Series Recap:
When planning to outsource all or part of an organization's IT functions, it is important to perform active risk management throughout all stages of the outsourcing lifecycle. Active risk management is a process of continually identifying and monitoring potential failure points in a plan, determining the probability of occurrence, estimating the impact of each failure, and then developing ways to lessen or avoid those risks (i.e. Mitigation). The more unknowns your outsource provider faces, the greater the risk. Risk costs money, so the more risk that can be driven out of an IT outsourcing solution, the less a vendor will charge you and the greater the chance becomes for a successful outsource.

After developing an overall IT Outsourcing strategy and distributing an RFP to seek potential partners, it is time to take the next step and evaluate the proposals and providers themselves. Numerous studies have shown that over 75% of all IT projects fail to meet their goals in terms of schedule, cost or meeting customer needs. Having done risk assessments on scores of large projects, I can comfortably state that the majority of times this occurs because somebody has oversold something. This does not mean that people intentionally set out to deceive, but rather that self-honesty is a rare trait among us all. Hopeful executives tell their boards that a project will be a painless panacea for all that ails the company; eager sales teams overestimate the ability of their technical teams to overcome all obstacles, and so on. The end result is that when you receive the proposals from your potential partners you must not only look to see how well the proposal works for your organization but how likely is the vendor to actually accomplish it. My eight year old is positive he can drive my car but for some reason I just don't give him the keys.

In looking at the responses and their providers, there are a host of questions about my potential partner that I would want to know in addition to the nuts and bolts of the deal itself. Following are four general areas of focus:

Experience
Acme outsourcing has just proposed a solution that is so elegantly sophisticated that you can envision your management team on the covers of industry journals for years to come. But has Acme ever done it before? This refers to more than just technical experience with both the hardware and software because, for a price, even those Wyoming developers that I referred to in the first article will come down from the mountains. Do they have experience outsourcing your type of processes? A technical expert who is fluent in plant manufacturing systems may be of limited benefit if you are outsourcing airline ticketing systems and processes.

Complexity
How many organizations will the provider have to work with and manage? Does the proposed solution come entirely from their internal staff or will they need to manage other vendors and their teams. What is their relationship with those other vendors? How geographically dispersed is the solution? Is it one facility in Chennai delivering the service or is it a dozen facilities spread across the globe? If the solution is complex, the provider will be facing communication and coordination challenges that literally rise exponentially with each additional participant.

Leadership
Has the provider been the lead singer or the understudy on past performances? Not hiring the marquee performer can have its advantages (less money paid, less ego, fewer trashed hotel rooms, etc.) but that is a risk your organization should knowingly accept because there is a vast difference between leading a major outsourcing initiative versus being a supporting actor on one.

Importance
How big is this opportunity to the provider? This goes beyond their interest in maintaining or building their reputation/share in the marketplace. If the entire company rides on delivering this deal for your organization, you will certainly have their undivided attention. But, if they need to commit 100% of their resources to the first battle, what troops do they have in reserve for emergencies? Conversely, your opportunity is understandably critical to you and your organization, but in the grand scheme of things may be too small to warrant effective support or sufficient attention from a behemoth outsourcing provider. A company used to directing hundreds or even thousands of technical resources for clients may not be able to narrow its focus enough to provide processes and costs appropriate to your needs.

One simple risk management trick to use when reviewing proposals is that while reading every statement, constantly ask yourself: How? If the answer isn't in the proposal, it should be. If you ask the provider and you get blank looks, then "there's your sign" as the comedian says. For example:

• If the provider proposes to ramp up 200 new help desk agents in a new facility in a month, ask: How? Telecom circuits alone can take over 60 days to order and install.
• If the proposal recommends closing two facilities in Belgium and consolidating the work in a new company in Gdansk, ask: How? The response should quickly tell you whether the provider understands how to handle the famously powerful and mercurial European works councils that can stop plans like this cold.

In summary, by maintaining a healthy (but respectful) dose of skepticism you can balance the solution offered by your potential providers with their ability to truly deliver. It's great to be chauffeured, just make sure your provider really can drive. The next article in this series will focus on managing the contractual risks with your outsourcing initiative.

Risk management and program management skills for IT outsourcing are specialized skills that many organizations have not had to previously develop an in-house expertise for. With experience on literally billions of dollars worth of these types of engagements, Alsbridge is happy to provide the objective, experienced knowledge and insight your company requires in successfully navigating an IT Outsourcing effort.

About the Author

Stephen Reed is an established industry leader with a successful track record in Outsourcing, BPR, and Program Management in a wide variety of Industries. Receiving his PMP Certification in 1996 from the Project Management Institute, Stephen is a recognized expert in Risk Management, and was a contributing writer on the Project Management Body of Knowledge (PMBOK). The PMBOK is the standard used by over 100,000 professional project managers worldwide. To date, Stephen has successfully led the implementation of over $2 billion in outsourcing and technology solutions.

Stephen has a BA in Management from Loyola College and an MBA in International Business from the Sellinger School of Business.