required professional skills for this project.
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Certification in Outsourcing Management for IT Body of Knowledge

c. Open Tender. The use of open tenders offers a fair and transparent method for the client to find out the range of solutions or service providers that are available in the marketplace. Through this method, interested service providers who believe that they can meet the project requirements are free to submit proposals. When supplemented with the use of an RFI process, open tenders offer a means of gathering information from a wide range of service providers. d. Partner with a Service Provider to Develop a Suitable Solution. In situations where there is a need to develop a solution which involves technology that is relatively new and immature, it may be helpful for the client to seek out a suitable service provider to jointly develop the solution in a risk-sharing partnership arrangement. The principal difficulty here is that if the client organisation lacks the necessary know-how to evaluate the feasibility of solutions, it may not be easy to find a suitable partner to develop a solution. 2.3.5 Definition of Outsourcing Scope and Requirements After the outsourcing project team has collected sufficient information, the work of defining the scope of the project and the development of the actual RFP and project requirements can begin. When developing the requirements, it is important that the project team constantly keep in mind the business objectives to be achieved, so that the resultant set of requirements will meet the needs of the business users. In this regard, it may be helpful to include metrics derived from business scorecards in the service-level agreement definitions, so as to establish a connection between business outcomes and the performance of the service provider. The following are some of the areas of requirements from which common service level measurement can be derived: a. Performance requirements These may include aspects as the speed, capacity, throughput and scalability of the systems deployed. b. Operational requirements This area deals with how systems and products integrate into the clients operating environment and the level of support available. c. Maintainability requirements These involve describing the ease of maintenance and highlight any special requirements. d. Portability requirements These involve describing the ease of porting an application to different platforms and environments. e. Security requirements Security considerations may include confidentiality, integrity and availability of systems, data as well as audit requirements. f. Usability requirements This aspect is concerned with how easy a product is for users to learn and to operate. g. Look and feel requirements These concern the user interface of the product or system. h. Technology requirements These may include aspects as interoperability requirements and the frequency of technology refresh. It may be necessary to categorise the requirements into mandatory, good-to-have or optional. As the RFP is a document used to communicate a clients requirements to potential service providers with the aim of obtaining suitable proposals from the latter, in terms of coverage, the document should address the following key areas:

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Business objectives and directions Detailed definition of scope and description of services Functional and non-functional requirements Human resource plan Service provider characteristics and minimum qualifications Contractual terms and conditions Evaluation process and criteria Technical overview Service levels and reporting Security and data protection Transition plan for staff, assets and services Approval of key personnel to be assigned to the project Risk assessment related to loss of data or service Disposal of assets Pricing Transaction volume and load

The RFP document will typically consist of the following sections: Cover letter Project overview RFP administration process Technical requirements Management requirements Service provider qualifications and references Service providers section Pricing section Contracts and license agreement section Appendices

2.3.6 Service Provider Evaluation Strategy and Process After the project requirements have been agreed upon by all relevant stakeholders, the project team can proceed to define the evaluation process and develop a set of detailed criteria for evaluating service provider proposals. The service provider evaluation process involves establishing the framework that sets out the detailed criteria for evaluating the suitability of potential service providers proposals. Subject to procedural and legal requirements, the overarching principle governing this process is that of fairness and transparency, so that expectations are clear to all stakeholders. In developing the evaluation criteria, the project team should keep in mind that the goal is to select the service provider that best meet the various requirements of the project stakeholders. The evaluation criteria may take into account factors such as: The objectives of outsourcing The outputs expected from the service provider The acceptance criteria for those outputs The qualifications of the service provider and its ability to deliver
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Certification in Outsourcing Management for IT Body of Knowledge

Once the criteria have been developed, they should be formally documented and approved by the project steering committee or other relevant authority before being incorporated into the evaluation process. The evaluation process is covered in greater detail in Chapter 3. 2.3.7 Key Service Provider Activities The initial activity of the service provider in the RFP development process is to understand the clients requirements so as to establish the scope of the outsourcing project, as well as to provide the client with information to help the latter develop the right set of requirements. With knowledge of the scope of outsourcing, the service provider can then determine whether it can competently deliver the required services. If the project is within its core competencies, then the next step would be to determine if the project should be pursued. If the decision is to move forward, it would then need to establish a value proposition and develop a sales strategy to communicate that value to the client. As part of the sales strategy, the service provider would also need to identify the key partners needed to help deliver the required services and to identify the high-level risks associated with the project. Once the key pieces of information about the project are known, the service provider would also want to determine its chances of winning relative to other competitors, and to make adjustments to its strategy as necessary.

2.4

For this subject area, candidates are required to acquire an understanding of basic outsourcing concepts as well as the trends influencing the growth of outsourcing. To successfully plan for an outsourcing project, candidates would need to be able to determine the best strategy to outsource, whether fully or partially, and whether to engage an offshore service provider, after weighing the associated risks and benefits. The decision on appropriate sourcing options will also involve determining the most suitable outsourcing relationship and ensuring that it aligns with business objectives. In addition, candidates are also required to understand the process of preparing and developing RFPs. This will include creating service provider selection criteria, defining the scope of work and SLA measures that will be embedded in the contract and used to measure performance. It will also include creating and leading outsourcing project teams. Finally, candidates also need to have an understanding of the key roles and responsibilities of the service provider, which include identifying the clients key strategic issues and drivers to influence the decision to outsource and responding to clients request for information.

Summary

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Service Provider Evaluation and Selection

The aim of this subject area is to ensure that candidates understand the key process requirements for the evaluation and selection of service providers for outsourcing projects. This involves defining a suitable selection process and establishing evaluation criteria to aid in the selection decision-making. The key knowledge areas are summarised in Figure 3.1 below. Service Provider Evaluation and Selection

Soliciting Potential Service Provider Proposals Client and service provider roles and responsibilities Issuing the RFP Providing information to potential service providers Facilitating potential service provider due diligence checks Key service provider activities

Evaluating Proposals and Selecting Service Providers Client and service provider roles and responsibilities Evaluation framework for assessing service provider proposals Assessment of potential service provider presentations Assessment of proposals Risk assessment Making the selection decision Key service provider activities

Figure 3.1 - Service Provider Evaluation and Selection Overview

3.1

The process of soliciting potential service provider proposals should be defined during the outsourcing project planning phase, with reference made to existing organisational procedures. Subject to procedural and legal requirements, the overarching principle governing the process is that of fairness and transparency, so that expectations are clear to all stakeholders. In general, the process will include issuing the RFP, the provision of relevant information to potential service providers as well as the handling of their questions and requests for clarifications. Where necessary, it may also include procedures for granting access to physical facilities and documents to allow potential service providers to perform due diligence checks.

Soliciting Potential Service Provider Proposals

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Certification in Outsourcing Management for IT Body of Knowledge

3.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 3.1 below. Client a. Issuing the RFP b. Briefing potential service providers and answering queries c. Facilitating potential service providers due diligence checks Service Provider a. Assembling a team with the right expertise to respond to the RFP b. Identifying key personnel for project team members c. Attending the briefing session d. Asking relevant questions and seeking clarifications on points of ambiguity in the RFP e. Looking into project sizing and developing solutions f. Structuring a proposal to meet client requirements as well as internal business objectives

Table 3.1 - Roles and Responsibilities in the Proposal Solicitation Process For the client, the key result to be achieved is to obtain top-quality proposals from suitable service providers. For the service provider, the key result to be achieved is the submission of a proposal that will meet both client needs and internal business goals. 3.1.2 Issuing the RFP Before issuing the RFP, the criteria for pre-qualifying potential service providers should be defined. Based on the established criteria, the pre-qualified service providers are then notified of the details of the RFP in accordance with the client organisations procurement process. Some of the areas of prequalification may include the capability, capacity and experience in providing the required services, satisfactory performance track record in providing similar services, financial strength to undertake the engagement and compliance to requirements. Where relevant, the client may require the potential service providers who receive the RFP to sign non-disclosure agreements (NDAs) to protect its confidential information and intellectual property rights. 3.1.3 Providing Information to Potential Service Providers To facilitate communications with potential service providers, project communications structures need to be established between the project team and the potential service providers. In addition, guidelines regarding the manner of communications as well as the type of information that could be released should also be established as required. This will help in maintaining consistency in dealing with potential service providers.

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Besides written communications, an important means of providing information to potential service providers is the use of briefing sessions. These allow the project team to meet potential service providers face-to-face to explain the RFP process, project requirements and to answer their queries. Such briefings should be chaired by the outsourcing manager with support from the project sponsor and his project team. The briefing may include: The background of the company and the project An overview of the RFP process The structure of the RFP The RFP schedule The requirements (at a high level) The technical details of the present system The rules to be followed when preparing and putting in a proposal The evaluation criteria at a high level The preferred method of submission, i.e., by electronic or hard copy, etc

Subsequent to the briefing, potential service providers may pose questions to seek clarifications on aspect of the RFP. These should be handled in compliance with established guidelines and procedures to ensure fairness and transparency towards all potential service providers. Answers provided to any questions should be made available to all potential service providers and records of written communications should be kept for tracking and audit purposes. 3.1.4 Facilitating Potential Service Provider Due Diligence Checks Potential service providers may request for site visits to perform due diligence checks and to collect additional information about project requirements. If the client decides to accede to such requests, the opportunity for site visits should be made available to all pre-qualified service providers. Prior to such visits, the client should establish a set of ground rules applicable to all visits. These may deal with: The sites to be visited The duration of each visit The number of persons per service provider allowed to visit The types of client records for viewing The approved method of recording by service provider Confidentiality and NDA requirements

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Certification in Outsourcing Management for IT Body of Knowledge

3.1.5 Key Service Provider Activities In response to an invitation by a client to submit an outsourcing project proposal, a service provider will probably undertake steps to obtain more information about the project so as to make an informed assessment of its potential risks and rewards before responding to the RFP. After receiving the RFP, the service provider may be asked to attend a briefing session conducted by the client. This will provide an opportunity for the service provider to seek clarifications and ask questions pertaining to the outsourcing project. As part of the due diligence process, the service provider may also request for site visits and access to documents and data in order to gain a better understanding of the scope of work required. Before deciding whether or not to respond to the RFP, the service provider should assess the projects risks and determine if it is able to deliver the required services at an acceptable profit margin. It should also determine the key partners and alliances to work with for the project. If the decision is to proceed to respond to the RFP, the service provider should ensure that its proposal covers all the requirements set out in the RFP. To achieve this, it will have to assemble a project team with the right expertise to develop a suitable solution for the client.

3.2

The process of service provider evaluation and selection should also be defined during the outsourcing project planning phase, with reference made to existing organisational procedures. Again subject to procedural and legal requirements, the overarching principle governing the process is that of fairness and transparency, so that expectations are clear to all stakeholders. This process may include establishing the framework that sets out the detailed criteria for evaluating the suitability of service provider proposals, assessing proposal presentations as well as seeking clarifications about the proposals during the presentation sessions and during interview with key service provider staff. 3.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 3.2 below. Client a. Setting up an evaluation framework b. Assessing submitted proposals c. Interviewing the key staff of potential service providers Service Provider a. b. c. d. Making presentations of the proposal Responding to clients queries Handling client interviews of key staff Selling the merits of its proposal throughout the evaluation process

Evaluating Proposals and Selecting Service Providers

Table 3.2 - Roles and Responsibilities in the Service Provider Selection Process

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For the client, the key result to be achieved is the selection of the service provider for the outsourcing work. For the service provider, the key result to be achieved is the winning of the deal. 3.2.2 Evaluation Framework for Assessing Service Provider Proposals The RFP evaluation committee identified should manage the overall evaluation process, and should be supported by an evaluation team with expertise to make technical, financial, managerial and legal evaluations of the service provider proposals. Working with the outsourcing manager, the evaluation committee is responsible for formulating the evaluation framework that will contain the detailed evaluation criteria to be used for assessing service provider proposals. The evaluation criteria may take into account factors such as: The objectives of outsourcing The ability of the proposed solution to meet project objectives The outputs expected from the service provider The acceptance criteria for those outputs The qualifications of the service provider

It is important that the evaluation criteria be, as far as possible, measurable and quantifiable so as to facilitate the comparison of different proposals. 3.2.3 Assessment of Potential Service Provider Presentations To aid the assessment process, proposal presentations should be organised for each potential service provider. This will provide opportunities for the client to ask questions of the potential service providers as well as to interview their key staff. These presentations should be attended by the evaluation committee and the evaluation team who should perform the following: a. Proposal Evaluation. Questions for proposal evaluation should be directed to three key areas: Technical: These are questions to find out technical capabilities. Management: These are intended to find out to the extent to which the potential service providers are compliant with the RFP requirements. Such questions provide opportunity for the client to test their credibility, so the potential service providers should offer convincing answers to the questions. Financial: The focus of this area is to assess the financial strength of the potential service providers and their ability to fund the activities necessary to meet contractual requirements.

b. Evaluation of Key Service Provider Staff. The evaluation of key service provider staff may include the staffs ability to: Manage client expectations Maintain good relations with client and third party providers Execute well-defined contracts Monitor and control service delivery commitments Manage project budget, resources and schedule Resolve issues and manage conflict Facilitate change to meet evolving business needs
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Certification in Outsourcing Management for IT Body of Knowledge

c. Assessment of Answers. A weighted scoring system may be used to judge the quality of the answers offered by the potential service providers. This system may include the following assessment criteria: The service provider answered the question fully The service provider provided an honest answer that was not what was expected The service provider avoided answering the question The service provider gave an irrelevant answer The service provider could not answer the question but promised to follow up on it The service provider did not understand the question

At the end of the interviews, a scoring matrix may be used to score and rank the different service providers. 3.2.4 Assessment of Proposals The evaluation framework should incorporate the assessment of four main aspects of the proposals: The managerial proposal The technical proposal The financial proposal The legal terms and conditions

a. The Managerial Proposal. The assessment of the managerial proposal involves an evaluation of the potential service providers strategy for carrying out the outsourcing engagement. Detailed consideration should be given to factors such as: How the project plan will be implemented Transition management during contract initiation and termination How daily operations will be maintained The working relationship between client and service provider, including communications channels and frequency and depth of progress meeting and reporting The locations of offices and services The service providers industry specialisation and track record Length of time in similar business Length of time with local presence Standards qualification (ISO 9000, ISO 20000, CMMI etc) Size, ownership and financial position Staff assigned The amount of resources and level of commitment required of the client

b. The Technical Proposal. The assessment of the technical proposal involves an evaluation of the suitability of the technical solution proposed. Detailed consideration should be given to factors such as: The completeness of the solution Compliance with requirements The applicability of proposed solutions in solving client problems

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The technical strategy in terms of the solution architecture, maturity of technology proposed and the degree of compatibility with existing client environment The service delivery approach

As part of the overall due diligence process, the client should also conduct visits of the facilities of the potential service providers in order to verify that they have the actual technical capabilities as represented in their respective proposals. c. The Financial Proposal. The assessment of the financial proposal involves an evaluation of the financial viability and cost effectiveness of the proposed outsourcing arrangements. Detailed consideration should be given to factors such as: Methods of payment and payment schedule How any savings or revenue would be shared between parties The total lifecycle cost of the project Financial soundness of the service provider Cost adjustment provision Cost-effectiveness of outsourcing compared to in-house service provision

d. The Legal Terms and Conditions. The assessment of the legal terms and conditions involves ensuring that major contractual issues are dealt with in a sufficiently clear and detailed manner, and are consistent with the objectives of the outsourcing project. Professional legal advice may be sought to provide input as to the adequacy of the terms proposed as well as the level of risks contained in the proposal. Detailed consideration should be given to matters pertaining to: Ownership of assets, including intellectual property Maintenance Warranties Exclusion Liabilities Escrow arrangements

Apart from the above, weight may also be given to other factors including: References from other customers Interviews with service providers customers Previous experience with the service provider Sincerity and credibility of the service provider

3.2.5 Risk Assessment The evaluation of risks should be an integral part of any service provider selection process, given the inherent risks in outsourcing contracts. Detailed consideration should be given to risk factors such as: The degree to which the service provider understands the scope and complexity of the work required The risk of costs being underestimated by the service provider The service providers ability to meet project schedules and timelines
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Certification in Outsourcing Management for IT Body of Knowledge

The adequacy of staff and other resources to be allocated for the project The financial stability of the service provider

3.2.6 Making the Selection Decision Based on the detailed assessment, each proposal is scored against the criteria defined in the evaluation framework, and using a pre-determined scoring method, a score is calculated for it. The scores of the various proposals can then be compared to determine which service provider proposal is most eligible for selection. In making the selection decision, the evaluation committee may also take into account qualitative factors that involve some degree of subjective judgement in addition to quantitative factors. The evaluation committee is responsible for writing the evaluation report which sets out details of the assessment work completed and makes recommendations about the selection of the appropriate service provider. The report is then submitted to the project steering committee or executive board authorised to approve the selection decision. 3.2.7 Key Service Provider Activities After the outsourcing project proposal has been submitted, the service provider may be invited to present its proposal to the client project team. Besides selling the merits of its proposed solution, the service provider should also tailor the presentation to ensure that it meets the concerns of all the stakeholders in the client organisation as far as possible. As the proposal presentation is a key forum for the client project team to ask questions and seek clarifications regarding the proposal, it is important that key service provider staff be prepared and present to provide the necessary answers. They should also be adequately prepared to handle potential client queries and concerns about the proposal. After the outcome of the RFP process is known, the service provider may perform a post-mortem account review to determine the strengths and weaknesses of its proposal and to work out the areas of improvement for its future proposals.

3.3

For this subject area, candidates are required to acquire an understanding of the process of evaluating and selecting service providers, which involves the development of a selection strategy that will define the selection criteria to be used for evaluating potential service provider proposals. The evaluation process will include performing functional and financial analysis of proposals, assessing potential service provider presentations, conducting due diligence on claimed capabilities and assessing the overall risks of each proposal. The outcome of applying the selection criteria would be the selection of the most suitable service provider that can deliver the desired results. In addition, candidates are also required to understand the key roles and responsibilities of the service provider. These include analysing the organisations ability to meet client requirements and defining an approach for the positioning of the organisations capabilities, and are adequately prepared to handle client queries and concerns. Other responsibilities include identifying the risks of the project, and determining the key partners and alliances to work with.
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Summary

Contract Formation and Negotiations

The aim of this subject area is to ensure that candidates understand the key issues surrounding the structuring of outsourcing contracts. This will include the critical areas to be considered and the contract formation and review process. It also deals with strategies and approaches for negotiating outsourcing contracts to achieve win-win outcomes for both client and service provider. The key knowledge areas are summarised in Figure 4.1 below. Contract Formation and Negotiations

Forming the Outsourcing Contract Basic elements of contract law and common types of IT contracts Key requirements in forming IT outsourcing contracts Handling contractual changes and disputes Key service provider activities

Conducting Contract Negotiations Preparing for contract negotiations Negotiation strategies and techniques Best practices in negotiating outsourcing contracts Key service provider activities

Reviewing and Finalising the Contract The Contract review process Key service provider activities

Figure 4.1 Contract Formation and Negotiations Overview

4.1

When forming the outsourcing contract, it is important to keep in mind the intent of the overall project. The main objectives for outsourcing include but are not limited to the following: Effectiveness the need to improve the quality of service delivery and performance Efficiency the need to reduce the overall cost to provide the business process Timeliness the ability to respond to changed requirements

Forming the Outsourcing Contract

These will serve as guides to the type of sourcing strategy to be deployed and also for meeting the contractual requirements. For the project team to formulate a comprehensive and realistic contract, it is important for all its members to have an understanding of contract law and the important legal elements.

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Certification in Outsourcing Management for IT Body of Knowledge

4.1.1 Basic Elements of Contract Law and Common Types of IT Contracts The basis of any outsourcing relationship is the outsourcing contract itself, which is a legal document specifying the duties and obligations of all parties involved. In legal terms, a valid contract is an agreement which satisfies the following requirements: Legal Offer Expected Deliverables Acceptance Request for Proposal (which is legally an invitation to treat preceding an offer) Letter of Intent (Or Memorandum of Understanding, which is usually not considered a legally binding contract) Service Providers Proposal Response (the actual offer in law) Clarifications, cross-proposals and counter-proposals, not considered Finalised Service Providers Proposal with clarifications, corrections etc which are a mirror image i.e. perfect matching of all terms (the actual acceptance in law) The price (which may include not just money but also promises given in return for promises from the other side, payment in kind and acts done on request of the other side) This is usually presumed present in the case of agreements between commercial parties who have negotiated at arms length

Consideration Intention to create legal relations

Besides the aforementioned requirements, the outsourcing team should also be familiar with the different types of contractual terms and clauses. These would include: Express and implied terms Exclusion or exemption clauses Boiler-plate clauses Entire agreement clauses

For clarity, the Entire agreement clause indicates that the signed document constitutes the entire and complete contract concluded between the parties. Any statement, promise or representation which was made before this point but which has not been included in the final written contract is not a part of the contract. Hence if any pre-existing minute of discussion, pre-contractual representation or promise is intended to be binding, its terms must be incorporated either directly into the main contract itself or be listed or reflected in an annex to the contract. In terms of the performance and discharge of contractual obligations, the team should also be familiar with the different circumstances in which a contract may be terminated, including: Complete performance Mutual agreement
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Frustration Repudiatory breach

For clarity, frustration refers to events that occur after the contract is formed, events beyond the control of both parties and unforeseeable by them, the happening of which prevent the parties performing the contract originally envisaged. The effect of frustration is typically termination without the non-performing party being in breach for non-performance. Losses suffered by any party will not be recoverable against the other party. In most cases, this is covered in a force majeure clause or the parties will have recourse under common law. On a separate note, repudiatory breach is a breach so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages. To handle situations involving non-performance by the service provider, the project team should be aware of the different types of remedies available for breach of contract and the factors to be taken into account when crafting compensation clauses in the contract. The remedies include escalation and resolution at the Steering Committee and the use of third-party arbitration and mediation. It must be noted that such clauses must not amount to penalties (which are unenforceable) but as liquidated damages (which are reasonable estimates of the non-breaching partys loss). From a sourcing perspective, the type of sourcing relationship that will fit the project requirements will determine the type of contract to be used. Based on the payment model, the three common types of contracts are: Fixed Price The price for contracted scope of work are agreed at the time of contract signing and both the service provider and the client are bound by it. Note that this fixed price is however subjected to events such as scope changes, benchmarking, and cost of living adjustment and may be changed with the agreement of both parties. Time and Materials The payment is based on a set of agreed elements including but not limited to per man-hour, per unit service subscribed or per unit hardware or software supplied at an agreed price and conditions. As with fixed price contract, the unit price may be changed with the agreement of both parties. Cost Plus Award Fee This is a variation of the fixed price contracts where service provider payments are made up of two components, namely direct and indirect cost; and an additional incentive/compensatory payment which is directly tied to service providers performance.

Besides the above, other contract types may also be used. An outsourcing contract can be a combination of the various contract types depending on the scope of services agreed upon by both parties. 4.1.2 Key Requirements in Forming IT Outsourcing Contracts A well-formulated contract provides all parties with certainty as to the duties and obligations of each party under the contract, and minimise risks arising from unclear definitions. Key areas to be addressed in the contract include: Scope of services Contract period
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Certification in Outsourcing Management for IT Body of Knowledge

Overall implementation schedule Governance and performance management Service levels and service measures Price schedule Termination or expiry of contract

In addition to the above, legal clauses that need to be considered as part of the overall contract includes: a. Confidentiality This sets out the types of information to be kept confidential and the conditions for disclosure. b. Liquidated damages clauses These deal with compensation payable by the service provider upon failure to meet quality and/or schedule requirements. c. Warranties These deal with assurances by the service provider that the information and conditions as stipulated within the contract will be fulfilled. d. Liabilities These define the service providers liability and compensation payable for breaches or non-performance of the contract and may, if required, stipulate the cumulative payment limit (limitation clause). e. Exclusion or exemption clauses These set the conditions, limits and situations where the service provider will be exempted from the liability, or is entitled to disclaim liability for breach of contract, in full or in part. f. Indemnity clauses These indemnify a party for payments it makes which should fall on the other partys lap such as in respect of copyright infringements or labour disputes that result in the client or service provider having to compensate a third party as a consequence of the contract. Such indemnification may also be in relation to patents, trademarks and other intellectual property. These indemnify the client from any potential action, claim, damages, charges and costs from any third parties arising from or incurred by reason of any infringement or alleged infringement of intellectual property rights in relation to the provision of the services. g. Intellectual property rights These set out the ownership right of each party in respect of all the intellectual property that is to be employed for the purposes of performing the contract. h. Injury to persons and damage to property and data This defines responsibilities of the respective parties in the event of a legal suit for actions, claims and demands in respect of injury or damage arising out of or in connection with the execution of the outsourcing contract. i. Force majeure clause This deals with the release of the obligations of both parties when circumstances outside the control of both parties occur which prevents the performance of the contract. The events and circumstances must be specifically and unambiguously specified. j. Waiver in the contract This deals with situations where one party will waive certain of its rights in the contract without losing them in consequence. k. Contract assigning authority This sets out conditions for one party to assign the rights and obligations of the contract to third parties. l. Dispute resolution processes These spell out how the parties are to resolve contractual disputes if they cannot be agreed by the contracting parties. m. Payment of litigation/arbitration/other costs This type of clause will specify which party is responsible for the costs of dispute resolution under certain conditions. n. Governing law and jurisdiction of the contract (especially for global sourcing contracts) This clause will define the country or state whose laws apply to the contract and the jurisdiction (ie court) that the parties may bring a dispute to. Negotiations may lead to or follow the contract drafting process.
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4.1.3 Handling Contractual Changes and Disputes Through the life-span of an outsourcing contract, as defined by the contract period, there may be a need for the client to change the scope of services covered by the contract to meet its changing needs. The need to make changes to the pricing structure of services provided may also be requested by either party in response to changing market prices for goods and services related to the contract. Hence, contract amendment procedures should be built into the contract. Such procedures may specify the conditions that would trigger a pricing review, the type of documentation to be provided to support the change requests, the type of negotiations to be conducted before finalising the changes, as well as the sign-offs needed to bring the changes into effect. Besides dealing with amendments, there should also be clauses to deal with reporting and escalation procedures to handle problems internally between the parties. In addition, clauses specifying the use of third-party arbitration and mediation procedures should be included into the contract to deal with situations where negotiations fail and recourse to external dispute resolution processes are sought. 4.1.4 Key Service Provider Activities The role of the service provider during the contract formation phase is to provide relevant information to the client to help the latter devise a realistic contract for the intended outsourced services. One key activity is the provision of different pricing options based on the different service offerings. For example, different service levels, backup frequencies and level of data protection will involve different costs, and the service provider can help the client work out the optimal level of service given the latters objectives. In situations where there is a high-level of technological or operational risks, the service provider may also work with the client to work out a suitable risk-sharing arrangement.

4.2

There is often a need for negotiations between the client and service provider in order to finalise the terms and conditions of a contract. The basis of such negotiations includes both the draft contract and the service providers proposal submitted in response to the clients RFP. As part of the negotiation, key assumptions within the service providers proposal need to be clarified as they typically form the basis of the outsourced services pricing. In order for negotiations to be successful, both sides need to be familiar with the various strategies and techniques involved and to make adequate preparations before engaging with each other. 4.2.1 Preparing for Contract Negotiations Before starting on contract negotiations, the client needs to establish guidelines for conducting such negotiations. These guidelines should help structure the negotiation approach and aim at ensuring that business objectives are achieved and organisational interests protected. The areas to be addressed by the guidelines include the selection criteria for negotiation team members and their respective roles and responsibilities, suitable methodologies for conducting negotiations and the determination of negotiation schedule. Additional training should be provided where necessary to help negotiation team members acquire knowledge of negotiation skills.
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Conducting Contract Negotiations

Certification in Outsourcing Management for IT Body of Knowledge

To determine the constituents of the negotiation team, a set of selection criteria should be established to aid the selection process. These may include: Knowledge of key issues to be negotiated Prior experience Communications skills Conflict resolution skills

For some contracts, in addition to the technical team, the negotiation team will include representatives from human resources, legal, finance and the purchasing departments. In addition to the above negotiation team members, the project team may also need to include experienced negotiators who are not already part of the project team in order to provide the required level of expertise to fulfil the different roles and responsibilities of the team. For larger dollar value contracts, the client may choose to engage external third- party intermediaries and negotiators to ensure that they obtain the best value for the intended outsourced service. Once the negotiation team has been formed, it is necessary to ensure the team has a clear understanding of the intent of the contract and all relevant information for them to negotiate the contract effectively. This typically requires a series of preparatory meetings and dry-runs where what-if scenarios and questions are anticipated and addressed prior to the actual meeting with the service provider. Finally, to ensure that the negotiated contents are relevant to changing needs and circumstances, they should meet with the relevant stakeholders and the Steering Committee regularly to obtain further feedback and guidance. 4.2.2 Negotiation Strategies and Techniques While negotiation strategies may vary according to the contractual situation and the styles of the negotiator team, successful negotiations often involve the use of the following principles: Begin with a mutual agreement that there is a need for negotiations Define issues and set agenda at the outset Agree on principles and rules of conduct for negotiation Prepare well for the negotiations by establish ones own position and expectations Understand the other partys position and expectations Ensure all necessary information has been presented to both sides Set agreement on a formula Complete the negotiations by getting agreement on implementation details

At the tactical level, the common negotiation approaches would include: Promoting open exchange of relevant information with the other party Incorporating elements of the other parties position Reciprocating concessions made by the other party Compensating the other partys concession with something not directly under negotiation Linking ones acceptance of the other partys terms to their agreement to some other item under negotiation
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Regardless of the strategies and techniques used, it is important for the negotiation team to bear in mind that the outcome should be one that promotes mutual trust and understanding, since the client will have to work closely with the service provider during the contract period to ensure that the former is able to meet its objectives and reap the expected benefits of outsourcing.

4.2.3 Best Practices in Negotiating Outsourcing Contracts

Apart from the general negotiation techniques, the effectiveness of the negotiated contracts can be further enhanced by adopting the following best practices: Identifying an initial set of negotiation topics. Typical negotiation topics may include flexibility, price, schedule, payment milestones Determining the topics to be covered at the first negotiation meeting Communicating and having agreement on the initial set of topics Monitoring the status of the topics under negotiating, tracking them to closure, and finalising them into the contract

To ensure that the outsourcing contract will meet clients organisational objectives, the client negotiation team should note the following key points in negotiations concerning the pricing of goods and services in the contract: Focus on mutual interests to find win-win solutions Clarify assumptions that affect pricing and performance of the goods and services Avoid focusing on the price alone Allow for price adjustments where appropriate Discuss productivity improvement and benchmarking considerations

4.2.4 Key Service Provider Activities Like the client, the service provider also has to adequately prepare for the contract negotiations in order to achieve an acceptable outcome. This means forming a relevant negotiation team and devising negotiation strategy that will enable the deal to meet its approved financial and legal requirements. In addition, the service provider will also be involved in the various exchanges of information with the client before and during the negotiations to facilitate the finalising of the outsourcing contract.

4.3

After the negotiations have been concluded, both sides will need to review the finalised contract to ensure that their respective positions are well-represented. 4.3.1 The Contract Review Process The review process will typically involve a final legal review, endorsement by the RFP evaluation team and finally executive sign-off by senior management.

Reviewing and Finalising the Contract

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The legal review stage will involve either the in-house legal department or an external law firm. If the legal team is not part of the negotiation team, the evaluation team will need to highlight the key considerations that are embedded into the contract and their associated risks, so as to allow the legal counsel to assess whether the written terms adequately protect the organisations interests and objectives. The legal counsel will also assist in ensuring the completeness of the contract. The RFP evaluation team will also perform its own final review to ensure that all major functional and non-functional specifications and requirements have been covered in the contract before endorsing it for management approval. The team will also need to check that all the issues and the related resolution discussed during negotiations have been included as part of the contract. The evaluation team will then complete the final evaluation report summarising the contract and highlighting its salient points to facilitate the approval process. Finally, the contract with the evaluation report is submitted for executive review and approval by senior management or a suitably constituted steering committee. 4.3.2 Key Service Provider Activities The contract review process for the service provider mirrors that of the client, with the aim of the review being to ensure that the risks and responsibilities undertaken are adequately financially compensated and legally mitigated.

4.4

For this subject area, candidates are expected to acquire knowledge and understanding of contractual and legal requirements to ensure proper outsourcing contracts formation. Forming a suitable outsourcing contract involves the articulation of both client and service provider responsibilities and commitments during the performance of the contract. In addition, candidates are required to understand the need to develop negotiation strategies and ensure adequate preparation for the negotiation to ensure the best outcome for the organisation while ensuring the objectives of outsourcing are met.

Summary

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Contract Initiation, Transition and Transformation Management

The aim of this subject area is to ensure that candidates understand the key issues to be addressed and activities to be undertaken during the implementation phase of the outsourcing project. This involves firstly the planning for the transition to an outsourced mode of operation and the management of the actual transition. After the transition has been completed and the operations stabilised, the client can work together with the service provider to begin a transformation process to bring about greater business value in the outsourcing relationship. The key knowledge areas are summarised in Figure 5.1 below. Contract Initiation, Transition and Transformation Management

Initiating the Contract and Planning for Transition Client and service provider roles and responsibilities Governance structure for outsourcing management The transition plan Major activities in transition phase Key service provider activities

Managing the Transition Process Client and service provider roles and responsibilities Communications management during transition Managing transition issues and risks Monitoring and tracking activities during transition Key service provider activities

Managing the Transformation Process Client and service provider roles and responsibilities Governance structure for managing transformation Identifying possible areas for transformation Major activities during the transformation phase Measuring transformation results Key service provider activities

Figure 5.1 - Contract Initiation, Transition and Transformation Management Overview

5.1

At the start of a new outsourcing project, it is important to devote sufficient time and resources to contract initiation activities. These may include activities such as conducting meetings between the client and service provider to set out initial expectations and confirm the project scope, establishing the governance structures and planning for the transition. These will help to mitigate risks and minimise the disruptions to the client organisation.

Initiating the Contract and Planning for Transition

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A key task at this stage will be the setting up of the management structures to govern the outsourcing relationship and selecting the key personnel to fill the roles within those structures. Besides this, both the client and service provider will also need to work together to revise the overall project plan to incorporate the transition plan for migrating the client to the outsourced environment. 5.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 5.1 below. Client a. Establish transition oversight and working committees and teams b. Confirm the roles and responsibilities of the various teams c. Confirm transition project plan and timeline Service Provider a. Establish transition and delivery teams b. Define roles and responsibilities c. Establish transition oversight and working committees d. Develop transition project plan and timeline

Table 5.1 - Roles and Responsibilities in Planning and Preparing for Transition For the client, the key result to be achieved is the confirmation of the project plan to prepare for transition to an outsourced environment. For the service provider, the key result to be achieved is the formation of the project teams necessary to take over the target operations from the client. 5.1.2 Governance Structure for Outsourcing Management One of the first and most important steps at the start of the outsourcing project is the confirmation of the governance structure for managing the project and relationship, so that both client and service provider are clear about the roles and responsibilities of the various teams involved in the project. If available, the governance structure that has been outlined in the outsourcing contract can be used as a starting point for discussions between the two sides. At the strategic level, there should be a Management Review Board/Steering Committee that will be responsible for strategic decision-making and laying down the broad vision of the project. It should consist of senior executives and the outsourcing managers from both sides as well as enduser management representatives. The review board/steering committee will also be responsible for resolving disputes that cannot be dealt with at the operational level. To handle the day-to-day functioning of the outsourcing arrangement, there should also be an Outsourcing Management Team comprising of the outsourcing managers from both sides as well as various team leaders responsible for the various in-scope activities. The team will be accountable for maintaining smooth operations and to manage change in the operating environment. Central to the governance of the outsourcing project will be the role of outsourcing managers from both client and service provider. They act as the points of official contact between both sides and should be empowered to make decisions regarding contract variations, change requests and financial issues. These managers are expected to be familiar with user requirements, contract details and have sufficient technical knowledge and experience.
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5.1.3 The Transition Plan Once the governance structure is in place, the clients Outsourcing Management Team will need to revise the overall project plan to establish a new baseline. The plan should provide details of the following: Major phases in the project Major milestones Major deliverables Manpower requirements from both parties Individual task start and finish dates

To facilitate the initial transition phase of the project, a Transition Management Team should be formed to oversee the handing over of functions to the service provider. The primary objective of the team is to ensure that transition takes place with minimum impact to the overall organisation. This transition team will need to formulate a plan to ensure that the transition is achieved as seamlessly as possible. In the planning process, the key issues and considerations to be addressed during transition should include the following: What will be transferred to the service provider? Who will be transferred to the service provider? How will the transfer proceed? When will the transfer take place? When will the service provider assume responsibility for the IT operation?

To facilitate implementation, the transition plan should include the following details: Transition activities Person(s) responsible for each transition activity Activity start date Activity end date Priorities of the different activities Dependencies between activities

The major activities to be included in the transition plan are discussed in the following section. 5.1.4 Major Activities in Transition Phase Amongst the major issues to be addressed during the transition phase, those that relate to the IT department are likely to be the most critical, since this is the department that will undergo the most changes. As functions are transferred to the service provider, the roles and responsibilities of the department will need to be redefined. The way that it operates may need to be changed and the organisations IT strategy may need to be re-evaluated. A closely-related activity will be the management and communications of IT personnel issues, especially in relation to staff transfer, redeployment, retrenchment and retention. To help allay the concerns of the IT staff and minimise the loss of morale, it is important that the communications and messaging of the impending changes be properly managed, so that the whole department is kept informed and have sufficient time to prepare for the changes.
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Certification in Outsourcing Management for IT Body of Knowledge

The client project team should work closely with the Human Resource (HR) department to address the concerns that IT staff may have, and to devise and implement measures that will help staff successfully cope with the changes. Further details on managing staff transition can be found in Chapter 11. In terms of resource transfer, the transition plan should set out in detail what resources are to be transferred to the service provider, including areas such as: Hardware and related ownership issues Software and related licensing issues Services and related requirements Documentation

As successful outsourcing requires the co-operation of the entire organisation, the transition plan should also include a communications plan that will define how the changes are to be communicated to management and the users. Other activities during transition will include making changes to existing procedures to allow the organisation to deal with the service provider. 5.1.5 Key Service Provider Activities At the start of the project, the service provider will need to prepare a Project Execution Plan. The plan will indicate the scope of work required and the resources needed to deliver the project. The service provider will also need to form a project team to handle the account, which involves identifying the outsourcing manager and leaders of the relevant service delivery teams. The project team should then meet key client leaders to gain an understanding of the clients business in relation to the following: Expectations and reactions Background, profile, business strategies and priorities Key contact, biographies and relationship mapping Decision making process Sales/executive commitment made

At the planning phase, the service provider will develop the account vision and related account management strategy to handle the particular client account. A profit-and-loss model may also be developed to help design a suitable strategy for managing the operations and to determine the appropriate level of resources to be allocated to support the account. The service provider will also need to formulate a short-term (e.g. 90-day) plan to support the clients transition plan and to ensure that the taking over of services and resources are done smoothly, so that steady-state operations can be achieved as quickly as possible.

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5.2

Once the transition planning is completed, the task of executing and managing the transition begins. This will firstly involve communicating the impending changes to all affected stakeholders in order to prepare them for what is about to happen. To allow the organisation to effectively make use of the outsourced services, existing procedures will have to be modified and new ones instituted where necessary. There will also need to have active tracking and monitoring by both parties of the progress made during transition to ensure that execution is proceeding according to plan and to allow problems to be identified and resolved. 5.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 5.2 below. Client a. Plan to transit in-scope functions to service provider b. Communicate impending changes to users c. Implement the transition according to predefined plan d. Conduct post-transition review e. Track outstanding issues Service Provider a. Plan to transit in-scope functions from client b. Take over services and resources from the client according to the transition plan c. Conduct post-transition review d. Track outstanding issues

Managing the Transition Process

Table 5.2 - Roles and Responsibilities in Managing the Transition Process For the client, the key result to be achieved is the smooth transition of outsourced functions to the service provider. For the service provider, the key result to be achieved is the smooth taking over of the outsourced functions at minimal cost. 5.2.2 Communications Management During Transition Before the actual transition takes place, it is important that the impending changes be adequately communicated to all stakeholders that may be affected by the transition, both within and outside the client organisation. These efforts should be based on the communications plan developed together with the transition plan. To minimise disruptions to operations and improve the preparedness and acceptance of changes amongst internal stakeholders, it is important to ensure that they are made aware of the types of changes that will be taking place, the rationale for those changes and the benefits that are to be expected as a result of such changes. In particular, the following details should be provided: The types of support and training that will be provided by the service provider Process of requesting service from service provider Specific roles and responsibilities of internal IT staff handling the service provider Lines of communication for requesting existing services or for communicating change requests Contractual issues, such as, maintenance and leasing contracts

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Certification in Outsourcing Management for IT Body of Knowledge

During the transition, periodic updates should be provided to the entire organisation to keep everyone abreast of the progress of changes and to build confidence in the new outsourcing arrangement. Besides internal communications, both customers and suppliers should also be briefed to ensure that they are made aware that the outsourcing will allow the client organisation to be more focused on improving its services and relationships. More details on communications management are given in Chapter 12. 5.2.3 Managing Transition Issues and Risks The outsourcing of IT services usually means that requests for such services will change from a relatively informal, inter-departmental transaction to one that is governed by a contractual relationship between two separate organisations. As such, changes to IT-related procedures become necessary, and the identification and implementation of changes to such procedures are an important aspect of transition management. The types of procedures that need to be modified may include: IT operating procedures Request for services Change requests Contract change initiation Quality management

To minimise operational risks during the transition, it may be necessary to institute a change-freeze for systems and services that are subject to handover to the service provider. This will help isolate problems should they arise during the transition and make recovery less complicated. Besides this, additional resources may also need to be acquired temporarily and put on standby to cope with any adverse situations that may arise during the transition. These should be budgeted for during the transition planning phase of the project. 5.2.4 Monitoring and Tracking Activities During Transition To ensure that the transition process is being executed according to plan, it is necessary to monitor and track the progress made by the service provider in the taking over of services and functions. This can be implemented by having a robust progress-reporting process which requires the service provider to provide status updates to the client on a regular basis. The client should work closely with the service provider to define the performance metrics that are to be tracked during the transition period. The metrics to be used may include: Service response time Service availability Variance from transition plan

Besides progress tracking, outstanding issues and problems should also be actively tracked to ensure that they are resolved as quickly as possible. Where they cannot be resolved during the transition period, they should be discussed during the post-transition review and tracked as operational issues when the transition is completed.
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5.2.5 Key Service Provider Activities During this phase, the key service provider objective is to ensure that it can take over all in-scope services and functions smoothly from the client. In addition to working closely with the client to formulate the transition plan, it will also be actively marshalling the resources necessary to support the transition and to take over services from the client. In terms of procedural changes, the service provider will help the client implement changes to the end-user fault reporting process and work with the latter to iron out problems with those procedural changes. To keep the client informed of the progress of the transition, the service provider may hold at least one executive-level meeting or visit with the client. It will also need to comply with the reporting requirements by furnishing operational and project reports. At the end of transition, the targets to be achieved by the service provider should include the following: SLA tracking process fully implemented and met Regular operational review meetings with client Conduct client satisfaction survey Operational Profit & Loss being reviewed monthly New sales opportunities identified

5.3

Business transformation outsourcing is different from traditional outsourcing in that it focuses on creating business value by aligning business processes with longer term strategic objectives of the organisation. This is usually an optional part of any outsourcing engagement as most clients are not prepared to outsource to this strategic level. For such transformations to be successful, the relationship between the client and service provider must be one that has sufficient trust, so that both sides can effectively partner to make long-term investments into projects that involve a higher level of risks. Through such partnerships, the client can leverage the service providers existing network of partnerships to help manage risks of innovation in order to create competitive advantage. 5.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 5.3 below. Client a. Plan for transformation activities and schedule Service Provider a. Plan for transformation activities and schedule

Managing the Transformation Process

Table 5.3 - Roles and Responsibilities in Managing the Transformation Process

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Certification in Outsourcing Management for IT Body of Knowledge

For the client, the key result to be achieved is the identification of opportunities to achieve service transformation. For the service provider, the key result to be achieved is the successful execution of transformation for the client so as to achieve project targets. 5.3.2 Governance Structure for Managing Transformation Business transformation involves looking beyond current conditions to plan for the future, and requires the bringing together of different people with domain knowledge and expertise in key technologies to develop the vision of what needs to be achieved. As such, the appropriate governance structure would be to build special project teams to look at different issues. For organisational transformation to be effective, there would need to be active support and participation from senior management, as such efforts usually involve restructuring large parts of an organisation. Hence, the special project teams should be chaired by senior-level executives who can provide the necessary strategic directions and who have authority to push through the changes that come with transformation efforts. Once the governance structure is in place, the team will then proceed to develop the high-level transformation plan. The detailed schedule and budget for the transformation initiatives can only be defined once the areas for transformation have been identified. 5.3.3 Identifying Possible Areas for Transformation Since business transformation involves a high degree of innovative thinking, there is no one universal method of identifying which areas of an organisation are suitable for transformation. One possible method is to look at the strategic issues and challenges facing the organisation to discover areas where business transformation outsourcing can add significant value and improve its competitiveness. As a reference, some typical objectives of transformation may include: Ability to adapt quickly to market changes Process innovation Shortening the time-to-market for new product ideas Improving real-time data capture to enhance decision support at the enterprise level

5.3.4 Major Activities During the Transformation Phase After the areas for transformation have been identified, the next phase involves planning for the change. This is a key activity because transformational activities are often risky in nature and thus require careful planning to mitigate risk exposure. Part of the risk mitigation strategy would involve structuring a contractual arrangement with the service provider that will allow for the sharing of risks and rewards between both parties, so that the service provider will have a vested interest in making the transformation efforts successful. This is important as transformation activities are usually longer term in nature and would thus involve longterm contracts that require a close relationship between the client and service provider. The next critical activity in the transformation phase is that of business process redesign. This will involve looking at the selected business process in its current state and deciding on the changes needed to move it to the desired state.

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After the process redesign has been completed, the project team can then proceed with the acquisition of the systems needed to support the new process. 5.3.5 Measuring Transformation Results Since transformation is a long-range activity, it is important to closely track project progress, so that its viability can be assessed regularly and corrective actions taken if necessary. However, since such long-term projects may not yield measurable end-results for significant lengths of time, it will be necessary to measure progress using intermediate objectives and indicators. One possible approach to this is to use a Balanced Scorecard to formulate intermediate outcomes and goals that are expected at various milestones within the project lifecycle, and to use them as criteria against which project progress is measured. As the project starts to reach a point of maturity whereby it is able to produce some of the expected end-results, the measurements can then be modified to take into account the key performance metrics initially set for the project. 5.3.6 Key Service Provider Activities The service provider plays a key role during the transformation process by providing the client with the necessary expertise to help the latter achieve its innovation objectives. To provide adequate support, the service provider will need to work closely with the client-appointed transformation senior management to ensure that there is alignment between the project and the current service delivery framework. During implementation, the service provider will help to identify key application and business domain experts to propose suitable solutions to the client as well as to manage transformation process. It will also be responsible for reporting project progress to both the client and its own account and business leadership.

5.4

For this subject area, candidates are expected to understand how to manage the initiation of the contract with proper planning. The use of a carefully-designed transition plan will help in the process of transferring services and functions to the service provider, and reduce disruptions to client operations. The management of the transformation follows once the transition is complete. This process includes the management of the changes from the current IT environment to the agreed-upon, future-state environment.

Summary

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Certification in Outsourcing Management for IT Body of Knowledge

Relationship Management and Dispute Resolution

The aim of this subject area is to ensure that candidates understand the importance of setting up a governance framework for managing the outsourcing contract. Besides this, the management of the outsourcing relationship will require both parties to regularly assess the relationship so as to determine areas of improvement. Finally, candidates will also need to be aware of the different means of resolving contractual disputes should serious disagreements arise. The key knowledge areas are summarised in Figure 6.1 below. Relationship Management and Dispute Resolution

Establishing the Outsourcing Governance Structure Client and service provider roles and responsibilities Outsourcing governance framework Principles of effective outsourcing governance Issues and concerns in outsourcing governance Key service provider activities

Managing and Assessing the Outsourcing Relationship Client and service provider roles and responsibilities Principles of successful outsourcing relationships Considerations in relationship assessment Key service provider activities

Resolving Contractual Disputes Client and service provider roles and responsibilities Handling disputes internally Alternative dispute resolution mechanisms Types of legal remedies Key service provider activities

Figure 6.1 - Relationship Management and Dispute Resolution Overview

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6.1

The outsourcing governance denotes the formal management framework and structure that enables service providers and client organisations to mutually manage the outsourcing relationship, as well as the expectations, contractual dependencies, and services that arise from the outsourcing contract. This has to be established at the beginning of the outsourcing engagement. In order for the client to achieve its objectives in undertaking the outsourcing projects, it is critical for the governance framework to be designed to support those goals and facilitate their attainment, while bearing in mind the issues and challenges facing the outsourcing engagement. 6.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 6.1 below. Client a. Establish outsourcing governance framework that will be aligned with the objectives of the project b. Set up communications processes within the governance framework Service Provider a. Provide inputs to client on suitable governance structure b. Align service delivery structures with the approved governance structure c. Allocate resources to support the approved governance structure

Establishing the Outsourcing Governance Structure

Table 6.1 - Roles and Responsibilities in Establishing the Outsourcing Governance Structure For the client, the key result to be achieved is the setting up of the outsourcing governance framework that will oversee the management and operations of the outsourcing contract. For the service provider, the key result to be achieved is the ability to align service delivery structures with the clients governance framework so as to provide services that meet client requirements. 6.1.2 Outsourcing Governance Framework The outsourcing governance framework of an outsourcing engagement sets out the structures and processes through which the relationship between the client and service provider will be managed and controlled, so that the clients project objectives may be attained. It reflects how the two parties will interact and communicate at various levels of the organisation so as to handle changing business requirements and new objectives. It also allows the partnership between the client and service provider to align their respective goals in order to strategically plan for the future, with a view towards improving the value they wish to achieve through their relationship. Hence, the governance framework is a crucial component for building successful, long-term outsourcing relationships.

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Certification in Outsourcing Management for IT Body of Knowledge

Table 6.2 below shows a sample outsourcing governance framework consisting of two levels of committees that oversee the operational, managerial and strategic aspects of an outsourcing engagement, with their corresponding compositions and areas of focus. Committee Outsourcing Management Team Composition Business Unit Managers Outsourcing Managers from both Client and Service Provider Organisations Focus Oversee projects - manage change and risks Resolve operational issues (escalate upwards when necessary) Review SLA - performance and improvements Approve IT directions and initiatives Review emerging business needs

Outsourcing Management Review Board/ Steering Committee

C-level and senior executives from both Client and Service Provider Organisations System / Business Unit Owner

Table 6.2 -Outsourcing Governance Structure The Outsourcing Management Teams role is to provide managerial oversight of the engagement to ensure that performance targets are met and to recommend corrective actions where required. It is also responsible for the day-to-day operations of the engagement and should put in place processes for service delivery, change management and for the resolution of problems. The Outsourcing Management Review Board/Steering Committee is responsible for strategic decisionmaking and the formulation of the broad vision of the engagement. In addition to the above, the framework should also include lines of communications between the different components of the governance structure, and deal with matters such as reporting and chains of command. 6.1.3 Principles of Effective Outsourcing Governance To build a strong relationship between the client and service provider, and to effectively govern the outsourcing engagement, the governance framework should be designed with the following principles in mind: Build trust between both parties Commit to open and transparent communications Ensure senior management commitment on both sides to make things work Delegate decision-making powers to people closest to the action

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6.1.4 Issues and Concerns in Outsourcing Governance While outsourcing can yield benefits such as cost savings and access to external expertise, the lack of proper governance has often resulted in clients failing to realise those expected benefits. Some of the typical issues confronting outsourcing clients include the following: Failure of service provider to meet service levels Changing requirements Unclear contractual issues Loss of institutional knowledge Unforeseen costs

On the other hand, service providers also face a myriad of challenges and demands from clients, including: Ever increasing demands from clients Poorly articulated requirements Continuous cost pressure Stringent SLA standards

With the increasing complexity of outsourcing contracts, it is critical that the governance structure provides the flexibility to allow both sides to work together to further refine the scope of the project, service level expectations and service delivery processes throughout the term of the contract while staying within the overall scope of the project, with special attention being paid to the initial months. Given the above issues and concerns which have the potential to cause problems to the outsourcing relationship, it is important that the governance framework allows the surfacing of such issues and for both parties to work together to resolve them in a win-win partnership. A spirit of give-and-take and what makes sense will be the keys to achieving a mutually beneficial working relationship throughout the project life-cycle. 6.1.5 Key Service Provider Activities Since the governance structure will influence the relationship between the client and service provider, it is important that both sides tap on each others experience and domain knowledge so as to define an effective structure for managing the outsourcing engagement. After the governance structure has been set up, the service provider will have the important task of aligning its internal structures with the approved governance structure, and allocating resources to support the structure.

6.2

Apart from the day-to-day management of the outsourcing engagement, the outsourcing manager must also ensure that a healthy long-term relationship exists between the two parties. This can be done by regularly assessing the state of the outsourcing relationship and actively managing it so that areas of strengths are built upon while areas of weakness are rectified.

Managing and Assessing the Outsourcing Relationship

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Certification in Outsourcing Management for IT Body of Knowledge

6.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 6.3 below. Client a. Conduct regular review meetings with service provider b. Conduct internal assessments of service provider performance and the state of the outsourcing relationship Service Provider a. Implement processes to measure client satisfaction b. Implement processes to manage client feedback c. Implement process improvements based on client feedback

Table 6.3 - Roles and Responsibilities in Managing and Assessing the Outsourcing Relationship For the client, the key result to be achieved is a stable and healthy long-term relationship with the service provider so that the expected outsourcing benefits can be realised. For the service provider, the key result to be achieved is client satisfaction with its performance. 6.2.2 Principles of Successful Outsourcing Relationships While every outsourcing engagement is underpinned by a comprehensive legal contract specifying the duties and obligations of each party, it is nonetheless unlikely that any contract would provide 100 percent coverage of the eventualities that may arise during the course of the engagement. As such, beyond the contract, it is very important for the client and service provider to build a strong relationship that is based on trust and mutual understanding. This will allow both parties to respond in a co-operative manner when new or unexpected situations arise. With mutual trust, both parties will be able to design win/win solutions to problems. In a situation of unequal bargaining powers, the stronger party should resist the temptation to dominate the other party. Risks should be shared and gains distributed fairly, so that there are reasonable profits for the service provider to ensure long-term commitment to the project and to align the incentives of both parties. Where there are problems and conflicts to be dealt with, a climate of open communications will help to surface issues at an early stage so that corrective actions can be taken. Such transparency will also help to foster realistic expectations as to what can be achieved in the relationship. 6.2.3 Considerations in Relationship Assessment The principles enunciated in the previous section can be used as a guide for assessing the state of the outsourcing relationship. In particular, some of the important questions to be asked may include the following: Are both organisations happy with the current state of the relationship between them? Has trust been established between the two organisations? Does one of the parties feel that it is giving more than it is receiving? What are the chief areas of disagreement between the two organisations? Can these be resolved?
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Are there reasons for, or a basis for, continuing a long-term relationship? Which are the areas where both organisations have worked together successfully? Are there potential future areas of opportunity, or future areas of disagreement?

If the assessment shows that there is a need to improve the mutual trust between the client and service provider, some of the steps that can be taken may include the following: Identify current areas where the client and service provider can work together Identify areas or issues the client cannot afford to compromise on Identify areas where the client can compensate the service provider if there are issues that the client cannot compromise on Engage in trust-building exercises such as joint team building programmes Determine future areas that the client and service provider can mutually exploit

Managing outsourcing relationship, like any good management, is hard work which requires constant attention. It also requires an expectation of continual improvement and a proactive approach toward achieving it. Both the client and service provider play equally important roles in this regard. 6.2.4 Key Service Provider Activities In terms of relationship management, the service provider plays a key role in understanding the clients objectives for the outsourcing engagement and working closely with the client to achieve alignment of objectives. It will also support the client to build strong peer-to-peer connections with various stakeholders to foster a collaborative engagement approach. In addition, the service provider will also develop a relationship management team to ensure that expectations, goals and deliverables are managed effectively. Some of the key activities that the team may undertake include: Setting up processes to measure client satisfaction Implementing processes to manage client feedback Initiating process improvements based on client feedback

Where the client is not proactively engaging in relationship management, the service provider should make the first move to establish rapport and work towards building the trust needed for a successful relationship. 6.3 Resolving Contractual Disputes Given the nature of contracts where it is impossible to cover every possible contingency and situation, contractual disputes may arise in outsourcing engagement. Frequently disputes arise for reasons such as failure of the service provider to meet service levels, changing requirements by the client, ambiguity of contractual provisions and unforeseen charges by the service provider. To resolve their disputes, both parties can work together and negotiate to reach solutions that are acceptable to both parties. When that fails, depending on the contractual provisions, they can also seek help through external mediation and arbitration. Finally, when these avenues have been exhausted, they can resolve the dispute through litigation.
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Certification in Outsourcing Management for IT Body of Knowledge

6.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 6.4 below. Client a. Negotiate with the service provider to find mutually-agreeable solutions to disputes Service Provider a. Negotiate with the client to resolve contractual disputes in an amicable manner

Table 6.4 - Roles and Responsibilities in Resolving Contractual Disputes For the client, the key result to be achieved is the attainment of a satisfactory outcome to any given dispute. For the service provider, the key result to be achieved is to resolve any dispute while minimising harm to the relationship and damage to reputation. 6.3.2 Handling Disputes Internally When disagreements arise in an outsourcing engagement, the usual method of resolving them is to use internal procedures that had previously been agreed upon. Where the issues are minor and are within the authorities of the respective outsourcing managers, the outsourcing management team should work together to find a suitable solution. Where the nature of the dispute is more serious, the issue can be escalated to the management review board/steering committee for executive-level negotiations and decisions. 6.3.3 Alternative Dispute Resolution (ADR) Mechanisms Many outsourcing contracts stipulate the use of mediation and arbitration as means of dispute resolution when internal procedures fail. Mediation is an informal process which involves the appointment of external mediators by mutual agreement of the contract parties who will help them find ways to resolve the dispute. Typically, the mediators will hold several sessions with the two parties, jointly or individually, in order to reach common agreements from both parties. It should be noted that mediation outcomes are not binding on the parties. Arbitration is a more formal method of alternative dispute resolution in which the disputing parties agree to abide by the decision of independent arbitrators. The selection of arbitrators can be done using one of three methods: Direct selection by the parties In accordance with the arbitration provisions of the contract Through appointment by an independent authority

When parties submit to arbitration, they agree to be bound by and comply with the arbitrators decision. The arbitrators decision is given after following a process where each side presents evidence and witnesses.

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Compared to litigation, the aforementioned ADR processes have the advantage of greater speed and usually involve significantly lower cost. They allow parties to resolve disputes more efficiently so that they can continue to work on obtaining the expected benefits of outsourcing. On the other hand, litigation is often time-consuming and complex, and distracts parties from their original outsourcing objectives. 6.3.4 Types of Legal Remedies In the event that litigation is used to resolve disputes, the courts may award the injured party with damages to compensate for the losses incurred due to the failure of the other party to fulfil his contractual obligations. Where liquidated damages are set out in the contract, the award will be based on these as long as they are held by the courts to be reasonable. On the other hand, where there are no liquidated damages specified, the courts will use ordinary legal principles to determine the amount of damages to be awarded to the aggrieved party. In situations where damages are inadequate to compensate for the losses suffered, the courts may compel the offending party to carry out his obligation under the contract. This is known as specific performance. 6.3.5 Key Service Provider Activities When there is a contractual dispute, the key responsibility of the service provider is to work together with the client to resolve the dispute in an amicable manner. Where required, the service provider may need to exhibit flexibility in its position of certain issues in order to obtain agreement.

6.4

For this subject area, candidates are expected to appreciate how effective governance is important in outsourcing engagements in order for both parties to maximise the benefits of the outsourcing partnership. This involves effective relationship management at every level of the client and service provider organisations in order to build a successful outsourcing engagement. The management of the relationship between client and service provider is critical to the smooth and efficient delivery of the services. This requires the management of expectations, establishing and maintaining trust, as well as the monitoring and managing of client satisfaction. This will also include the management of disputes whenever the need arises. Candidates are required to show an understanding of the internal dispute handling processes, and the use of alternative dispute resolution methods such as mediation and arbitration.

Summary

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Certification in Outsourcing Management for IT Body of Knowledge

Service Quality Management and Performance Monitoring

The aim of this subject area is to ensure that candidates understand the key requirements for managing service provider performance for an outsourcing contract. These include the tracking and monitoring of ongoing performance, managing changes and risks to the services provided, and ensuring that the service delivery process is able to meet the necessary standards. The key knowledge areas are summarised in Figure 7.1 below. Service Quality Management and Performance Monitoring

Monitoring and Reviewing Service Provider Performance Client and service provider roles and responsibilities Management structure for steadystate operations Performance measurement, monitoring and review processes Monitoring and managing risks Key service provider activities

Managing Service Changes Client and service provider roles and responsibilities Contract change management process Negotiating with service provider for service changes Key service provider activities

Managing Service Delivery Client and service provider roles and responsibilities Planning and tracking of delivery activities Verification and validation processes Dealing with nonconformance in the service/product Key service provider activities

Figure 7.1 - Service Quality Management and Performance Monitoring Overview

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7.1

To ensure effective execution and delivery of the project, the client must monitor the service providers performance, address any non-conformance and manage risks. To do this effectively, there must be a suitable management structure to provide both strategic oversight of the project and operational control over the outsourced processes and services. 7.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 7.1 below. Client a. Establish steady-state management and operations committees b. Establish review and monitoring processes to manage service provider c. Track service provider performance against service level agreements (SLAs) d. Manage quality of services delivered and deal with non-conformance e. Conduct regular review meetings with service provider f. Provide regular reports to senior management regarding the performance of the outsourcing contract Service Provider a. Establish a project governance structure for relationship and business coverage b. Establish delivery management processes c. Define methods for measuring SLA metrics and client satisfaction d. Implement problem management processes e. Manage performance and client expectations f. Prepare progress reports for client g. Allocate sufficient resources to meet workload demands h. Seek ways to improve profit margins

Monitoring and Reviewing Service Provider Performance

Table 7.1 - Roles and Responsibilities in the Performance Monitoring and Review Process For the client, the key result to be achieved is the sustainable achievement of SLA targets by the service provider. For the service provider, the key result to be achieved is to meet all contractual obligations within or exceeding project targets. 7.1.2 Management Structure for Steady-State Operations Once the transition period is over, the transition management team can be disbanded and project control handed over to the outsourcing management team which will be responsible for the day-today operations. The outsourcing management team will report on a regular basis to the outsourcing management review board/steering committee to keep the latter informed of the progress of the project as well as to ask for approval for key decisions.

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A possible outsourcing management structure could be: Member Roles

Outsourcing Management Review Board/Steering Committee Client CEO/CIO Service Provider CEO Client CFO a. Provide strategic direction and review b. Resolve disputes c. Endorse major decisions and changes a. Monitor the financial performance of the outsourcing contract a. Provide updates to the Board on the important issues facing the engagement b. Report on the performance of the engagement a. Provide feedback on the services rendered b. Communicate user needs

Outsourcing Manager (Client) Outsourcing Manager (Service Provider) System/Business Unit Owners Outsourcing Management Team Outsourcing Manager (Client)

a. Provide overall operational leadership for the engagement b. Communicate client requirements to the service provider c. Monitor service provider performance a. Work with the client outsourcing manager to meet service requirements b. Manage the various delivery teams c. Control the quality, schedule and financial performance of the delivery team d. Manage the respective delivery teams e. Provide updates on the various operational issues f. Ensure proper execution and implementation of requirements and changes

Outsourcing Manager (Service Provider)

Table 7.2 - Roles and Responsibilities in the Outsourcing Management Structure This structure is derived from the Outsourcing Governance Structure shown earlier in Table 6.2.

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7.1.3 Performance Measurement, Monitoring and Review Processes An integral part of managing service provider performance is the measurement of actual performance against targets defined in the outsourcing contract. The targets may be SLAs for service provision or the achievement of milestones relative to the project plan. To measure actual performance, the service provider will have to submit regular progress reports to the client for tracking and review. The items to be tracked in the reports will be the metrics and performance criteria that are defined in the contract as well as any others that have been mutuallyagreed upon by the two parties. These can be consolidated into a checklist for ease of reference. Despite having defined the required metrics and performance criteria, problems may still arise during the monitoring stage. These could be due to the parties misinterpreting the meaning of the terms of the SLA or to the inadequacy of the data collection mechanisms deployed by the service provider. Where such problems arise, both parties should work proactively to resolve any differences in understanding and the service provider should commit to collecting the required data for reporting purposes. In addition to regular progress reports, there should also be regular monthly operational meetings between the two parties to review progress and to discuss ways of solving outstanding problems. The topics to be discussed in these progress meetings may include: Progress to date Milestones achieved Status of deliverables Outstanding issues and problems Future work planned

Besides the service provider progress report, the outsourcing manager who is part of the outsourcing management team should also provide senior management with a regular report that incorporates not only the service providers report but also additional information such as the internal resources expended on the project and its performance in terms of costs. There should also be commentary on the overall level of satisfaction in respect of the contract progress so as to provide senior management with a sense of the overall health of the project. Separately, the client organisation will have corporate governance and compliance obligations. Therefore, the client organisation must have sufficient control over the outsourced processes within the service provider. This should be stated as a contractual requirement so that the client corporate compliance requirements can be achieved. This can be met through regular reviews and audits on the service providers work. 7.1.4 Monitoring and Managing Risks Another important component in managing service quality is that of risk management. As part of the overall project plan, the client and service provider should work together at the project inception stage to formulate a risk management plan, which will incorporate risk management processes for both parties to control exposure to risks. Risks should be actively monitored and managed to minimise the adverse impact of potential negative outcomes. This can be done by using project progress reports and review meetings as a source for identifying areas that are subject to higher risks. In addition, the review meetings should also be used to discuss ways of dealing with the identified risks.
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Certification in Outsourcing Management for IT Body of Knowledge

Once the risks have been identified, the client should track the service provider activities undertaken to resolve or mitigate them to ensure that they are handled in a suitable manner. See Chapter 10 for more details on risk management. 7.1.5 Key Service Provider Activities Service quality in an outsourcing project is highly dependent on the efforts of the service provider. To build and maintain high service standards, the service provider will need to establish delivery management processes early in the project and work closely with the client to define and measure SLA metrics and client satisfaction. Another key activity would be the preparation of progress reports for the client and to hold regular review meetings to discuss and resolve problems. At the operational level, the service provider will also be required to implement problem management processes to help resolve issues and to ensure that sufficient resources are available to meet workload demands. Such effort will be necessary not only to maintain service standards but will also help reduce operational cost. In terms of managing the client relationship, the service provider will have to manage client expectations while looking for possible areas to expand its value and service offerings to the client.

7.2

During an outsourcing contract, it is highly likely that there will be service changes requested by the client. For example, when desktop support is outsourced, change requests will come in the form of additional support needed when new machines are added, or when there is a software upgrade that requires testing before deployment. As service changes may at times have negative impact on the clients operations, it is necessary for both the client and service provider to work together to set up a change control and management process so that changes can be carefully planned and implemented to minimise disruptions. 7.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 7.3 below. Client a. Evaluate and determine scope and reason for contract changes b. Negotiate with service provider on the cost and scope of changes c. Obtain approval from the relevant authority to proceed with the contract changes Service Provider a. Implement change and release management processes b. Assess the feasibility and cost of implementing proposed changes c. Prepare for negotiations with client on the fees chargeable for the changes

Managing Service Changes

Table 7.3 - Roles and Responsibilities in Managing Service Changes


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For the client, the key result to be achieved is to have a structured process for evaluating and approving change requests. For the service provider, the key result to be achieved is to manage contract changes efficiently so as to achieve project targets. 7.2.2 Contract Change Management Processes Service changes are often needed in an outsourcing project to meet the clients changing needs and requirements. Some of the reasons for change may include: Changes in clients business Additional functionality/services not covered in present contract Change in technical features/technical environment Regulatory/external change

As such changes typically incur additional costs and may carry with them risks to existing operations, it is necessary that they are properly controlled through a structured change management process. Depending on the IT service management framework adopted, the change management process will typically encompass the following steps: Identification of the required change(s) Assessment of the feasibility and cost of change(s) Negotiations and agreement on the cost and scope of work Approval of change by the respective approving authorities Identifying variance to contract Tracking of contract variations Implementation of change(s) Testing and deployment of change(s)

Besides the above, for changes that have extensive impact across the client organisation, a communications plan is required to guide all stakeholders to accept the impending changes. 7.2.3 Negotiating with Service Provider for Service Changes Request for service changes may require negotiations between the client and service provider before they are agreed upon and implemented. This could be because the contract was unclear as to whether requested changes were within the scope of the original agreement, or it could be due to the changes being outside the original scope and beyond what could have been foreseen by both parties. In such situations, it is often necessary to negotiate on the cost of the effort needed as well as on other terms such as deadlines and schedules. The principles and techniques of negotiation outlined in Chapter 4 are applicable in such situations. 7.2.4 Key Service Provider Activities To ensure that service changes are properly controlled and managed so as to minimise operational disruptions, it is necessary for the service provider to implement change and release management processes. The other key activity will be to set up a business process to assess the feasibility and cost of implementing proposed changes, and to be able to negotiate with the client on the fees chargeable for the changes.
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Certification in Outsourcing Management for IT Body of Knowledge

7.3

In managing the service delivery process, the main objective of the client is to ensure the correct delivery of service and the products meet requirements. To achieve this goal, the client will have to closely monitor project progress and ensure that the service provider furnishes regular updates through a reporting process. The reporting process will also allow the client to discover nonconformance issues and ensure that they are managed and expeditiously remedied. 7.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 7.4 below. Client a. Identify the resources required to support the service/product delivery b. Conduct regular project meetings with service provider project team to track progress Service Provider a. Implement product/service delivery process b. Identify ways to improve delivery through new ideas/technology/latest standards c. Identify problems that impact service delivery and taking both appropriate preventive and corrective actions

Managing Service Delivery

Table 7.4 - Roles and Responsibilities in Managing Service Delivery For the client, the key result to be achieved is to have a structured process for monitoring service delivery to ensure that performance criteria specified in the SLA are met. For the service provider, the key result to be achieved is to ensure that services delivered meet SLA standards and are done so efficiently. 7.3.2 Planning and Tracking of Delivery Activities A key aspect of managing service delivery is to ensure that the service providers work is tracked and measured according to pre-defined standards. For product delivery activities, this means that there is a need for careful management of the installation process, where planning is needed to ensure that the roles and responsibilities of each party are clear. The deployment plan should define the resource, testing and support requirements and also specify the acceptance and completion criteria. For service delivery activities, tracking should be undertaken by monitoring the performance metrics specified in the SLA. The service provider should submit regular performance reports to the client for review. If there are areas of weakness, then both parties can work together to introduce suitable remedial measures. Some performance metrics to be reviewed may include system availability, system reliability, system response time, system capacity sizing, customer satisfaction, problem response and resolution times. To facilitate tracking and management of service delivery, the process can be expressed in simplified form as a checklist of key activities against which actual work can be compared.

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7.3.3 Verification and Validation Processes A critical task for the outsourcing manager is to evaluate and assess products delivered by the service provider. In particular the client must test or check that a given deliverable is acceptable based on agreement standards, using both verification and validation processes. Verification is the process of evaluating a system to determine whether the products of a given development phase satisfy the conditions imposed at the start of that phase, while validation is the process of evaluating a system or component during or at the end of the development process to determine whether it satisfies specified requirements. At every stage of the development lifecycle where products of the service provider are assessed, joint service provider/client technical reviews should be held. The joint technical reviews should be chaired by the service provider management and staffed by both client and service provider members. The reviews should be supported by checklists and processes for action and follow-up. After installation has been completed, final acceptance testing of service provider products and services should be conducted. The objective of system acceptance testing is to ensure that there is a formal validation by the client that the work was carried out as specified in the requirements specification or the schedule of work. As part of acceptance testing, a review of the documentation provided by the service provider should be conducted to check that the topic coverage is complete for both user manuals and online documentation. In addition, training evaluation should also be conducted by collecting feedback from training course participants, in order to evaluate the effectiveness of the training provided. Acceptance test planning and acceptance testing should be performed by the client who will be supported by the service provider. The criteria for successful acceptance must be set by the client. 7.3.4 Dealing with Non-conformance in the Service/Product There may be occasions when the service provided does not meet the SLA or when products delivered do not conform to the requirements specification. This is an issue of non-conformance, and should be dealt with through established escalation procedures. This may involve giving written notice to the service provider with details of the non-conformance and may also include the issues being raised at the regular progress meetings. If the problem persists, both parties should form a team to perform a root cause analysis of the problem so as to find out the source of the problem and take appropriate remedial measures. Should there be no progress made, then it would be necessary to escalate the problem to the management review board/steering committee. The review board/steering committee may decide to impose penalties on the service provider by invoking the penalty clauses in the contract. In more serious cases, the client may need to resort to external mediation, arbitration or even commence legal proceedings against the service provider for persistent non-conformance. As an alternative to more formal resolution processes, both parties may instead seek a negotiated solution to the problem. Negotiations may be undertaken where the problem situation was not adequately covered by the original contract or where either party has requested for modifications to the contractual terms.
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Certification in Outsourcing Management for IT Body of Knowledge

7.3.5 Key Service Provider Activities The main responsibilities of service delivery fall on the service provider, who has to implement relevant product/service delivery processes to ensure that the services rendered meet the standards set in the SLA. In managing the routine operations that have been outsourced, the service provider is also responsible for identifying problems that impact service delivery and for taking both appropriate preventive and corrective actions to ensure that problems do not escalate to adversely affect the supported operations and the clients business processes. As part of ongoing efforts to enhance service quality and delivery efficiency, the service provider should also identify ways of improvement through new ideas, technologies or the use of latest standards. This is because increased efficiency is critical to the long-term profitability of the client account and will be a key competitive advantage when the contract is up for renewal. In this regard, the service provider may consider adopting industry best practices for service delivery, such as the IT Infrastructure Library (ITIL) or the ISO/IEC 20000 standard for IT Service Management.

7.4

For this subject area, candidates are expected to understand the process of managing service provider performance by measuring actual performance against the SLA and other requirements. This will also include the process of identifying and correcting deficiencies, as well as negotiating and agreeing on remedial action for any deficiencies. For additional services required that were not covered in the original contract, a change management process should be in place that will allow changes to be evaluated and managed in a structured manner. In the management of service delivery, candidates are expected to show an appreciation of the role that the service provider plays in identifying problems that impact service delivery, and how suitable preventive and corrective actions can help the client organisation improve its performance.

Summary

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Contract Migration and Handover Management

The aim of this subject area is to ensure that candidates are able to understand and address the key issues following contract expiry or termination. Such issues should be comprehensively planned and addressed prior to the signing of the outsourcing contract. This is typically known as the exit plan and ensures continuity of services for the client following contract termination or expiry. Depending on the option taken for continued service provision, steps will need to be taken to ensure that migration and handover is managed and performed with minimal disruption to the clients business. The key knowledge areas are summarised in Figure 8.1 below. Contract Migration and Handover Management

Planning and Managing Contract Completion and Termination Client and service provider roles and responsibilities Managing contract completion Issues related to contract termination Managing contract renegotiations Key service provider activities

Planning and Managing Contract Migration Client and service provider roles and responsibilities Issues to be addressed in the migration plan Legal and practical considerations during migration Key service provider activities

Figure 8.1 - Contract Migration and Handover Management Overview

8.1

Given the complexities involved in exiting an outsourcing arrangement, it is necessary for the client to plan for the exit and to execute the strategy early before contract expiry. Furthermore, it is also necessary for the client to prepare for the contingency of premature contract termination. In planning for contract completion or termination, the key issues to be addressed include ensuring the smooth transition and maintaining rights over software and proprietary data. These are necessary to minimise disruptions to the clients business and operations.

Planning and Managing Contract Completion and Termination

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Certification in Outsourcing Management for IT Body of Knowledge

8.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 8.1 below. Client a. Ensure completeness of exit plan prior to contract completion or termination b. Re-evaluate organisational strategy and the outsourcing intent c. Select outsourcing service provider or backsource the service as appropriate d. Renegotiate the contract Service Provider a. Ensure completeness of exit plan b. Prepare for competitive re-bid by evaluating potential competitors and develop mitigation strategies c. Determine if renewal is financially and legally acceptable d. Renegotiate the contract e. Carry out a post-implementation review report and determine how best to improve for subsequent contract

Table 8.1 - Roles and Responsibilities in the Contract Completion and Termination Process For the client, the key outcome to be achieved is the formulation of a concrete plan to end the current contract and move on to a new arrangement, which may involve contract renewal, the appointment of a new service provider or backsource the services. For the incumbent service provider, the key outcome is either contract renewal or a smooth handover to a new service provider or the client. 8.1.2 Managing Contract Completion Contract completion/expiry analysis is the first step in the preparation for contract expiry. This involves assessing the following factors: Outcome of the outsourced services Performance of the service provider and in-house outsourcing management team Quality of the outsourcing relationship

In addition, the outsourcing management team should perform a Post Implementation Review (PIR) to assess the performance of the outsourced services provided. The PIR may include documenting lessons learnt, process improvements and key project metrics that have been implemented successfully, as well as identifying areas for improvement. The above steps allow the client to determine the next step in respect to the existing outsourced services. This includes continuing with the incumbent service provider, engaging a new service provider or backsource the services, in whole or in part. Should the clients decision be to disengage from the incumbent service provider, the outsourcing management team must work hand-in-hand with the incumbent service provider to execute the exit plan. This minimise any potential disruption to the users of the services. During the transition of services, the client team will also need to ensure that all deliverables are consolidated and handed over with proper acceptance and signoff procedures.
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8.1.3 Issues Related to Contract Termination Apart from completion or expiration of contract, outsourcing contracts may also be terminated prematurely for various reasons, including: Breach of contract Merger/acquisition of the organisations Economic failure of either party

Before deciding to renew or terminate the contract, the client has to consider the key factors influencing the renewal decision. The most important of these is the clients business requirements, and the outsourcing management team will need to re-examine this area to identify new or changing needs in consultation with its executive management. Additionally, consideration should also be given to the performance of the existing arrangement and the options for sourcing. Once the decision to terminate the contract has been made, it is necessary for the client to deal with the various associated issues including the legal, business and operational implications of having to transfer services away from the incumbent service provider. In addition, the client will need to consider the turnback effort required, and manage the following risks: Risks of data and software being held hostage Risk of uncooperative service providers Risk of bringing outsourced services in-house Risk of transferring to another service provider

All the above risks require careful assessment as they provide critical inputs to the decision of whether to renew the contract, to open up the outsourced services for competitive bids, or to backsource either in part or in full. They will also be used in the management and execution of the contract migration so as to maintain the continuity of the client operations. 8.1.4 Managing Contract Renegotiations Before contract renegotiations are undertaken, it is necessary for the client to define an initial set of discussion topics and the organisations position with respect to the topics based on the understanding of the existing organisational guidelines, policies, procedures, and information about the client and service provider environment. Once this is completed, the client should communicate and seek agreement on the above initial set of topics with the service provider. Concurrently, the client should also create a negotiation plan that will ensure that the relevant topics are discussed. During negotiation, both parties will need to maintain the topics requiring agreement and ensure that their statuses are tracked and progress monitored. The principles and techniques of negotiation outlined in Chapter 4 can also be applied here.

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Certification in Outsourcing Management for IT Body of Knowledge

8.1.5 Key Service Provider Activities As the outsourcing contract nears its completion, the incumbent service provider should proactively consolidate its position while at the same time develop mitigation strategies against identified potential competitors. The incumbent service provider should engage the client to understand their future needs and use this understanding to provide the client with a compelling value proposition. By carrying out a post-implementation review, the service provider will be in a better position to determine how best to take on the subsequent contract. In situations where the service provider determines that the current outsourced service is financially and/or contractual not viable for renewal, the service provider may choose not to compete for renewal and will propose a new outsourcing arrangement that is more equitable to both parties for consideration by the client. The service provider will also need to plan and prepare for contract negotiations with the client.

8.2

The purpose in planning and managing contract migration is to ensure minimum business disruption during the period from the expiry/termination date of the outsourcing contract to the time when the client has re-established the service operations. 8.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 8.2 below. Client a. Plan and manage migration where required Service Provider a. Plan and manage migration where required

Planning and Managing Contract Migration

Table 8.2 - Roles and Responsibilities in the Contract Migration Process For the client, the key outcome is the smooth migration of services from the incumbent service provider. For the service provider, the key outcome is the smooth transition out of the contract. 8.2.2 Issues to be Addressed in the Migration Plan In order to achieve a successful migration of services, it is necessary to address a variety of issues during the migration planning process. a. Business Continuity. The overarching consideration of any migration plan is to ensure business continuity. To avoid disruptions to business when the migrations do not proceed according to plan, it is necessary for the client to explore fall back options. These may include negotiating with the incumbent service provider for a temporary service contract to cover a short period of time after the end of the original contract, or where feasible, the use of a third party provider on a short-term basis. The costs involved for such contingency options may differ and will have to be planned for.

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b. Application Conversion. If the technology platform proposed by the new service provider is different from that of the incumbent provider, the client will need to work with both the incumbent and new service providers to ensure a smooth migration of the application and services to the new platform. Special considerations need to be provided for accuracy and completeness of the data to be migrated in such situation. This issue of conversion may also be relevant even in the case of moving the services back in-house. c. Transfer of Assets. Another important issue in migration planning and execution is the transfer of assets between the two parties. Both the client and service provider will need to work together to work out an exhaustive list of assets to be transferred from the latter to the former and vice versa. In addition to agreeing to the asset transfer list, both parties will also need to establish the actual process and schedule of asset transfer. Of key importance is also the establishment of the final asset value as these have implications to subsequent audit and financial compliance. d. In-house Resource Requirements. Where the decision is to bring the outsourced services back in-house, the client will need to plan for an increase in internal resources needed to support the return of the IT services. This may include additional physical space and equipment required to house and support assets and staff being transferred back from the service provider. In terms of staffing needs, the client may need to redeploy existing internal IT staff to support the services, or have special arrangement with the outgoing service provider on hiring back service providers staff for knowledge and expertise retention. 8.2.3 Legal and Practical Considerations During Migration An important issue that can sometimes be overlooked during migration pertains to rights over intellectual property such as data and software licenses. To protect the confidentiality of proprietary information, the client has to ensure that all data that it is legally entitled to should be transferred back from the service provider, and that the latter take steps to destroy all copies and images of the clients data. With regard to application software, the client has to ensure that those for which it already has ownership should be transferred back from the service provider. As for the software licenses that it will need to continue supporting its IT processes, the client will need to work out licensing arrangements with either the service provider or any third-party software vendors so that it can continue to legally use the required software. Apart from these legal issues, the client will also need to establish agreement with the service provider to secure the latters cooperation and assistance during the migration process. It is therefore critical that both parties make provisions for the exit of services in the contract to avoid uncertainty and difficult negotiations. These may include having the service provider disclose technical information that is necessary for the transition, the nature of the support to be extended by the service provider as well as the related costs to be paid. These may be provided through training and proper documentation by the service provider.

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However, where such rights have not already been embedded into the outsourcing contract, the client may need to negotiate with the service provider in order to obtain the latters assistance. 8.2.4 Key Service Provider Activities The service provider has a key role to play in managing the effective transfer of resources to the new service provider or back to the client. Some of the areas in which the service provider will need to give assistance to the client may include: Setting up the physical environment Transfer and training of personnel Establishing the technology infrastructure Establishing relevant processes, policies and procedures Transfer of knowledge and intellectual property

The overarching expectation on the service provider is that it will need to ensure service continuity during the transfer of responsibilities for service provisions.

8.3

For this subject area, candidates are expected to have an understanding of the key issues pertaining to contract expiry or termination. Such issues should ideally be comprehensively addressed prior to the signing of the outsourcing contract and be documented as an exit plan within the contract. Candidates are also expected to understand the process for determining the options for the continued provision of the services to the users. This may involve revalidating the objective and scope of services against the business objectives, and reassessing the value attained from outsourcing. Depending on the outcome of the assessment, the client may decide to renegotiate for contract renewal with the incumbent service provider, re-tender the contract or bring the services back in-house. In terms of the migration process, candidates should have knowledge of the key roles and responsibilities of both the client and the incumbent service provider. This will include the joint management and execution of the exit plan for transfer of people, assets, technology, knowledge, procedures and responsibilities to the new service provider or back in-house, and with the aim of ensuring service continuity and minimising disruptions to the clients business operations.

Summary

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Cost Management

The aim of this subject area is to ensure that candidates understand the role of cost management in outsourcing. This involves resource planning, cost estimating and cost control. Basic knowledge of cost management in relation to project management is assumed. The key knowledge areas are summarised in Figure 9.1 below. Cost Management

Planning for Resources and Estimating Cost Client and service provider roles and responsibilities Cost estimation and budgeting Key service provider activities

Controlling Cost Client and service provider roles and responsibilities Processes for project cost control Managing project costs through change management Key service provider activities

Figure 9.1 - Cost Management Overview

9.1

Resource planning is the process of allocating and managing the various resources needed to support the outsourcing project in order to meet its objectives. These resources may include hardware, software, human resources, facilities and others services that are needed to maintain the service levels of the outsourced processes. 9.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 9.1 below. Client a. Work with potential service providers to obtain estimates of relevant project cost elements b. Work with service provider to forecast resource utilisation c. Allocate resources to manage the service provider and to track service delivery Service Provider a. Provide the client with estimations of project cost based on initial requirements b. Allocate resources based on scope of project c. Work with client to forecast resource utilisation

Planning for Resources and Estimating Cost

Table 9.1 - Roles and Responsibilities in Resource Planning and Cost Estimating
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Certification in Outsourcing Management for IT Body of Knowledge

For the client, the key result to be achieved is the optimal estimation of resources needed for the outsourcing project that can be used as a baseline for defining a realistic initial project scope and for the tracking of resource utilisation through the project lifecycle. For the service provider, the key result to be achieved is a realistic estimate of the resources required to profitably support the clients project. 9.1.2 Cost Estimation and Budgeting Cost estimation is one of the key processes in outsourcing, as it is through this that the resources needed to support the project can be determined. The aim of project cost estimate is to determine the approximate amounts of resources required by a project. These estimates would be translated into financial terms in cases where the project can be managed according to an explicit cost budget. Where it is not possible to financially represent all resources, the numeric quantities of each resource would be used to represent the project cost estimates. Regardless of the method used, the main principle in cost management is to track all relevant costs to the degree of precision that is required based on organisational standards. A project cost template can be used as a checklist for the possible sources of project cost that would need to be estimated. Typical sources would be: Labour costs Hardware Software Contracted tasks Miscellaneous expenses Training costs Contingency funds

Typical effort estimating techniques include: Expert judgment Cost-by-analogy Transactional or bottom-up estimating Top-down estimating Model-based estimating

During the project planning phase, once the estimated project costs have been determined, the client can validate the cost by asking for budgetary quotations from various service providers, which can be used for comparison. The clients cost estimates can then be refined further to obtain an initial project budget. This can be used as the basis for cost control during the project lifecycle. In addition, the scope of the project that can be supported by the budget can be used to call for RFPs from the service providers. For complex outsourcing projects, particular attention must be paid to the asset transfer and technology refresh strategy as it always forms a major component of such projects.

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9.1.3 Key Service Provider Activities In terms of supporting the client, the service provider is likely to furnish the client with estimates of project cost based on initial requirements. This can be done using appropriate estimation techniques to determine cost parameters with estimates based on research, consultation and negotiation with the appropriate personnel. The service provider may also help the client identify, assess and analyse data required for the various cost components of a project. Internally, once the project scope of the outsourcing engagement is known, the provider will perform its own cost estimations to determine whether or not it can profitably bid for the project. Its cost estimates and budgets can be used for tracking costs during the operational phases of the project.

9.2

Cost control is an important element in managing outsourcing projects, as it is the means of ensuring that the cost savings that such projects are expected to deliver can actually be realised. Effective cost control requires the active tracking and management of all aspects of the outsourcing engagement as well as the implementation of a proper change management process to handle the change requests that will inevitably occur throughout the project lifecycle. 9.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 9.3 below. Client a. Maintain cost baselines to facilitate monitoring of actual expenditure and to control costs throughout the project life cycle and for the overall project b. Conduct regular review meetings with the service provider to track project budget c. Implement a change management process to control and track change requests Service Provider a. Maintain cost baselines to facilitate monitoring of actual expenditure and to control costs throughout the project life cycle and for the overall project b. Conduct regular internal reviews to ensure that the account remain profitable c. Use the change management process defined with the client

Controlling Cost

Table 9.3 - Roles and Responsibilities in Monitoring and Tracking Project Costs For the client, the key result to be achieved is the effective monitoring and control of cost throughout the project lifecycle. For the service provider, the key result to be achieved is to control service delivery costs to maintain the profitability of the outsourcing engagement.

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9.2.2 Processes for Project Cost Control The outsourcing manager plays an important role in project cost control by ensuring that cost control processes are actively managed and complied with. These processes may include the monitoring and assessment of project progress to determine the current status of projects, identify divergences and predict cost overruns. Working closely with the outsourcing management team, the outsourcing manager has to regularly review the status of the project to ensure that costs are within the limits of the estimates. By the tracking of variances, issues and problems can be identified and suitable remedial actions can be taken. Where there are persistent cost issues in particular areas of the project, the team should conduct a root cause analysis exercise to find out the underlying causes of the problems and then to formulate effective solutions to address the causes. 9.2.3 Managing Project Costs Through Change Management Change requests can sometimes result in significant cost escalations for the outsourcing project and should therefore be actively managed to ensure that spending does not exceed budgeted funds. There should be a change management process whereby change requests are properly recorded and tracked. These requests should be evaluated by a change manager (who may also be the outsourcing manager) before submission for approval by the Change Advisory Board. During the implementation of changes, the change manager should track the actual costs incurred and work with the service provider to minimise cost overruns. After the changes have been successfully implemented, post-implementation reviews should be conducted where necessary to further improve the change management process. Besides the above, the change manager should also provide regular management reports on the quality and effectiveness of the change management process. Changes can also result in modifications to the scope of the outsourcing engagement, which in turn can result in contract changes that may lead to an increase or reduction in payments to the service provider. Processes are therefore also required for managing contract changes.

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9.2.4 Key Service Provider Activities In terms of supporting the client in its cost control activities, the service provider will provide pricing information to the client to allow the client to manage and track project costs. Besides this, the service provider can also help the client in analysing problems and in performing root cause analysis to ascertain the nature of recurrent problems, and also to recommend suitable solutions. For the change management process, the main service provider activities would include: Evaluating change requests and providing impact assessments Providing price estimates Accepting change requests Prioritising and scheduling of changes Implementing change requests

Internally, the cost control activities of the service provider will mirror those of the client. It will track its own cost performance for the account to ensure that they are within project budget. Where there is sufficient data for analysis, it can also benchmark itself against industry norms so as to obtain additional information about how well it is performing.

9.3

For this subject area, candidates are expected to have an understanding of the role of resource management in ensuring that outsourcing projects are completed within budget. This will include the budgeting and management of resources such as hardware, software, human resource, facilities and logistics. To ensure that operating costs stay within budget, cost control processes should be used to track on-going project performance as well as to identify problems that require additional resources for resolution. In addition, change management processes should also be used to ensure that changes are actively managed within the budgeted parameters.

Summary

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10

Risk Management

As outsourcing involves giving up control of certain processes and business functions to external service providers, it brings along a significant set of risks. The aim of this subject area is to ensure that candidates understand the role of risk management in outsourcing. The various phases of a typical risk management process are given in outline within the context of the outsourcing project lifecycle. Basic knowledge of risk management in relation to project management is assumed. The key knowledge areas are summarised in Figure 10.1 below. Risk Management

Identifying Risks Client and service provider roles and responsibilities Risk management concepts Sources of risks Key service provider activities

Developing the Risk Mitigation Plan Client and service provider roles and responsibilities Risk treatment strategy Factors influencing the choice of risk mitigation strategy Key service provider activities Executing the Risk Mitigation Plan Client and service provider roles and responsibilities Risk monitoring Performance measurement Key service provider activities

Assessing and Quantifying Risks Client and service provider roles and responsibilities Qualitative assessments Quantitative assessments Building the risk register Key service provider activities

Figure 10.1 - Risk Management Overview

10.1 Identifying Risks

The first step in risk management is the identification of risks that will have an impact on the outsourcing project. This requires an understanding of the operating environment in which the outsourcing relationship subsists.

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Risk identification should be performed at the start of the outsourcing project, especially during the planning and RFP development phase (see Chapter 2), to ensure that the project requirements take into account potential risks. It should also be performed at critical milestones, and when there are major changes to the scope of the outsourcing project. 10.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 10.1 below. Client a. Identify the risks associated with moving to an outsourced environment Service Provider a. Identify the risks associated with taking over the clients IT operations b. Identify the risks arising from contractual obligations

Table 10.1 - Roles and Responsibilities in the Risk Identification Process The key result to be achieved by both the client and service provider is a comprehensive list of risks that may arise during the life of the outsourcing project. 10.1.2 Risk Management Concepts Risk relates to the probability that certain events may arise that will negatively affect the desired outcomes of a given project. Candidates should be familiar with the key risk management concepts such as follows: a. Probability This is a quantitative estimate of the likelihood a specific event will occur during a specific time. b. Impact This is a quantitative estimate of the loss caused by a future event, if it does occur. c. Exposure This is the product of probability and impact. d. Mitigation This includes anything that reduces ones exposure to the risk, such as insurance or contingency planning. Risk management deals with informed decision making under conditions of uncertainty, i.e. making informed decisions by consciously assessing what can go wrong and the resulting impact of those negative events. Such decision-making can be facilitated by developing a risk management strategy and formulating risk contingencies that will prevent the identified risks from becoming a problem or limit their impact if they do occur. 10.1.3 Sources of Risks The sources of risks that are pertinent to an outsourcing project may include: Service provider selection Project management Contractual ambiguity and uncertainty HR Management Transition management
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Transformation management Technology Economic and cost risks Service provider performance and quality variance

To help in the process of identifying risks, the outsourcing management team may employ unstructured techniques such as brainstorming, or structured ones such as the Software Engineering Institutes (SEI) Taxonomy-based Risk Identification method. 10.1.4 Key Service Provider Activities The service provider plays an important role in the risk identification process. Using its experience from past projects and engagements, it can assist the client in identifying the most common risks that arise in an outsourcing project. Internally, the service provider will also identify the risks that are unique to the current engagement, and may focus on those areas that will have the most impact on the profitability of the account.

10.2 Assessing and Quantifying Risks

Risk assessment is the determination of the expected loss from risks arising from possible threat scenarios that are relevant to the outsourcing context, involving the estimation of the likelihood and impact of the negative events. This is a crucial but challenging step in the risk management process. Within the outsourcing lifecycle, assessment and quantification of risks should be undertaken together with risk identification at suitable checkpoints. 10.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 10.2 below. Client a. Assess risks to determine the significance to the project of each identified risk b. Conduct meetings with relevant stakeholders to obtain consensus on risk assessment and to rank the list of risks identified Service Provider a. Assess risks to determine the significance to the project of each identified risk b. Conduct meetings with relevant stakeholders to obtain consensus on risk assessment and to rank the list of risks identified

Table 10.2 - Roles and Responsibilities in the Risk Assessment and Quantification Process The key result to be achieved by both the client and service provider is to obtain a comprehensive view of risks that are relevant to the outsourcing project.

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10.2.2 Qualitative Assessments The use of qualitative assessment methods typically involves assigning likelihood and impact estimates of events occurring based on an ordinal scale. For example, it is common to use a Low/Medium/High scale to express the likelihood of events occurring and the severity of their impact. To rank the identified risks in terms of priority for treatment, a risk exposure matrix can be used. This is a two-dimensional matrix with likelihood and impact as its axes and where each likelihood-impact combination is assigned a score that can be used to rank different risks. An example of a risk exposure matrix is given below. Impact Low Medium High Likelihood Low 6 5 3 Medium 5 4 2 High 3 2 1

Table 10.3 - Sample Risk Exposure Matrix Based on the estimated likelihood and impact of each identified risk, the entire set of risks that are relevant to the outsourcing project can be ranked for further treatment. While qualitative risk assessments are generally less involved than quantitative ones, they have shortcomings such as the imprecise definitions of the ordinal scales, as well as the somewhat arbitrary choice of threshold values to classify the impact of risks on the Low/Medium/High scale. 10.2.3 Quantitative Assessments Quantitative risk assessments involve the assigning of estimated probability values to each of the identified risks. Impact in this case is measured in terms of the financial losses likely to be incurred should the risks materialise. The expected loss arising from a given risk is derived by multiplying the probability of loss with the loss estimate, and this can be used to rank the risks that need to be addressed. While the use of quantitative data may appear to give the assessment process some semblance of scientific rigour, it is important to keep in mind that there can be considerable uncertainty in the measurement of both probability and impact of loss, especially in cases where there is a lack of historical data. A risk with a low probability/high potential loss combination may need to be treated differently from one with a high probability/low potential loss combination even when both yield the same expected loss value. 10.2.4 Building the Risk Register After the identification and assessment of known project risks, they can be organised into a risk register. This is a useful tool for managing identified risks through the lifecycle of the outsourcing project.

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A typical risk register may contain the following fields: Risk description Probability or likelihood of occurrence Impact of the risk Planned treatment and mitigation Status of risk treatment

10.2.5 Key Service Provider Activities For the service provider, risk assessment has to be conducted during the proposal development stage of outsourcing, as it is critical to ensure that factors which will negatively affect the profitability and the success of the engagement are taken into account. This will allow it to also plan mitigation strategies that will help maintain profitability without an excessive escalation of proposed project costs. Using its experience, the service provider can help the client to identify and assess risks that are pertinent to the proposed outsourcing, and at the same time use the information gathered to internally assess how the risks will impact the profitability and the successful completion of the project. Besides the start of the project, the service provider should also work with the client to assess the risks when major changes to the project scope are being considered.

10.3 Developing the Risk Mitigation Plan

Risk mitigation development is an important phase in the risk management process which deals with the development of plans to mitigate the identified risks. It involves determining how risks should be dealt with when they arise based on available resources and constraints. The output of the process is a risk mitigation plan which documents the decisions about how each of the identified risks should be handled. 10.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 10.4 below. Client a. Develop risk mitigation plan in collaboration with service provider b. Formulate risk treatment strategy Service Provider a. Assist the client in the development of its risk mitigation plan b. Work with the client to determine the risks that are suitable for transfer to the service provider c. Develop risk mitigation plan for those risks which have been transferred from the client

Table 10.4 - Roles and Responsibilities in the Risk Mitigation Plan Development Process
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For both the client and service provider, the key result to be achieved is the development of an appropriate mitigation plan to respond effectively to identified risks. In addition, the service provider will also be concerned with finding the most cost-efficient means of dealing with the identified risks, so as to maximise the profitability of the engagement. 10.3.2 Risk Treatment Strategy After the risks associated with the outsourcing project have been identified and assessed, a strategy for managing them needs to be developed. The main methods of treating risks are as follows: Avoidance Reduction Transfer Acceptance

In the outsourcing context, the risk transfer strategy may be of greater importance, since outsourcing provides the opportunity for the client to transfer certain types of risks to the service provider. Hence, during contract formation and negotiations, the client should include the risks to be transferred into the scope of the outsourcing contract. Once the project team has developed the risk treatment strategy, it should be documented in the risk register for approval by the appropriate authorities, such as the outsourcing management review board/steering committee. After the signing of the outsourcing contract, the client will need to work closely with the service provider to further refine the risk treatment strategy to take into account resource constraints as well as the technical capabilities of the provider. 10.3.3 Factors Influencing the Choice of Risk Mitigation Strategy To facilitate choosing the most appropriate risk treatment methods, the outsourcing project team should document the factors that have to be taken into account when evaluating alternative mitigation strategy for any given risk. These may include: Cost Quality Schedule Complexity

The outsourcing team can also help to define the appropriate metrics to be used for determining the most appropriate strategy for dealing with each risk. These metrics should be derived from and dependent on the overall project objectives. At the end of this process, the risk mitigation strategy for each identified risk should be documented in an overall risk mitigation plan for the outsourcing project.

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10.3.4 Key Service Provider Activities The service provider plays a key role during the outsourcing planning phase in terms of helping the client understand the potential risks that may arise from the outsourcing of IT services and projects. During the contract negotiation phase of the project, the service provider will need to enter into negotiations with the client regarding risk sharing arrangements, after the risk management plan has been formulated. The service provider will also need to develop its own risk mitigation plan with a view to ensure that the outsourcing engagement remain financially viable despite the potential risks involved.

10.4 Executing the Risk Mitigation Plan

This process involves executing and monitoring the risk mitigation plan in order to respond to risk events as they arise in the project. When changes to the project occur, the cycle of identifying, assessing, and responding to risks is repeated. 10.4.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 10.5 below. Client a. Monitor and review the implementation of risk mitigation strategy b. Monitor for changes in the risks facing the project c. Track service provider performance Service Provider a. Monitor and review the implementation of risk mitigation strategy b. Monitor for changes in the risks facing the project c. Submit regular performance reports to client

Table 10.5 - Roles and Responsibilities in the Risk Mitigation Plan Execution Process For the client, the key results to be achieved are the institution of a process to regularly monitor project risks and to ensure that the service provider meets performance expectations. For the service provider, the key result to be achieved is to ensure that identified risks are properly mitigated and controlled. 10.4.2 Risk Monitoring Once the risk treatment strategy has been formulated, the plan should be executed and each risk dealt with as prescribed by the plan. To ensure that the plan stays up-to-date, the project team should conduct regular progress review sessions to monitor risks pertaining to a specific project. This will allow team members to be kept aware of the changes in the risk situation, and if necessary, to perform a reassessment of the risks involved. After each review and reassessment, the risk register and project management plan should be updated to reflect the latest risk conditions facing the project.

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In addition, risk management processes and procedures should also be established to enable effective management and communication of risk events, responses and results to both the project team and all other stakeholders. 10.4.3 Performance Measurement From the client perspective, an important aspect of risk control and containment is to ensure that the service provider properly carries out its obligations under the outsourcing contract, including the execution of the risk mitigation and management plan. As such, the latters performance and SLA metrics need to be closely tracked and monitored. Variance and trend analyses can be used to compare actual performance against projected targets and to determine reasons for any performance discrepancies. Such analyses may result in adjustment to risk treatment strategies or may result in a reassessment of the risks altogether as new data becomes available. Where budget permits, the client or service provider may also engage external consultants to conduct risk audits to assess the effectiveness of planned risk mitigation strategy, and to recommend changes as required. 10.4.4 Key Service Provider Activities As the performance of the service provider is a major source of risks for the client, a key activity of the provider is to provide the client with timely information about key metrics and performance indicators relevant to the outsourcing project. The service provider may also, as part of the overall service delivery process, be required to implement the risk mitigation and management plan for those risks that have been accepted from the client, and to assist the client in monitoring changes to project risk exposures. In addition, the service provider should work closely with the client to jointly review effectiveness of risk mitigation and management plan.

10.5 Summary

For this subject area, candidates are expected to understand the nature of the risk management process as it is applied to outsourcing. This will include an appreciation of the types of risks that may arise from the transfer of business functions from the client to the service provider. Given the key role that the service provider can play in successful risk management, it is important that the client work effectively with the provider throughout the risk management process, especially in the area of jointly developing the risk mitigation strategy and in the monitoring of its subsequent execution. Where necessary, the client should work closely with the service provider to adjust project activities to take into account risk changes throughout the project lifecycle.

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11

Human Resource Management

The aim of this subject area is to allow candidates understand the various human resource management (HRM) activities that can take place throughout the lifecycle of an outsourcing project, and to appreciate the importance and value of HRM. These activities involve human resource planning, project team building and managing team performance. The key knowledge areas are summarised in Figure 11.1 below. Human Resource Management

Planning Human Resources Client and service provider roles and responsibilities Identifying HR needs Managing staff transition Key service provider activities

Building the Project Team Client and service provider roles and responsibilities Team selection Key service provider activities

Managing Team Performance Client and service provider roles and responsibilities Managing performance Team development Key service provider activities

Figure 11.1 - Human Resource Management Overview

11.1 Planning Human Resources

Outsourcing can be a major undertaking that may involve significant changes to the structure and operational arrangement of the organisation involved, and is thus often fraught with risks. As part of the overall risk management strategy, it is important that the project be managed by a competent team of people with the necessary leadership skills and experience. To achieve this objective, it is necessary that the human resource (HR) requirements of the outsourcing project be worked out and planned for at the appropriate stages of the project lifecycle.

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11.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in HR planning are summarised in Table 11.1 below. Client a. Identify skills requirements for managing the outsourcing project b. Manage the transition of staff affected by the outsourcing exercise Service Provider a. Identify skills requirements for delivering the outsourcing project b. Assist the client to identify skills needed based on project scope c. Lead and manage transition of in-scope staff

Table 11.1 - Roles and Responsibilities in Human Resource Planning The key result to be achieved by both the client and service provider is the formulation of HR plans that will meet the respective staffing needs in relation to the outsourcing project. 11.1.2 Identifying HR Needs In general, staffing needs will vary according to the nature of the project. For outsourcing projects that involve an element of business process re-engineering (BPR), there may be a need to work with external BPR consultants to identify post-outsourcing HR requirements. At the project planning phase, staffing requirements can be identified along with the other requirements when defining the scope of the project. From the defined scope, a HR plan can then be formulated. Using the plan as a guide, the client can then start sourcing for appropriate staffing from within the organisation to fill required and new roles in the outsourcing management team. This may involve redeployment of staff and restructuring of work processes. Also, the plan will help to identify skills gap which need to be filled either by the external service provider or by additional hiring. The decision between these two modes of staffing will depend on the strategic and operational importance of each individual role. 11.1.3 Managing Staff Transition The effective management of HR matters is critical to the client organisations transition to outsourcing, and therefore both the IT and HR departments should work closely to ensure that all affected staff are given adequate support according to their needs. Staff who will be retrenched should be provided with counselling and outplacement support where possible, so as to help them make the transition to new jobs. For staff who will be transferred to the service provider organisation, it is important to retain their goodwill as they will likely be the people supporting the outsourced services that the client organisation will receive. To address their concerns, the client and service provider should work together to provide relevant information to these staff, especially with regard to terms of the new employment contracts and career prospects. Meetings with the relevant service provider managers should also be arranged so that they can help to provide information to the affected staff.
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Staff that are retained may see the scope of their work change and their morale are affected as they see co-workers leave. It is very important to take steps to provide adequate training, support and encouragement so that they can function effectively in the new operating environment. Similarly, those who are redeployed to other parts of the client organisation should be given the appropriate training and support to enable them to undertake their new roles and responsibilities in the respective new departments. Personnel issues may be the most difficult to manage in a transition to outsourcing. It is therefore important to address the staff transition carefully and sensitively in the outsourcing plan, ensuring effective and timely communication. The plan should include: Schedule for information releases to staff and methods of communication Dates on which staff will be told of your organisation intention to retain, redeploy, transfer or terminate them Dates on which the service provider will make formal offers of employment to the staff that will be transferred and when the affected staff must respond to the offers Dates when the actual transfer of staff takes place from your organisation and payroll to the service providers employment and payroll

These have to be effectively communicated to the affected staff. Honest communication with staff is usually the best policy. 11.1.4 Key Service Provider Activities At the project planning phase when the scope of the project is being defined, the service provider may be asked to provide the (potential) client with expert advice about the types of skilled staff that are needed to successfully manage the outsourcing project. Once the scope of the project is known via the RFP process, the service providers main task in this area will be to build a preliminary staff plan that can be used to effectively support the requirements of the outsourcing project. This will entail determining the types of skilled staff needed as well as their numbers, so that a cost structure can be derived and from which a realistic assessment of profitability can be made. Where staff is being transferred from the client to the service provider, the latter will also be required to assist the client with the staff transition process so as to ensure that there will be minimal disruption to the services provided to the client.

11.2 Building the Project Team

After the HR requirements have been determined, the next task is to start building the project team from both internal as well as external sources.

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11.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 11.2 below. Client a. Form project team from internal staff b. Hire relevant people c. Brief the project team on the objectives and scope of the project Service Provider a. Form project team from internal staff and transitioned staff b. Hire relevant people c. Brief the project team on the objectives and scope of the project

Table 11.2 - Roles and Responsibilities in Building the Project Team The key result to be achieved by both the client and service provider is the formation of the respective project teams that will be able to fulfil the needs of the project. 11.2.2 Team Selection A selection panel should be formed to choose the appropriate staff for the project team. This panel should consist of senior management staff from relevant business units, the IT department and also the appointed outsourcing manager who will have the overall responsibility for the project. Some of the criteria that may be used for the selection of team members include: Experience and skills needed to perform the project tasks Availability of time to be an effective contributor to the project team Ability to be a team player with good communications skills

The selection panel may adopt a structured approach to the selection process by performing skills and personality analyses to ensure that the team consists of members that have complementary skills and compatible characteristics. The selection panel should also work closely with the HR department throughout the process to ensure that the concerns of the staff members who have been selected are adequately addressed. In addition, the selection panel should seek the assistance of the HR department to hire additional staff. 11.2.3 Key Service Provider Activities Upon winning the bid, the key service provider activity will be to assemble the appropriate team of technical and project management staff to handle the requirements of the account. This may involve the redeployment of staff from other accounts to the new one and also the sharing of certain specialists across the different client projects. If the account involves a transfer of staff from the client, the skills and roles of these team members will also have to be taken into consideration. Transferred staff should be provided with the necessary training and professional development as their roles have changed. It is important to share with them the service providers organisational vision, HR practices and policies, as well as the service delivery requirements, procedures and guidelines.
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11.3 Managing Team Performance

The management of team performance is an important HR activity in determining the success of an outsourcing project. Both the client and service provider will have a strong interest in enhancing project staff productivity and minimising turnover, the latter being critical to the retention of tacit organisational knowledge. 11.3.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 11.3 below. Client a. Conduct regular team meetings to give performance feedback at the team level b. Set up performance appraisal and feedback process c. Work out individual development roadmaps Service Provider a. Conduct regular team meetings to give performance feedback at the team level b. Set up performance appraisal and feedback process c. Work out individual development roadmaps and redeployment plans

Table 11.3 - Roles and Responsibilities in Managing Team Performance The key result to be achieved by both the client and service provider is to maintain a high level of productivity and morale amongst project team members, as well as to minimise staff turnover. 11.3.2 Managing Performance Active performance management is an important aspect of outsourcing project management, as it helps ensure that the project is properly executed with minimal risk exposure. It will include conducting regular project meetings both internally and with the service provider to allow for the communication of project issues and to provide feedback. In terms of managing individual performance, it is important that team members have a clear understanding of their expected contributions. As such, it is vital that individual performance targets are set which are clearly defined, measurable and realistic. Staff appraisals should be conducted regularly to provide feedback to team members about the quality of their work as well as to elicit feedback from them on areas of possible improvement in the way the project is managed. 11.3.3 Team Development In order to allow team members to improve their performance in their respective roles, it is important to identify their individual training needs so that they can have the opportunity to acquire the necessarily skills. The outsourcing manager can work with individual team members on their respective professional development roadmaps to help them chart their own career directions and training needs. Managed correctly, staff training and development can be a powerful means of motivating staff and maintaining morale.

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Besides training, the outsourcing manager should also consider other different ways of improving team morale and bonding. These may involve informal means such as team outings or more structured activities such as team-building camps or seminars. 11.3.4 Key Service Provider Activities As in the case for the client, managing team performance will involve regularly appraising staff to provide feedback to them as well as to reward superior performance. To support business objectives, part of the key performance indicators (KPIs) for assessing staff performance should measure the extent to which relevant SLAs are met. Given that the competitive environment that service providers operate in often results in stressful work situations for their staff members, maintaining staff morale is a key priority for them. This may be undertaken by providing training and development opportunities for staff, as well as job rotation so that interested team members can be exposed to different areas of work that they feel will enhance their professional value.

11.4 Summary

For this subject area, candidates are expected to understand the role of HRM as it relates to outsourcing projects. This will include the different types of HR activities that are needed to support the successful execution of the outsourcing project, which will include identifying, sourcing, developing, motivating and retaining the expertise required for the successful completion of the project within schedule and budget.

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12

Communications Management

The aim of this subject area is to ensure that candidates understand the various types of communications activities that are required in an outsourcing project for the effective dissemination of information to all stakeholders who are affected by it. This involves developing the communications plan and executing it. The key knowledge areas are summarised in Figure 12.1 below. Communications Management

Developing the Communications Plan Client and service provider roles and responsibilities Communications plan scope and coverage Project communications channels Key service provider activities

Executing the Communications Plan Client and service provider roles and responsibilities Operational communications and feedback Key service provider activities

Figure 12.1 - Communications Management Overview

12.1 Developing the Communications Plan

Communications planning involves developing the outsourcing communications plan to cover all the important areas such as human resource, outsourcing contract signing, contract kick-off and start-up, transition, transformation and steady state delivery. The aims of the communications plan include the communication of changes resulting from the outsourcing effort to the client organisation throughout the lifecycle of the project as well as to keep other stakeholders informed of any related developments that may potentially impact their relationships with the client organisation.

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12.1.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 12.1 below. Client a. Identify the aims and target audiences of the communications plan b. Ensure external communication is jointly reviewed and agreed between client and service provider c. Identify the communications channels to be used d. Identify the types of information to be communicated to various stakeholders e. Define processes for management reporting Service Provider a. Identify the aims and target audiences of the communications plan b. Ensure external communication is jointly reviewed and agreed between client and service provider c. Establish communication channel between client and service provider at different levels d. Share project information that may be relevant for developing the communications plan e. Share best practices in project communications with the client f. Formulate communications plan for internal management reporting

Table 12.1 - Roles and Responsibilities in the Communications Plan Development Process For both the client and service provider, the key result to be achieved is the formulation of a coherent communications plan that will be used throughout the project lifecycle to disseminate information to all stakeholders. 12.1.2 Communications Plan Scope and Coverage A communications plan describes the information to be disseminated to all stakeholders to keep them regularly informed of the progress of the project. The scope and coverage of the communications plan will vary according to the nature and complexity of the outsourcing project. As outsourcing typically has impact on the client organisation beyond the immediate project team and IT department, it is important that relevant information be communicated to all stakeholders. Such communications will not only include the dissemination of general project information but also involves the communication of changes in business processes and service support procedures that will arise as a consequence of the outsourcing project. A clear communications plan is vital to the success of the project as it helps ensure that all involved work towards the same objectives and that any problem is resolved in a planned and informed manner. It is therefore important to have regular planned communications to all stakeholders so as to keep them updated on the progress of the project to allay any concerns. These communications will also serve to highlight the successes achieved and the benefits obtained, as well as to communicate the challenges faced by the project that may require greater co-operation and involvement of stakeholders in order that these challenges may be overcome. The frequency and general type of content to be communicated for such purposes should be documented in the plan.
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The outsourcing manager should identify all the stakeholders and their communication needs. Different stakeholders may be involved at different stages of the project and their expectations, requirements and needs may vary. The outsourcing managers of both the client and the service provider should also determine the lines of communications between the organisations, the roles and responsibilities; who will communicate with whom and what will be delivered. In geographically dispersed projects, it is important to ensure that information is communicated, processed and interpreted in the expected manner. Besides general communications, the plan should also document the communications processes through which the project team will interact with the operational users of the outsourced services. This may be part of a larger IT service management framework. This is needed to ensure that user requirements are adequately communicated to the project team. 12.1.3 Project Communications Channels To ensure the smooth delivery of the outsourcing project, it is important that there be frequent and effective communications between the client and service provider. The communications plan should therefore include various channels of communications between the two parties, with the respective outsourcing managers acting as the interface for each side. Communications channels may include formal progress meetings, focus group or work group discussions, conference calls, mass email broadcast, management and progress reports, presentations and customer satisfaction surveys. At the operational level, the project teams from both sides should set up regular formal meetings that will serve as a forum for resolving day-to-day issues and allow for operational project reporting. The meeting can be conducted weekly or at some longer intervals depending on the scope and complexity of the project, but should be held at least once a month. In the area of project communications, the outsourcing management team will need to focus on the following aspects: Defining the type of reports to be provided and the follow-up processes for outstanding issues Defining escalation processes for handling disputes over contract and other project requirements Setting documentation standards and version control standards to ensure consistency in the management of project documents Setting standards for and frequency of management reporting of performance to keep senior management abreast of developments with regard to the project

These will define the actual project processes and requirements in terms of the sharing and communications of information within the outsourcing management team. At the strategic level, the senior managers from both the client and service provider organisations should also meet annually or semi-annually to discuss higher-level business plans and initiatives as well as to set clear directions for the project. In terms of reporting structure, the governance framework set out in the overall project plan should be implemented.

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12.1.4 Key Service Provider Activities The service provider can play an important supporting role in the drafting of the clients project communications plan by sharing relevant project information and also best practices in project communications with the client. Internally, its own project team will also be responsible for building a communications plan to do its own management reporting. The plan may focus on areas such as key performance indicators, process issues and areas of concern within the project.

12.2 Executing the Communications Plan

Executing what has been documented in the communications plan and setting a feedback mechanism for all stakeholders to feedback on their reactions and problems faced with the outsourced engagements is important to the success of the project. 12.2.1 Client and Service Provider Roles and Responsibilities The roles and responsibilities for both the client and service provider in this process are summarised in Table 12.2 below. Client a. Communicate service support process information to users b. Inform users of available channels for obtaining project-related information c. Set up project information and document repository d. Refine communications plan based on feedback from all stakeholders Service Provider a. Assist client in the setting up of communications processes b. Prepare project reports for the client c. Provide feedback to the client on how to improve communications processes

Table 12.2 - Roles and Responsibilities in the Communications Plan Execution Process For the client, the key result to be achieved is the setting up and maintenance of processes for communicating relevant project information to stakeholders. For the service provider, the key result is to ensure that the client processes are well-defined and can be executed in the operational context of the project. 12.2.2 Operational Communications and Feedback For effective control of the outsourcing project, there has to be effective communications between the client and service provider on all relevant aspects of the project as defined in the communications plan. This will require the setting up of appropriate communications channels between the parties as well as using relevant project reports to communicate and manage issues both within the project team itself and also for progress reporting to senior management. The key areas to be covered in terms of operational communications include processes for the helpdesk, incident management as well as change management.
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Before or during the transition to the new service provider, any changes to existing procedures for requesting of services should be communicated to the users prior to the change-over. Information to be communicated may include the new helpdesk telephone number and email addresses, or the URL of any new website from which service information can be obtained. Users should also be informed of how their requests will be tracked and managed by the service provider, and how they can obtain status information relating to their requests, as well as the role they will need to play in the closure of cases. Besides this, in the related area of incident management, users should be informed of the processes through which the service provider will deal with service disruptions and other incidents. This will help to educate users on the actions the service provider can take in dealing with service disruptions. For communications in relation to change management, the exact content of information to be disseminated will depend on the nature of the change in each individual instance. The general principle would be that changes should be communicated well in advanced of the actual implementation, to the extent that this is operationally possible, to allow sufficient time for users to adjust to the changes. When communicating operational issues to relevant stakeholders, the outsourcing team should perform periodic review of the communications plan in order to incorporate necessary changes and feedback from stakeholders and those that arise while executing the plan. The processes and requirements should be regularly reviewed based on feedback gathered throughout the lifecycle of the engagement so that they can be refined to better meet operational needs. It is also important to ensure effective two-way communications are occurring between all appropriate client and service provider stakeholders. A continuous and formal feedback mechanism helps ensure greater customer satisfaction. 12.2.3 Key Service Provider Activities The focus of the service provider here is in setting up the relevant processes so that project information can be effectively communicated to the relevant stakeholders that will be affected by the outsourcing arrangement. With its experience, the service provider can also give advice and feedback to the client as to what refinements are necessary to make these processes workable and relevant to the operating environment. In some outsourcing engagements, the service provider may be asked to do presentations or conduct discussions or surveys for the client organisation. The clients role is to review and endorse the contents to ensure that it is appropriate for the intended audience. The client will normally chair the sessions and the briefings will be conducted by the service providers. In terms of operational communications, the service provider can help the client refine the reporting requirements for the project. These will be initially based on the requirements that have already been set out in the RFP as well as the outsourcing contract. The aim of the exercise is to ensure that the reports generated will contain information relevant to the management and control of the project through its lifecycle as well as to reflect its progress to senior management. Once the requirements have been finalised, the other key activities of the service provider will be the collection of data and information for the reports as well as the actual writing of the reports for the client. It is also important for the service provider to gather feedback on the services provided on a regular basis. This may include visiting client sites and conducting customer satisfaction surveys on a periodic basis with the objective of understanding client experiences and challenges and identifying measures to handle them. The issues identified and the proposed solutions will then be discussed and approved in the regular review meetings before implementation.
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12.3 Summary

For this subject area, candidates are expected to understand the planning requirements for effective project communications to all stakeholders. This will involve the formulation of the project communications plan which deals with the communication channels within and outside the project team, the definition of reporting structures and frequency of reporting, and the definition of documentation standards. This will also include defining effective feedback mechanisms with appropriate communication channels for tracking and escalating issues.

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13

Interpersonal Skills

The aim of this subject area is to highlight to candidates the range of soft skills required to successfully lead and manage outsourcing engagements. The cultivation of such skills requires personal mastery, which can only be acquired through personal effort after their importance has been effectively internalised. As such, this chapter can only serve as a guide to the type of skills to be learnt, but not provide a recipe for their attainment. The key knowledge areas are summarised in Figure 13.1 below. Interpersonal Skills

Diversity and Conflict Management Diversity management Cross-cultural issues Conflict management

Effective Interpersonal Skills Leadership approach in outsourcing Negotiation skills Communication skills Problem solving and decision making skills

Figure 13.1 - Interpersonal Skills Overview

13.1 Diversity and Conflict Management


The client/service provider relationship in outsourcing can sometimes lead to conflict between the parties due to differences in interests, cultures and working practices, and as such, conflict management is an essential part of outsourcing management. Also, as outsourcing often has significant impact on major parts of the client organisation, there is a need for diversity management so as to effectively deal with the various interest groups and stakeholders of the project. 13.1.1 Diversity Management Diversity refers to the differences between individuals. People differ in all kinds of aspects, both visible and non-visible. Examples of differences are gender, age, skills, cultural, educational, learning and management styles. Differences between people influence how they behave, feel, do and are perceived. Diversity management is a process for developing an environment that works for all interest groups and stakeholders of the project. When business processes or functions are outsourced, the impact will often be felt throughout the organisation. This means that the success of outsourcing often requires the co-operation of the various stakeholders that are affected by the changes, as different stakeholders have different aims and may seek to protect their interests. For example, while the IT department may be keen to reduce operational costs through outsourcing, business users may be more concerned with service quality and availability. As such, it is important to manage this diversity of interests to achieve some level of overall alignment so that the project can be executed effectively.
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To analyse stakeholder interests, the following process may be considered: Identify project stakeholders Identify each stakeholders interests, impact level and relative priority Assess each stakeholders importance and influence Outline assumptions and risks Define each stakeholders participation in the decision making

After the analysis has been done, the project leadership can then proceed to obtain broad consensus and buy-in on the goals of the outsourcing project, preferably at an early stage such as during the project planning phase, and when major decision have to be made during the course of the project. In terms of project governance, and where necessary and feasible, the project steering committee should have representation from all major stakeholders. 13.1.2 Cross-cultural Issues Cross-cultural issues arise in outsourcing due to differences in corporate culture between the client and the service provider organisations, as well as differences in the respective national cultures that they operate in and the nationalities of their staff. An effective outsourcing manager should be aware of the differences in corporate culture between the client and service provider, especially in terms of handling conflicts, communications and decisionmaking. It would be beneficial to both organisations to understand the corporate policies, reward structure, the behavioural norms and expectations of each other. With cross-border outsourcing now being a fairly common practice, cultural differences can present significant challenges to staff that have to deal with teams from different countries, which may in turn affect the success of the outsourcing engagement. Outsourcing managers need to be aware of the cultural differences between the client and service provider. These differences may involve communication styles, approaches to handling tasks, methods of dealing with conflict and decisionmaking styles. For example, some cultures are more informal while others have more formal and hierarchical structures where respect and deference to those in superior positions are expected. In addition, it is important to understand local customs, thought processes, underlying attitudes and, assumptions and expectations of the different cultures. For instance, while Europeans may typically go on vacation in the summer, Asian staff may go on vacation during the Lunar New Year period instead. Where appropriate, both the client and service provider should provide cultural sensitivity training to the relevant staff involved in the outsourcing engagement. 13.1.3 Conflict Management Conflicts among stakeholders are common in any outsourcing engagement. It is therefore important that conflicts be effectively managed so that both the client and service provider can work towards the success of the outsourcing project. Some of the causes of conflict between the client and service provide may include differences in: Project costing, especially for new service requests Project priorities Schedules
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Administrative procedures Technical opinions of trade-offs and constraints on solutions Staffing Culture Personalities between project team members

To minimise conflicts between the parties, it is necessary that the outsourcing managers of both parties work on building mutual trust from the start of the engagement through a process of regular dialogue. In dealing with specific conflict situations, both sides should approach the problems and issues objectively and strive to resolve them through a process of negotiation and possibly compromise, within the bounds of existing contractual obligations.

13.2 Effective Interpersonal Skills

As outsourcing management involves a range of activities throughout an engagements lifecycle, the interpersonal skills required are also fairly wide. These may include leadership, negotiation skills, communications skills as well as problem solving and decision making skills. 13.2.1 Leadership Approach in Outsourcing In the context of outsourcing management, leadership involves the exercise of both formal and informal authority. While the formal leader derives authority by virtue of his position in the governance structure, other team members may be required to exercise informal leadership by virtue of their specific skills, domain knowledge or previous relevant experience. Effective leadership will therefore require both leadership in project management and the ability to lead through influencing, since the outsourcing managers of both the client and service provider teams usually do not have authority over the other team and sometimes, even their own team members. This means that the leadership styles needed for effective outsourcing management will usually involve the ability to influence without formal authority. Characteristics of such styles will include: An emphasis on mutual respect and agreement Thinking in a win-win manner Flexibility and the willingness to give-and-take Building trust between the parties

In terms of working with the project team, effective outsourcing manager will need to have an understanding of the individual characteristics of team members, such as their needs, motivations, strengths and weaknesses. This will allow him to adjust his communications style and find effective ways of engaging with them at an individual level. The leadership tasks that are required for successful management of outsourcing include setting clear directions and goals for the team and communicating these clearly and consistently throughout the projects lifespan. In addition, both formal and informal leaders have to constantly encourage organisational behaviour that is conducive for successful completion of the project amongst both client and service provider team members. This may involve rewarding desired behaviour (e.g. teamwork, mutual respect etc) while counselling against negative ones (e.g. blame-shifting, personal attacks etc) that will hamper the projects progress.

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13.2.2 Negotiation Skills Another key interpersonal skill is the ability to negotiate with the various stakeholders of the project in order to achieve project objectives. Given the close working relationship between the client and service provider, it is often necessary to use negotiations as a tool for resolving conflicts between the parties in a mutually beneficial manner. When preparing to enter into negotiations, it is helpful to draw up a negotiation plan with the following requirements: Defining the desired outcomes to be achieved Understanding the positions and interests of the different stakeholders Formulating alternatives positions and back-up strategies

During the actual negotiations, some important points to note will include: Treating the other partys suggestions with respect Listening carefully to obtain a correct understanding the other partys position Asking questions and seeking clarifications of the other partys position Focusing on the issues at hand to avoid distractions and acrimony Documenting decisions made for follow-up actions

Where negotiations are to be held at the earlier phases of the project, it is important to recognise that some of the clients staff may still be adapting to the new outsourcing arrangements. As a result, they may make unreasonably demanding requests during negotiations. It may be helpful for the service provider team to exhibit empathy and sensitivity to such negotiating positions. In addition to the above considerations, attention should also be paid to the appropriate negotiation styles to be used. A possible framework to structure negotiation styles is to consider the outcomes to be achieved and their impact on the relationships between all relevant parties. Hence, depending on the context of the actual negotiations, the following styles may be applied as appropriate: a. b. c. d. e. Avoidance where neither outcome nor relationship are important Competitive where outcome is important and relationship is not Accommodating where outcome is not important and relationship is Compromise where both outcome and relationship are somewhat important Collaborative where both outcome and relationship are important

Maintaining good relationships does not mean that both parties have to always agree or compromise on a less effective outcome. They can choose to agree to disagree at times while putting forth their points of disagreement to the appropriate level of the outsourcing governance structure. It is therefore important for both parties to be very clear about the conflict resolution and escalation process. 13.2.3 Communications Skills Outsourcing involves working in teams across organisational boundaries. In order to have effective teamwork between different parties in the outsourcing engagement, information must be shared and obtained in a timely manner. Communications skills are therefore important for an effective outsourcing manager in managing the information flow.

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The first prerequisite of effective communications skills is the ability to be a good listener. Misunderstandings often occur because parties fail to listen to one another and therefore it is important for outsourcing manager to ensure that what the other party is seeking to communicate is properly understood. This may involve withholding judgement on what has been said, asking questions to clarify points and paraphrasing what has been said back to the other party to confirm understanding. It is also important for the outsourcing manager to be able to communicate what he needs in an effective manner. To achieve this, he will need to acquire effective public-speaking and presentation skills, as well as enhance his command of the main language of project communications (e.g. English in Singapore). In addition to having the right communications skills, the outsourcing manager must also understands that having an open attitude towards different and divergent views and opinions is important to building trust amongst all the parties in the outsourcing engagement. 13.2.4 Problem Solving and Decision Making Skills Outsourcing projects, like all other projects, will require frequent engagement in problem solving and decision making activities, as issues will invariably arise and choices between different alternatives made. For large scale projects in particular, decisions often involve long-term commitments of resources and carry with them serious financial implications. Good problem solving and decision making skills are therefore critical for effective outsourcing management. However, problem solving and decision making are often fraught with difficulties such as: Incomplete information upon which to evaluate alternatives Time pressures, especially in emergency and crisis situations Different stakeholder interests

To reduce these challenges to problem solving, the following structured practical approach can be considered: Define the scope of the problem Define the desired outcomes to be attained Develop a strategy for the solution based on available information Obtain buy-in from stakeholders where time permits Deploy available resources to eliminate uncertainties, where feasible Regularly evaluate feedback and newly available information

In this process, the role of the outsourcing manager is to clearly communicate what needs to be done, to obtain the necessary consensus amongst stakeholders, and to oversee the effective implementation of the developed solution.

13.3 Summary

For this subject area, candidates are expected to understand the range of interpersonal skills needed to effectively manage the outsourcing engagements. This will involve setting and communicating the projects directions and objectives, and the ability to solve problems and make effective decisions. It will also require the need to manage conflicts and divergent stakeholder interests through effective negotiations.
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