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METHODOLOGY FOR PLANNING THE OUTSOURCING OF ACTIVITIES

Barcelona 12-15 May 2003. METHODOLOGY FOR PLANNING THE OUTSOURCING OF ACTIVITIES. 1. Francisquini BR Session 6 – Block 2. Barcelona 12-15 May 2003. INTRODUCTION.

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METHODOLOGY FOR PLANNING THE OUTSOURCING OF ACTIVITIES

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  1. Barcelona 12-15 May 2003 METHODOLOGY FOR PLANNING THE OUTSOURCING OF ACTIVITIES 1 Francisquini BR Session 6 – Block 2

  2. Barcelona 12-15 May 2003 INTRODUCTION This methodology is an integral part of an effort made in connection with the definition of a policy for hiring outsourced services to carry out field activities in the electrical energy distribution area of Companhia Energética de Minas Gerais - Cemig. 2 Francisquini BR Session 6 – Block 2

  3. Barcelona 12-15 May 2003 CEMIG Cemig is one of the largest and more outstanding Brazilian concessionaires of electric energy and manages one of the four largest electrical power network of the world. • 46 power generation plants • 17 million people served • 774 municipalities of State of Minas Gerais • 320 thousand kilometers electrical power network 3 Francisquini BR Session 6 – Block 2

  4. Barcelona 12-15 May 2003 CHANGES The latest structural changes introduced in the Brazilian electric power market: • Deregulation • Privatization of companies • Institution of free consumers • Independent power producers • Process of bidding for new concessions has required the companies to adopt a competitive stance in terms of efficiency. 4 Francisquini BR Session 6 – Block 2

  5. Barcelona 12-15 May 2003 OBJECTIVE As a result of such competitive environment, an effort was made in order to develop a methodology for planning the contracting of services within a strategic approach aiming: • More efficiency in its processes • More effective results • Competitive gains • Economic optimization by adopting flexibility in its activities • Concentration of its energy and investments toenhance and develop its core business 5 Francisquini BR Session 6 – Block 2

  6. Barcelona 12-15 May 2003 THE METHODOLOGY Within the methodology so developed, the decision is made based on strategic levels and costs, according to the following three phases: • Definition of the Strategic Level • Definition of level of costs • Decision matrix 6 Francisquini BR Session 6 – Block 2

  7. STRENGTHS WEAKNESSES STRATEGIC LEVEL THREATS OPORTUNITIES Barcelona 12-15 May 2003 THE METHODOLOGY 1 st. Phase: Definition of the Strategic Level To perform the strategic diagnostics, the macro and micro-ambience approach – SWOT, adopted by the “Harvard Business School” was selected. Adequate strategies will be the result of the joint analysis of the following elements: 7 Francisquini BR Session 6 – Block 2

  8. Barcelona 12-15 May 2003 THE METHODOLOGY 1 st. Phase: Definition of the Strategic Level A score is assigned to each of those aspects, within an overall vision of all elements of the SWOT Analysis, according to the evaluation scale given below: 0 – Aspects assumed to be “neutral or independent” 1 – Aspects deemed to be of “medium impact” 2 – Aspects deemed to be of “major impact” 8 Francisquini BR Session 6 – Block 2

  9. MACRO AND MICRO-AMBIENCE ANALYSIS (SWOT) PROCESS: Extension and Improvement of The Electrical System ACTIVITY(24): Construction of Rural Distribution Network 9

  10. SL = Vs + Vo -1 x 100 Vw + Vt Barcelona 12-15 May 2003 THE METHODOLOGY 1 st. Phase: Definition of the Strategic Level The Strategic Level (SL) is obtained by means of the following formula : Where : SL = Strategic Level Vs = Strengths Vo = Opportunities Vw= Weaknesses Vt = Threats 10 Francisquini BR Session 6 – Block 2

  11. Barcelona 12-15 May 2003 THE METHODOLOGY 2 st. Phase: Definition of Level of Costs The relative level of costs is obtained by the percent ratio between costs with own personnel and with outsourced personnel incurred in the execution of each activity individually. 11 Francisquini BR Session 6 – Block 2

  12. Barcelona 12-15 May 2003 THE METHODOLOGY 2 st. Phase: Definition of Level of Costs The following assumptions were considered: • The same productivity • The same equipment and tools • The same vehicles • Labor with different costs • Addition of the cost for management of outsourcing. 12 Francisquini BR Session 6 – Block 2

  13. RC = Mho -1 x 100 MC + Mht  Barcelona 12-15 May 2003 THE METHODOLOGY 2 st. Phase: Definition of Level of Costs From the assumptions above, the following formula will result: Where: RC = Relative Cost (own/outsourced) Mho= Man-hour cost, own personnel Mht= Man-hour cost, outsourced personnel MC= Management cost. 13 Francisquini BR Session 6 – Block 2

  14. Barcelona 12-15 May 2003 THE METHODOLOGY 3 st. Phase: Decision Matrix Once the values of a given activity are calculated, these will be plotted into the Matrix, in order to allow one to establish the following decision levels: 14 Francisquini BR Session 6 – Block 2

  15. 100 RE L AT I VE COST % LS/HC HS/HC 80 II 60 I III 40 20 IV HS/LC LS/LC 00 9 40 60 80 100 STRATEGIC LEVEL % Barcelona 12-15 May 2003 THE METHODOLOGY 3 st. Phase: Decision Matrix Where: I – Outsourced Labor II – Labor Mix – Preferably outsourced III – Labor Mix – Preferably Own IV – Own Labor LS/LC = Low Strategy/Low Cost HS/LC = High Strategy/Low Cost LS/HC = Low Strategy/High Cost HS/HC = High Strategy/High Cost 15 Francisquini BR Session 6 – Block 2

  16. Barcelona 12-15 May 2003 Simulation in the applications program: 16 Francisquini BR Session 6 – Block 2

  17. Barcelona 12-15 May 2003 CONCLUSION This methodology has been applied in forty-one different operational activities of electric energy distribution services and has proved to be an innovative tool for the decision-making process, providing for the planning and management of the hiring of such services. 17 Francisquini BR Session 6 – Block 2

  18. Barcelona 12-15 May 2003 THANK YOU Luiz Braz Francisquini Department Manager Outside Services Management Companhia Energética de Minas Gerais – CEMIG Juiz de Fora – MG - Brazil Telephone: + 55 32 3229-6507 E-mail: luizbraz@cemig.com.br 18 Francisquini BR Session 6 – Block 2

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