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Balancing the Risk and Reward of Outsourcing
The best outsourcing contract for your organization is not necessarily the one with the lowest price.
Your primary goal when negotiating and structuring an outsourcing contract is to develop an agreement that achieves your business objectives not just on day one but throughout the entire term. To do this well, you must understand the overall construct of a good outsourcing contract and make certain you balance the overall risks and rewards in order to receive the services you need at the levels you require and within your price constraints.
By looking at your options this way, you will be able to better align your outsourcing contract with your strategy and requirements.
Contract Terms
An outsourcing contract is a complex legal document, as such, it will be important to fully understand the terms and conditions, you will live with for many years to come. A couple of areas you should explicitly focus on to ensure the agreement is flexible and manageable are Governance, Delivery Locations, and Termination.
Statement(s) of Work
The Statement of Work (SOW) describes WHAT will be done for the price. Because the SOW is the "meat" of what the provider will do for you, you need to ensure it fully describes the services you expect from the provider.
Service Levels
They describe HOW MUCH and TO WHAT EXTENT the services described in the SOW are delivered. There are important service level terms that should be included to allow you the freedom to add and change service levels and to re-allocate service level credits as your business needs change.
Pricing
On the whole you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation and so forth. Because each situation is different, there is no easy 'rule of thumb' to apply but you can pay close attention to some specific areas discussed in the complete whitepaper.
Transition and Transformation
Providers will have a set of transformation initiatives they want to pursue, some will be more beneficial and or visible to you and others. You need to understand and help prioritize those transformation initiatives, but also make sure to include other initiatives that are important from a business perspective.
You achieve the best outsourcing agreement not by solely focusing on price but by prioritizing the overall risks and rewards in several areas discussed above. During this effectively requires a combination of experience, knowledge, skill, effort and determination.
For detailed guidelines which will help you articulate your requirements and steer you towards an outsourcing contract that is built for long-term success, download the complete whitepaper below.
Your primary goal when negotiating and structuring an outsourcing contract is to develop an agreement that achieves your business objectives not just on day one but throughout the entire term. To do this well, you must understand the overall construct of a good outsourcing contract and make certain you balance the overall risks and rewards in order to receive the services you need at the levels you require and within your price constraints.
By looking at your options this way, you will be able to better align your outsourcing contract with your strategy and requirements.
Contract Terms
An outsourcing contract is a complex legal document, as such, it will be important to fully understand the terms and conditions, you will live with for many years to come. A couple of areas you should explicitly focus on to ensure the agreement is flexible and manageable are Governance, Delivery Locations, and Termination.
Statement(s) of Work
The Statement of Work (SOW) describes WHAT will be done for the price. Because the SOW is the "meat" of what the provider will do for you, you need to ensure it fully describes the services you expect from the provider.
Service Levels
They describe HOW MUCH and TO WHAT EXTENT the services described in the SOW are delivered. There are important service level terms that should be included to allow you the freedom to add and change service levels and to re-allocate service level credits as your business needs change.
Pricing
On the whole you should expect your IT costs to go down over time due to improvements in hardware and software functionality and pricing, labor arbitrage, automation and so forth. Because each situation is different, there is no easy 'rule of thumb' to apply but you can pay close attention to some specific areas discussed in the complete whitepaper.
Transition and Transformation
Providers will have a set of transformation initiatives they want to pursue, some will be more beneficial and or visible to you and others. You need to understand and help prioritize those transformation initiatives, but also make sure to include other initiatives that are important from a business perspective.
You achieve the best outsourcing agreement not by solely focusing on price but by prioritizing the overall risks and rewards in several areas discussed above. During this effectively requires a combination of experience, knowledge, skill, effort and determination.
For detailed guidelines which will help you articulate your requirements and steer you towards an outsourcing contract that is built for long-term success, download the complete whitepaper below.
