MGT 5014 Information Systems
Florida Institute of Technology
November 9, 2009
The focus of this document is to evaluate outsourcing and the complexities that are involved with the process of converting internally managed services into externally managed services. Each facet of the topic will involve proper business relationships, SLAs, Acceptance, Privacy and Security and dispute resolution.
In this global village where inexpensive communications bring international companies together, one cannot ignore the benefits that outsourcing certain services to solid vendors can provide. For those just tuning in, outsourcing is the process of delegating an internal IT service or resource to an external entity for hosting, management or some other function. That is, the effort and responsibilities of the resource transition outside the physical boundaries of the company are evident. The resource becomes a ‘black box’ with only a hand full of indicators tracking its status. The customer does not care how the resource is managed; only that it performs as well, if not better with the vendor than it would if it were an internal entity.
This paper will cover several elements of outsourcing and ways to transition a service so that is causes the least amount of pain to either party. The author cited in this paper is a lawyer who specializes in areas of technology such as outsourcing contracts. He discusses the nature of the relationships involved and how to negotiate in a practical manner. Moreover, he sheds light on SLAs and managing expectations, acceptance , privacy and security, transition assistance and dispute resolution (Dunne, 2009).
When considering outsourcing a realization that there are opposing sides attempting to set themselves in an optimal position must take place. The customer is fighting for value. “How much service can I get for every dollar spent?” On the other side the vendor is fighting for margin. “How much can I offer at the least amount of cost?” While negotiating with a vendor, Dunne offers that there is a relationship at play; and even though the over-arching goal is monetary savings, it should not be the driving force behind such activity. The long term must be taken into account. Usually such contracts are multi-year instruments. Are there provisions in the contract for alteration due to business climate on either end of the deal that need to be addressed? If two years into an online application hosting contact, the vendor’s ISP must raise rates due unexpected costs associated with their last mile provider because the provider purchased the competition; leaving them with no other option but to pay the increased price, what provisions are there in the contract to handle such a situation?
Building the relationship only begins the outsourcing process. Certain elements such as service level agreements (SLA) can be added to the contract so that expectations on either side are well managed. SLAs are common in the communications industry. The service vendor states if they will reduce the amount of the monthly payment by 5 percent for every 1 percent drop in reliability. To be specific, if the baseline for the contract is 97 percent resource availability and there is a problem that lowers the availability to 96 percent for that month; there will be a 5 percent reduction in the invoice sent to the customer. Dunne maintains that to facilitate a solid relationship, the SLA should have provisions in it so that both parties benefit from the arrangement. In the same scenario, the vendor should be able to recoup the lost revenue due to reduction in uptime by exceeding the uptime baseline of 97 percent in the future.
SLAs and expectations are driven by acceptance criteria. Such requirements are offered in the form of request for proposals (RFP) that are sent to vendors who wish to bid on the project (Dunne, 2009). In the past, when RFPs were written, little input from the