Outsourcing Deliver certain amount of quality products at competitive

price at requested time.

Purchase and outsourcing Buy vs. Make decision Shared services Core competence Transaction costs / Agency Theory – Oliver Williamson

IT enabling effects / Reduce transaction costs

Cost cutting – Lift and shift aproach OEM, ODM, CMMS

Smart Sourcing From internal economics of scale to external economies of scope Shifting from ownership to strategy and products to services

Ford vs. Dell

The move from work that is location dependent to work that is free to move at will (placeless work) Ford assembling line (mass production, standardized parts) ; work was

transferred to the worker McDonald drive-through order taken at Colorado Spring JetBlue airline reservation by retirees working at home

What can be outsourced? Manufacturing parts Manufacturing design and engineering Nike IBM mainframe vs. PCs

10 Flattening Forces Open-Sourcing

Self-organizing collaborative communities Free code written by individuals and shared openly Peer review provides rewarding gratification

Out-Sourcing Any service, call center, business support operation, or knowledge

work that can be digitized can be sourced globally Opportunity to seek cheapest, smartest, most efficient providers Invigorated by Y2K computer date crisis (India)

Off-Shoring Companies move entire factory or operation offshore to foreign

country Same product produces in same way with cheaper labor, lower taxes,

etc. Invigorated by China joining the World Trade Organization (Dec 2001)

Continued…

Supply-Chaining Wal-Mart pioneered global supply chain efficiency Wal-Mart trucks deliver products to stores, pick up goods from

manufacturer on return to distribution center An item is purchased in Wichita, KS and another one is instantly produced

in Beijing Prediction of hurricane causes specialized products to be shipped to

affected stores (toys, beer)

In-Sourcing (from providers’, such as UPS) Logistics giants take control of customer supply chains UPS provides internal logistics support for other companies Toshiba laptops sent directly to UPS where a UPS employee repairs it and

return ships to customer

55

Everyday Examples

Jet Blue Reservation System Retirees and housewives take airplane reservations from their homes

McDonald’s Call Center Drive-thru customers across the country give their order to a worker in Colorado

Springs

Indian Technicians and Engineers Read X-rays, write software, provide administrative support to US companies

from Bangalore

Chinese Workers and Technicians Japanese speaking Chinese workers provide backroom support to American

and Japanese companies

Tutoring Medical care

Friedman Pencil Story

In his graphic style, Milton Friedman illustrated that principle on his television program, Free to Choose, with "The Pencil Story." Friedman held a common yellow #2 pencil in his hand and said:

"Nobody knows how to make a pencil. There's not a single person in the world who actually knows how to make a pencil.

"In order to make a pencil, you have to get wood for the barrel. In order to get wood, you have to have logging. You have to have somebody who can manufacture saws. No single person knows how to do all that.

http://www.youtube.com/watch?v=d6vjrzUplWU

Foxconn's revolutionary eCMMS model eCMMS stands for e-enabled Components, Modules, Moves and

Services. eCMMS is the vertical integrated one stop shopping business model by integrating mechanical, electrical and optical capabilities altogether. It covers solutions ranging from moulding, tooling, mechanical parts, components, modules, system assembly, design, manufacturing, maintenence, logistics ... etc.

Through eCMMS model, Foxconn's Shenzhen campus is not only the world's largest 3C manufacturing base, but also the shortest supply chain at the same time. As the result, eCMMS is recognized as the best corporate strategy by AsiaMoney Magazine Poll (2002).

88

Defining and Communicating Outsourcing as a Management Process

What is Outsourcing? Why do Organizations Outsource? What do Organizations Outsource? What is the Difference Between Outsourcing

and Offshoring? What are the Current Trends and Challenges

Organizations Face When Outsourcing? What Role Does an Outsourcing Professional

Play?

Module 1

99

Framework for Categorizing External Business Relationships

Outsourcing Fits Along a Continuum of Business Relationships

LEVEL O

F O

WN

ER

SH

IP

PEO

PLE –PR

OECESSES --TECH

NO

LO

GIE

S

LEVEL OF RISK

CONFORMANCE – OPERATIONAL OUTCOMES – BUSINESS OUTCOMES

TRADITIONALSUPPLIER

OUTSOURCING

STRATEGICALLIANCE

JOINT VENTURE

Module 1

1010

Outsourcing: At The Center of a Fundamental Restructuring of Business

OUTSOURCING

HYPER-COMPETITION,GLOBALIZATION,

RAPIDCOMMODITIZATION

OUTSIDE SPECIALISTS BROUGHT

IN FOR COMPLEMENTARY ACTIVITIES

INTERNAL FOCUS SHIFTS TOWARD

AREAS OF UNIQUE COMPETITIVE ADVANTAGE

INVESTMENT CYCLE COMPRESSION, MORE KNOWLEDGE-DRIVEN

OPERATIONS

1

23

4

Why Organizations Outsource

Module 1

1111

Outsourcing Drivers In Organizations

Sourcing Decision

Internal Forces & Internal Forces & NormsNorms

• Historical Sourcing Decisions

• Industry, Size, Rate of Growth

• Benchmarking & Reengineering

• Decision-Making Structure

• Visibility of the Function

• Desire for Management Control, Risk Tolerance

• Employment Practices

Sourcing Sourcing AlternativesAlternatives• Availability of Alternatives• Ability to Deliver: Quality, Cost, Speed, Innovation

External ForcesExternal Forces• Shortened Product Lifecycles• Technology• Changes in• Customers• Competition• Financials• Regulation, De-regulation• Laws• M&A, Divestitures

Module 1

1212

Organizations Seek a Hierarchy of Benefits through Outsourcing

Reducing Costs (49%)

Innovation(3%)

Conserve Capital (3%)Improve Quality (3%)

Increase Speed, Revenue (4%)

Access to Skills (9%)Variable Cost Structure (12%)

Improve Focus (17%)

Source: IAOP - (433 participants, 2004 Outsourcing World Summit.

Top Reason for Outsourcing

Module 1

1313

PERCENTAGE OF COMPANIES OUTSOURCING

PE

RC

EN

TA

GE

CO

NS

IDE

RIN

G O

UT

SO

UR

CIN

G

> 50%

COMMONPLACEMATURE

> 33%> 20%

EMERGING

Gauging Outsourcing Market Maturity

PHYSICAL

SPECIALIST

TRANSACTIONAL

HIGH-TOUCH –HIGH-SENSITIVITY

> 2

0%

> 3

3%

EXPANDING

Physical: Facilities Services, Copy Centers, Mail, Manufacturing, Warehousing, Logistics, IT InfrastructureSpecialist: Advertising, Legal, Architects, IT, PayrollTransactional: Call Centers, Order Processing, Payables/ReceivablesHigh-Touch/High-Sensitivity: R&D, Sales, Service Delivery

Module 1

1414

Leading to What Some Have Called the Modular Corporation

1515

Major Outsourcing Trends & Challenges

• Growing Market -$500+ Billion at 10-15%+ per year growth -• Faster, but slowing Offshore Growth:

• Major Countries – India, China, Canada• Emerging Countries – Philippines, Brazil, Russia & Eastern

Europe, Some African Countries• Growing near-shore – Canada, Mexico, and Rural Shore

(USA rural states)• Balanced Scorecard of Performance Metrics:

• Management – Financial, Quality, Schedule, Customer Satisfaction, Other

• Operational - SLAs, Responsiveness Index, Mean Time to Repair, Up Time, Redundancy, Availability, Back Up, etc.

• Penalties for Non-Performance; Reward for Extra-Ordinary Performance

• Contingency & Backup Provisions• Varying Models & Contract Durations• Multi-Vendor Strategies (to prevent putting all of your eggs in

one basket)

Module 1

1616

Outsourcing – Vendor Views

• Substantial Revenue Stream Potential• Growing Global Market• Long Term Customer Relationship• Competitive Environment• Bid Process Expensive• Technically Complex• Pricing Sensitive – Make Provisions for Change • Cost Estimating Difficult• Increased Pressure to be Certified in Quality, Software Development,

Project Management, ITIL, Security, etc.: (e.g. ISO 9000, 17799 (BS 7799; ISO 27001), 20000, SEI’s CMMI, PMI’s PMP)

Module 1

1717

Barriers to Outsourcing

Loss of Control Too Critical to Outsource Loss of Flexibility Negative Customer Reaction Employee Resistance Poor Outsourcing Process Management Poor Outsourcing Performance Management

Module 1

1818

Factors Influencing Selection of Offshore Locations & Providers

Source: The Offshore Nation, Atul Vashistha & Avinash Vashistha

Exogenous Factors Government support Educational System Geopolitical Environment Infrastructure

Catalyst Factors Physical & time zone displacement Cultural compatibility Labor pool Language proficiency

Business Environment Cost advantage – direct labor & indirect process Process maturity/competitiveness of suppliers Supportive people factors Security, IP protection

Module 1

1919

Some Key Differences Between Domestic and OffShore Deals

• Vendor cost/pricing structure

• Tax implications

• Regulatory implications

• Political concerns

• Data protection and security

• Sourcing process itself • Management and governance process is more complex and time consuming

• Legal and arbitration adjudication

• Intellectual property protection

Module 1

2020

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Make go no-go decision

Financial Analysis

Contracting

Negotiating

Deal structure

Identify Opportunities

Change Management

Renegotiate, renew, terminate

Performance Management

Operational Management

Provider Selection

Set-up Project Team

RFP

Perform Preliminary Assessment

Relationship Governance

Strategy & Policy

Manage Project Team

Implementation

Design and manage end-to-end process

Outsourcing Professional Roles and Responsibilities Lead Role Supporting Role Not Involved

Source: IAOP Survey, June 2005

Copyright © 2006 IAOP. All Rights Reserved.

2121

Developing and Managing an Organization’s End-to-End Process for Outsourcing

The ‘5-Stage’ Outsourcing Process Setting Realistic Expectations and Timelines Go/No Go Decision Criteria by Stage The Outsourcing Business Plan Applying Sound Project Management Principles

Module 2

2222

5-Stage Outsourcing ProcessA 5-Stage Outsourcing Process

IDEASTAGE

ASSESSMENTSTAGE

IMPLEMEN-TATION STAGE

TRANSITIONSTAGE

MANAGEMENTSTAGE

SERIES OF GATES

QUESTION? APPROPRIATE REAL DEAL EXECUTE OPERATE

TIMELINE? 3-6 MONTHS 6-18 MONTHS

DECISION POLICY POLICY & BUSINESS PROCESSMAKER? BUSINESS UNIT OWNER

UNIT

DECISION SET SET SETCRITERIA?

The overall outsourcing process has 5 stages and the end of each stage has a gate (go/no go decision point) that the project must successfully pass through before entering the next stage.

Module 2

2323

Outsourcing Business Plan (OBP)

Key Components

Executive Summary

************************** Strategy Operations Human Resources Financials Communications

Module 2

2424

Assessing Outsourcing Process Maturity

Ad Hoc

Illustrates an Organization’s Current and Future Targeted State of Outsourcing Maturity. All Organizations Require a Roadmap and Plan to Move Up to Higher Levels of Maturity and Effectiveness

A Common Framework Can be Used to Assess the Level of OutsourcingMaturity Within an Organization.

Module 2

Level 1 - Initial Process

Level 5 - OptimizedProcess

Level 4 - Managed Process

Level 3 - Organizational Standardsand Institutionalized Process

Level 2 - Structured Process and Standards

Basic Knowledge

Process Improvement

Process Control

Process Definition

2525

Integrating Outsourcing Into an Organization’s Business Strategy

A Strategic Approach to Outsourcing ‘Idea’ Generation

Using a Decision Matrix to Assess Outsourcing Opportunities

Risk Analysis and Regulatory Considerations Scoping Outsourcing Opportunities Prioritizing Opportunities

Module 3

2626

Top-Down Strategic PlanningTOP-DOWN APPROACH TO INTEGRATING

OUTSOURCING INTO A BUSINESS’S STRATEGY1

-S

EG

ME

NT CUSTOMERS

PRODUCTSSERVICESGEOGRAPHIES

2 -

PR

OJE

CT SOCIETY

STRUCTURECUSTOMERSNEEDSPREFERENCESFINANCIALSTECHNOLOGY

3 -

AS

SE

SS

MARKET SIZEGROWTHCOMPETITIONSHARE

4 -

DE

CID

E

SEGMENTS AND HOW TODOMINATE:COSTDIFFERENTIATEFOCUS

5 -

SO

UR

CE INTERNAL

EXTERNALBLENDEDCOMPETED

6 -

FO

RE

CA

ST

REVENUECOSTSPROFITS

7 -

INV

ES

T CAPITAL BUDGET IPPEOPLE

Integrating Outsourcing into Business Strategy

Module 3

2727

Sourcing Decision Matrix

WEAK

COMMODITY DIFFERENTIATOR

STRONG

Outsourcing Decision Matrix

PE

RF

OR

MA

NC

E R

EL

AT

IVE

TO

MA

RK

ET

IMPORTANCE AS A DIFFERENTIATOR

OUTSOURCE FOR SCALE ADVANTAGE AND INCREASED FOCUS ON DIFFERENTIATORS

KEEP IN HOUSE

OUTSOURCE FOR SCALEAND CAPABILITIES

FORM MORE EXCLUSIVE ALLIANCE TO OBTAIN CAPABILITIES(E.G. CO-BRANDING,

LICENSING, JOINT VENTURE, ACQUISITION)

Module 3

2828

Managing Outsourcing Risks

Major Classes of Risks to Evaluate Strategic Risks Operational Risks Result Risks Transactional Risks Financial Risks Other Unique Risks

Assessing these risks and how well prepared the organization is to manage

them is an inseparable part of any comprehensive outsourcing evaluation.

Module 3

2929

CSF and KPI for Outsourcing

The CSFs and KPIs are best determined by the current environment, objectives and strategies of an organization. They must be measurable, comparable & reportable.

Critical Success Factor (CSFs) Categories: - Financial - Customer - Employee - Process & Product Innovation - Service Level Innovation

Key PerformanceIndicators (KPIs):− Cost, Profitability− Customer Satisfaction− Skills, Competencies,

Training− Performance – SLAs − Program/Project Mgt.− Service/facility

scalability, readiness & redundancy

Attributes: - Performance (Historic)

Time Cost – Reduction,

Containment & Avoidance Profitability – Direct or Indirect Responsiveness Quality Availability Capacity Reliability

- Predictive (Future) Maturity Level Capability/Skills Alignment Key Issues Major Risks Certification

Reality Check – Do the CSFs and KPIs…• Translate into specific actions?• Provide strategic or tactical benefits?• Provide leverage to institute change?• Manage end-to-end results across the enterprise?• Drive performance and process improvements? • Allow for benchmarking to compare best practice performance?• Enhance your ability to compete in the future?• Drive learning and innovation? • Predictors of Future Performance?

Copyright © 2006 IAOP. All Rights Reserved.

3030

RISK QUANTIFICATION

RISKIDENTIFICATION

RISKMITIGATION

Subject Matter Experts

Risk ManagementSpecialist

METHODS

1. Brainstorming (DELPHI)2. Historical Results3. Interviewing Key Personnel4. Checklists

OUTPUTS

Risk Items (All Inclusive) Risk Symptom

Identification of Trouble Areas Requiring More Activity for Effective Risk Assessment

OUTPUTSRisk Management Plan

(Revised Plan withAlternate/Parallel Paths

FORMS OF MITIGATION

Avoidance - alternate pathsControl - work aroundAssumption - do nothingTransfer-Sharing of Risk - e.g., SubcontractApplication of Previous Mitigation Strategies

ACTIVITIES

Assignment of ProbabilityAssignment of ImportanceEvaluation of Impact

OUTPUTS

Risk Item Table Prioritized by Risk FactorsRisk Factor = (Risk Importance)* (Risk Probability) Risk Impact PotentialTotal Risk (Contingency) Reserve Assessment

Outlines the Flow of the Risk Management and Mitigation Process

Risk Management Process Flow Schematic

Copyright © 2006 IAOP. All Rights Reserved.

3131

Demonstrated Competencies− People (Recruitment, Training,

Experience)− Processes (Benchmarking, Certification,

Continuous Improvement)− Technologies (Level of Investment,

Leading Edge)− Experience (Functional, Industry)− Proven Performance; Certifications− Track Record of Innovation

Total Capabilities− Financial Strength & Stability− Infrastructure and Resources

(Bench Strength, Weaknesses/Points of Failure)

− Management Systems− Complete Suite of Services (Type

and Scope, Ability to Scale, Backup, Redundancy, Security)

Relationship Dynamics− Culture− Mission and Strategy− Relationship Management (Flexibility,

Partnership, Trust, Executive Presence, Governance and Reporting)

− Relative Importance (Size, as a Client)

Competitiveness of Solution− Solution itself (Fit to Requirements, Innovative)− Service Delivery (Quality of

Processes/Tools/Resources, Performance, Management Depth and Capabilities)

− Risks and Risk Sharing− Financial Proposal (Pricing, Volume

Considerations, Structure, Switching Costs)− Terms and Conditions (Commercial, Change,

Dispute, Adjudication)− Human Resources Requirements (Employee

Transition, Career Opportunities)

Achievement (esp. existing relationship)- Evaluate Performance - Assess Value Achieved - Continuous Improvement

Copyright © 2006 IAOP. All Rights Reserved.

Scoring and Selecting Potential Providers

3232

RFI/RFQ

(Optional)RFP

Evaluate Due

Diligence Scorecard Select

Contract Negotiation/Award

RolloutOngoing Support

Research

Internal/external research, requirements definition Establish evaluation criteria

RFI/RFQ/RFP processes (filter out vendors to 3 to 6 for receipt of RFP)

Bidders conference, Vendor presentations, Reference checks, Due diligence, Site visits

Contract strategy, type & negotiations

Transition planning, Prototype Governance and

metrics- Operating model/roles- Disengagement

considerations

Vendor Selection, Evaluation, Contract Negotiations and Award Process Flow

Copyright © 2006 IAOP. All Rights Reserved.

Debrief sessions Weighted Scorecard and Selection

3333

Content of Each Section Contract Terms

Intent of the relationship How it will be managed Initial transition Contract terms

Scope of Services Type, scope & nature of services Where & when services will be provided Standards of performance defined by

the key performance indicators (KPIs) and Service Levels (SLAs)

Pricing Pricing models Price points Payment terms

Repeated for Each Discrete Type of Service

Module 8

3434

Common Contract Terms

Definition of Relationship Assignment Confidentiality Customer Data Exclusivity Intellectual Property Multi-Vendor Considerations Term of the Agreement Termination Customer Obligations Equipment and Facilities Third-Party Services Personnel Projects at Time of Transfer

Management of the Relationship Additions & Changes Audit Dispute Resolution Personnel Sharing of Resources Change of Character Compliance with Laws Force Majeure, Indemnity,

Liability Damages, Warranties Insurance Most Favored Customer Restrictions on Hiring Personnel Taxes

Module 8

3535

Outsourcing Governance

Designing, Implementing and Managing the Outsourcing Business Relationship Planning & Setup Performance Management Management Systems & Tools

Achieving Continuous Improvement in Outsourcing Assessing providers relative to changing

capabilities, renegotiating, disengage and re-insourcing

Assessing and improving the organization’s end-to-end outsourcing process

Module 10

3636

Outsourcing Governance Planning & Setup Start planning even before the deal is done Staff key roles with carefully selected

individuals Develop a Policies & Procedures Manual which

indicates how client and provider are going to live what the contract says

Leverage governance models set up by companies that have gone before you

Successful transition and cutover is the governance organizations first test

Module 10

3737

Some Common Outsourcing Governance Challenges No historic performance data, makes setting KPI and

SLA targets difficult Retained organization resists adoption of the rigor

required to work in an outsourced environment Perception that things are slower and harder than

before, value of outsourcing not recognized Actual value erodes due to lack of productivity measures Governance gets stuck in the middle vs. simply

facilitating a direct relationship between customers and supplier

Supplier slow to react to changing needs (i.e. capacity issues)

Coordinating work across multiple suppliers Lack of cross-organizational governance experience Maintaining enough competence to be a capable buyer

Module 10

3838

Key Governance Processes

Relationship Management Service Request Management Service Receipt Verification Performance Management Problem/Incident/Change Management Project Management Security, Business Continuity, Disaster Recovery Operations Management Financial Management Asset Management Contract Management

Module 10

3939

Some Principles for Effective Outsourcing Governance

Keep strategic responsibilities kept close to the top

Create multilevel organizational links Conduct regular, goal-oriented meetings Utilize advanced communications

technologies Use objective techniques to report and

manage results Adhere without exception to escalation,

change, and other management processes

Module 10

4040

Outsourcing Governance Structure

Multi-Layer Teams for Outsourcing Management

• Monitor Health of Relationship• Review Strategic Plans• Resolve Major Issues

• Review/Approve Key Contract Deliverables and Changes

• Review Functional and Operating Plans• Approve New Service Levels• Approve New Customer Requirements• Resolve Issues

• Day-to-day Management and Operational Activities

EXECUTIVECOMMITTEE

MANAGEMENTCOMMITTEE

OPERATINGCOMMITTEES

Module 10

4141

Key Governance Processes: Structure and Roles

Copyright © 2006 IAOP. All Rights Reserved.

Sponsorship

Provider Management

Capacity Management

Project / Operational Perf. Mgt.

Project/Service Status Issue Resolution Change Management

Leader-ship

Project Mgrs

Vendor Liaisons

Vendor Mgt Team

● Strategy & Escalation

Level of Involvement

Staffing & Service

Quality/ Metrics Account Management Governance/

Escalation

4242

What Key Performance Indicators Should be Tracked?

• Revenues• Costs• Profit• Workload/Availability/Capacity/Quality• Agility, speed & innovation • Alignment• Technology absorption• Organization fluidity and synergy• Process • Program/Project• Service level• Integration• Satisfaction

Outsourcing Governance: Performance Management

Module 10

4343

• Identify critical success factors for the outsourcing vendor and identify the key performance indicators linked to factors

• Build key performance indicators into the contract performance evaluation system

• Make KPIs relevant, simple, comparable, easy to report and focused measurable outcomes

• Define and issue an outsourcing management control policy and related procedures, which identify all of the areas requiring management controls and integrate into contract

• Monitor, audit and assure that operates in accordance with the approved Management Controls

• Develop a risk management and mitigation plan, policy and process• Balance stakeholder needs – continuously “take the pulse” of all stakeholder

groups and balance their needs• Pursue stakeholder involvement – On governance boards and steering

committees• Remember that the customer is not always right – Governance group

participants must keep their minds open and reach across organizational boundaries to understand the motivations of all stakeholders

Principles for Achieving Outsourcing Performance Management Excellence

Module 10

4444

• Manage the expectations of all stakeholders well – Deliver what

you promise; don’t over-promise things you or the outsourcing

vendor cannot deliver – Credibility is a fleeting attribute that if lost,

is extremely difficult or almost impossible to regain• Experience matters – Governance groups can rapidly fill their

experience deficit through SME coaching or outside consulting

support.• SLA are not enough – Service-level agreements are extremely

important and should be continuously refined and improved over

the life of the agreement. However, they must be augmented by

other methods to ensure customer satisfaction (e.g. formal and/or

informal surveys, listening to the Voice of the Customer, etc.)

Principles for Achieving Outsourcing Performance Management Excellence (cont.)

Module 10

4545

Outsourcing Management Systems & Tools: The Project Management Office (PMO)

Make sure the right projects get done, and that they are done right (i.e. on time, on budget, and deliver the expected results) Forecast project demand Coordinate project work across suppliers Provide standard project execution processes Track aggregate measures, total project

spend, and schedule Provide risk management / escalation

Module 10

4646

Project Management Office: Processes

Gather Portfolio Input Project Work Request / Response Project Resource Request / Response Project Tracking and Monitoring Project Change Management Project Issue Management Project Charging Approval and Payment Project Closure

Module 10

4747

Planning and

Govern.

Reqmts. Mgmt.

Change Mgmt.

Resource Mgmt.

Quality Mgmt.

Integration/ Interface

Education/ Competencies

Risk Mgmt.

Cost Mgmt.

“C” Suite Executive

PMO

•Charter

•Organization

•WBS

•Resources

•Economics

•Schedule

•Escalation

•Baseline

•Estimate

•Networks

•Issues Mgmt.

•Communications

•Metrics

•Authorization

• Reporting

• Follow-Up

•Change Mgmt.

•Needs

•Alternatives

•Sanity Check

•Feasibility

•Economies

•Baseline

•Impact Analysis

•Formal Approval

•Change Control

•Documentation

•Tracking

• Identification

• Analysis

• Quantification

• Mitigation

• Contingency Plans

• Disaster Recovery Plans

• Config. Mgmt.

• Workforce

• Vendors

• Equipment

• Assets

• Technologies

• Facilities

• ROI/NPV

• Cash flow

• Activity based costing

• Earned value

• Variance analysis

• Cost performance index

• Continuous process improvement

• Validation

• Testing

• Sanity checks

• Best practices

• Interface and integration issues and processes within a project and between projects, systems, functions and SBU’s

• Training

• Education

• Advocacy

• Competencies

• Certification

Focal point for project planning, control and coordination processes

Coordinate, control and report time, costs, resources and performance reporting

Establish/Maintain/Administer all project processes, tools, templates & software

Center of Excellence – Subject Matter Experts (for staff augmentation or to manage troubled projects)

Help Desk/Web Site

Project Management Office: Structure

PMO can be locatedat executive level ordistributed or both

Roles

Growing trend to establish PMOs at Lead Executive level to track Organization-Wide Initiatives

Copyright © 2006 IAOP. All Rights Reserved.

4848

The objective of change management is not to prevent change, but to permit change to occur in an orderly process. Guidelines and

considerations:

• Formal recognition, justification & approval mandatory• Mandatory versus discretionary changes• For changes:

– Why needed/necessary?– Cost/Benefit?– Assess impact?

• For discretionary changes:– Who pays?– Negotiations

• Verify change requirement & obtain approvals through Executive Champion

• Define reserves (and contingencies) in time, dollars, and resources• Consider all the effects the change will have on the project baseline• Evaluate alternatives• Document the changes• Track the changes and report on their progress

Outsourcing Management Systems & Tools: Change Management

Module 10

4949

Outsourcing Governance Management Systems & Tools: Change Management Control – Process Flow

Complete andSubmit BaselineChange Requestto PMO for entryinto Change Log

Scope/ContractChange?

CustomerApproval?

ProjectLeader

Approval?

Mgmt TeamApproval?

Finance NotifiesCustomer

PMO ImplementsChange into

program baselineand updates

Change Log -notifies owner

Finance modifiescontract and

notifies customerand PMO

PMO updateschange log as“not approved”

Request forChange isidentified

Requirement for change isidentified by any of thefollowing methods:

Team Lead Issue Management

Process Finance Group Program Status

Meetings Configuration Control

Board Metric Trends

Information collectedincludes: Change request number

(internal) Change type (Contract

or internal) Description Requested by Reason for change Impact details (WBS/

Cost/Schedule) Date initiated Target implementation

Yes Yes

No

Yes

No

Yes

No

Copyright © 2006 IAOP. All Rights Reserved.

5050

Outsourcing Governance Management Systems & Tools: Outsourcing Business Plan (OBP) Now Becomes a Joint Business Planning System Ensures customer and supplier stay

strategically aligned and are prepared to meet each other’s needs

Involves candidly sharing information about future objectives, goals, strategies and initiatives: Annual, jointly-driven planning process

(contractually required) Formal operational and strategic review

process Examine key elements of existing and new

services Ensure continued strategic and operational

alignmentModule 10

5151

Outsourcing Governance Management Systems & Tools: Summary

Service Catalog / Request Tool Service Performance Dashboard Joint Business Planning Tool (The Outsourcing

Business Plan) Project Portfolio Management Tool and

Project Execution Dashboard Issue Management System Contract Management System

Module 10

5252

Outsourcing Governance: Continuous Improvement

Champion(s) Assessing goals & changing business needs Assessing current providers Renegotiating existing relationships Integrating previous lessons into future

initiatives

Module 10

5353

Outsourcing Governance: Assessing Providers Changes in Current Performance

Inconsistency in the level of service provided Increase in the noise level about the provider’s services Problems getting passed around and not solved More frequent need to escalate problems to get them fixed Increasingly rigid interpretation of scope of service, costs, and

other contractual terms Unanticipated turnover at the management ranks Unanticipated turnover in the employee ranks Frequent requests for you to better prioritize your

requirements Less interest in opportunities to provide new or expanded

services to your company Increased visibility of problems with the provider’s sub-

contractors A perceived change in your importance as a customer Less frequent contact with the provider’s senior management Inconsistent information from people on the provider’s team

Module 10

5454

Outsourcing Governance: Assessing Providers (cont.) Changes in Overall Business Condition

Deteriorating financial condition at the balance sheet, P&L, cash flow, credit, or equity levels

New marketplace, legal, or public relations issues Increase in executive turnover Increase in employee turnover Declining client retention rate Loss of one or more major current customers Negative change in financial condition of one or more

major customers Win of a major new customer Entry to or exit from a new line of business, geography Problems in the parent company or other large

business unit Problems with major sub-contractors

Module 10

5555

The Key to Getting the Right Exit Provisions is Asking the right key questions:

1. Why will you want to terminate? • For cause• For convenience • Normal contract end

2. What termination rights do each party have? 3. What will you do when the contract terminates?4. What will you need from your service provider to make a

smooth transition either to another service provider or to re-insource?

5. How and what incentives will you give the service provider to provide termination assistance?

6. Can you build for exist? (e.g. have the service provider maintain some of your facilities on your premises, etc.)

7. Could you use early termination assistance to reduce risk?

Outsourcing Governance: Exit Strategy

Module 10

5656

Outsourcing Governance: Continuous Outsourcing Process Improvement

A 5-Stage Outsourcing Process

IDEASTAGE

ASSESSMENTSTAGE

IMPLEMEN-TATION STAGE

TRANSITIONSTAGE

MANAGEMENTSTAGE

SERIES OF GATES

QUESTION? APPROPRIATE REAL DEAL EXECUTE OPERATE

TIMELINE? 3-6 MONTHS 6-18 MONTHS

DECISION POLICY POLICY & BUSINESS PROCESSMAKER? BUSINESS UNIT OWNER

UNIT

DECISION SET SET SETCRITERIA?

BusinessStrategy

The process of outsourcing begins with strategy, moves through assessment and implementation and then continues into the management of the relationship.

The process forms a closed loop as the management of the current relationship sets the stage for what’s strategically possible in the future.

Module 10