Outsource, System Acquisition

1. Outsource, System Acquisition CS 510 Software Engineering Supannika Koolmanojwong

2. Outline Business Process Outsourcing IT Outsourcing System Acquisition

3. Strategic Non-Strategic Not Outsourced Grey Area Competitive In House if Possible Outsource Non-Competitive When to Outsource PricewaterhouseCoopers Model

4. Outsourcing Life Cycle www.theiia.org/

5. Business Process Outsourcing • Contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. • Such as HR, finance, accounting • In 2010, the Philippines surpassed India as the largest BPO industry • Example • Customer Support Services: voice, e-mail and chat on a 24/7 and 365 days basis. • Data Entry Services / Data Processing Services • Book Keeping • Form Processing Services: Insurance claim form http://en.wikipedia.org/wiki/Business_Process_Outsourcing

6. Accounting Advertising Customer service Document management Finance Facilities management Human resources Information technology Internal audit Legal Logistics Manufacturing Marketing Product service Research and development Etc. Business Process Outsourcing • Opportunities for BPO

7. Email Outsourcing “The total cost of ownership for an in-house email system is likely to be in the range of $200 to $400 per user per month……. Outsourcing should reduce TCO by 10% to 30%.”Ferris Research, June 2001 • Email Hosting • Email@yourdomain • POP3 access  • IMAP4 access  • Outbound SMTP • Virus Scanning • External POP Access • 24x7 Web-based Support  • Spell Check • Email Forwarding  • Unlimited Attachment Size   • Unlimited Storage Folders  • Multiple attachments TypicalServices www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt‎

8. Typical Services • Custom Webmail • Customizable, private-label WebMail interface   • Wireless WAP Access  • Automated User Signups   • Integrated Ad Server   • Customizable to any language in the world  • Programming API's for front and back end system integration www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt‎

9. Costs • Web Based Email Services with POP 3 access up to 6 Mailboxes Per Month • 0-5,000 Mailboxes $0.99 each • 5,001-7,000 $0.90 each • 7,001-10,000 $0.75 each • 10,001 and up $0.55 each • Minimum Monthly Fee Per Domain is $79.00 • Large Install - Setup Fee$199.00 at launch • Other Options • Wireless Access - $0.30 per mailbox per month • Outgoing SMTP - $0.20 per mailbox per month purchased in blocks of 50. • Design Services - $100 flat charge for color scheme consulting. $70 per hour for custom design consulting. • Additional Storage - Units of 2mb $0.99 per mailbox per month. • Acadea has customizable email solutions for schools, universities, government agencies and businesses. http://www.acadea.com/WebmailPrice.htm

10. Costs Example 4: 100 User Multi Server, Multi Location Network In-House Cost Salary For Sr Level Network Engineer $65,000.00 Salary For Software / Hardware Support Technician $40,000.00 Medical Benefits and Payroll Expense    (assume 1 married 1 single) $ 18,100.00 Office Space and Expenses $ 10,000.00 Continuing Education $ 5,000.00 Hardware Repair Parts $ 10,500.00   =========   $148,100.00 Sullivan Data will provide on-sight technician during regular business hours for between $90,000.00 and $100,000.00 annually depending on equipment chosen http://www.sullivandata.com

11. http://www.kpmginstitutes.com/shared-services-outsourcing-institute/insights/2013/pdf/state-of-outsourcing-2013-exec-findings-hfs.pdfhttp://www.kpmginstitutes.com/shared-services-outsourcing-institute/insights/2013/pdf/state-of-outsourcing-2013-exec-findings-hfs.pdf

12. System Acquisition Procurement Contract Award-fee RFP SDLC “The process of obtaining a system product or service.” ISO/IEC 2008

13. Types of Contract • Product Contract • Product labels • Purchased Order • 5 copies of MS Office 2012 • Service Contract • Concerns: flexibility level, evaluation criteria, indemnities, and scope definition

14. Software Development Life Cycle (SDLC) Model

15. Contracting for IT and Software Projects https://learn.dau.mil/CourseWare/43_4/scopage_dir/l13_contiss/l13_t4rfp.html

16. System Acquisition Cost

17. Software Development Contract Styles • Fixed price, fixed scope • Risk: High risks will be on the supplier side, especially when the budget is underestimated. • Variation: • fixed-price with economic price adjustment (labor, material) • fixed-price incentive contracts (adjusting profit) • fixed-price with prospective price redetermination. (fixed for initial period)

18. Software Development Contract Styles • Cost-plus or Cost reimbursement or Incentive or award-fee • suppliers can reimburse on their time and material • Risks: if buyer has a strict budget. • Variation: • cost –plus-fixed-fee • cost-plus-incentive-fee • cost-plus-award-fee (award for good performance) • cost-plus-percentage-of-cost • cost-incentives, performance incentives, and delivery incentives.

19. Software Development Contract Styles • Variable time and variable costs • Major risks are handled by the client • The client needs to put extra effort on checking whether only legitimate effort and expense are invoiced • Supplier has little incentive to keep the costs down • Variation: • Variable time • Variable scope and cost ceiling • Variable time and materials with fixed scope and cost ceiling.

20. Software Development Contract Styles • Evolutionary Acquisition or Phased Development or Incremental Delivery • Gets paid at the end of each increment/phase • Fund or reward of the next increment depends on the supplier’s performance

21. Collaborative agreements • Vested Outsourcing • Focus on outcomes, not transactions • Focus on what, not how • Define clear and measurable outcomes • Use pricing model incentives that optimize cost/service trade-offs • Avoid fixed fee or cost-plus • Has governance structure with insight, not oversight

22. Award-Fee Contracts for Evolutionary Acquisition • To increase flexibility in contracting system • Flexibility – tailor to fit your project • Responsiveness – Use technology to facilitate the acquisition process • Innovation – continuously develop and implement initiatives to streamline and improve the process • Discipline – cost, schedule, performance metrics • Streamlined and effective management

23. Evolutionary Acquisition Variants and Invariants

24. Seven Critical Success Factors Schedule Preservation Continuous Integration support Cost Containment Technical Performance Architecture and COTS compatibility Program management Risk Management

25. Rating Guide for Seven Software Critical Success Factors

26. Typical Timelines and Award Fee Amount

27. ICSM

28. BPO Advantages • Productivity Improvements • Cost Savings • Improved HR • Focus on Core Business Competency • Increased Capability

29. BPO Disadvantages • Recent Studies • Knowledge Disappears and is Transferred to the Outsourcing Partner • Poor Quality Control • Restoring Operations is Complicated • Lack of Loyal Employees • Reduction in Strategic Alignment

30. 5 Managerial Steps That Pay Off • Go Offshore for the right reasons • Shifting a broken process overseas may not fix it • Choose your model carefully • Could cost more…..(I’ll fix this part) • Get your people on board • Employees and middle managers can make the bold move happen….or stop you in your tracks

31. 5 Managerial Steps That Pay Off • Be prepared to invest time and effort • Often what is lacking in offshore partners is a lot of deep process knowledge • Treat your partners as equals • Telling your partners exactly what to do and how to do it is not conducive to the entire process