Outsource, System Acquisition

University of Southern California

Center for Systems and Software Engineering

Outsource, System Acquisition

CS 510 Software Engineering

Supannika Koolmanojwong



Outline

• Business Process Outsourcing• IT Outsourcing• System Acquisition

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When to Outsource

GreyArea

Not Outsourced

In House if Possible Outsource

Competitive

Strategic Non-Strategic

Non-Competitive

PricewaterhouseCoopers Model



Outsourcing Life Cycle

www.theiia.org/



Business Process Outsourcing• Contracting of the operations and responsibilities

of specific business functions (or processes) to a third-party service provider. – Such as HR, finance, accounting

• In 2010, the Philippines surpassed India as the largest BPO industry

• Example– Customer Support Services: voice, e-mail and chat on a

24/7 and 365 days basis.– Data Entry Services / Data Processing Services– Book Keeping– Form Processing Services: Insurance claim form

5http://en.wikipedia.org/wiki/Business_Process_Outsourcing



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Business Process Outsourcing

Accounting Advertising Customer service Document management Finance Facilities management Human resources Information technology

Internal audit Legal Logistics Manufacturing Marketing Product service Research and development Etc.

Opportunities for BPO



Email Outsourcing

• Email Hosting– Email@yourdomain– POP3 access – IMAP4 access – Outbound SMTP– Virus Scanning– External POP Access

– 24x7 Web-based Support – Spell Check– Email Forwarding – Unlimited Attachment Size – Unlimited Storage Folders – Multiple attachments

“The total cost of ownership for an in-house email system is likely to be in the range of $200 to $400 per user per month……. Outsourcing should reduce TCO by 10% to 30%.” Ferris Research, June 2001

Typical Services

www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt



Typical Services• Custom Webmail

– Customizable, private-label WebMail interface – Wireless WAP Access – Automated User Signups – Integrated Ad Server – Customizable to any language in the world – Programming API's for front and back end system

integration

www.ou.edu/class/aschwarz/infrastr/Presentations/Outsourcing.ppt



Costs• Web Based Email Services with POP 3 access up to 6 Mailboxes Per Month

• 0-5,000 Mailboxes $0.99 each• 5,001-7,000 $0.90 each• 7,001-10,000 $0.75 each• 10,001 and up $0.55 each

• Minimum Monthly Fee Per Domain is $79.00• Large Install - Setup Fee $199.00 at launchOther Options • Wireless Access - $0.30 per mailbox per month• Outgoing SMTP - $0.20 per mailbox per month purchased in blocks of 50.• Design Services - $100 flat charge for color scheme consulting. $70 per hour for

custom design consulting.• Additional Storage - Units of 2mb $0.99 per mailbox per month.

Acadea has customizable email solutions for schools, universities, government agencies and businesses.

http://www.acadea.com/WebmailPrice.htm



CostsExample 4: 100 User Multi Server, Multi Location Network In-House Cost

Salary For Sr Level Network Engineer $65,000.00Salary For Software / Hardware Support Technician $40,000.00Medical Benefits and Payroll Expense (assume 1 married 1 single) $ 18,100.00Office Space and Expenses $ 10,000.00Continuing Education $ 5,000.00Hardware Repair Parts $ 10,500.00 ========= $148,100.00

Sullivan Data will provide on-sight technician during regular business hours for between $90,000.00 and $100,000.00 annually depending on equipment chosen

http://www.sullivandata.com



11http://www.kpmginstitutes.com/shared-services-outsourcing-institute/insights/2013/pdf/state-of-outsourcing-2013-exec-findings-hfs.pdf



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System Acquisition

“The process of obtaining a system product or service.”

ISO/IEC 2008

Procurement ContractAWARD-FEE

RFPSDLC



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Types of Contract• Product Contract

– Product labels• Purchased Order

– 5 copies of MS Office 2012• Service Contract

– Concerns: flexibility level, evaluation criteria, indemnities, and scope definition



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Software Development Life Cycle (SDLC) Model



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Contracting for IT and Software Projects

https://learn.dau.mil/CourseWare/43_4/scopage_dir/l13_contiss/l13_t4rfp.html



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System Acquisition Cost



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Software Development Contract Styles

• Fixed price, fixed scope– Risk: High risks will be on the supplier side,

especially when the budget is underestimated. – Variation:

• fixed-price with economic price adjustment (labor, material)

• fixed-price incentive contracts (adjusting profit)

• fixed-price with prospective price redetermination. (fixed for initial period)



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• Cost-plus or Cost reimbursement or Incentive or award-fee – suppliers can reimburse on their time and material– Risks: if buyer has a strict budget. – Variation:

• cost –plus-fixed-fee• cost-plus-incentive-fee• cost-plus-award-fee (award for good performance)• cost-plus-percentage-of-cost• cost-incentives, performance incentives, and delivery

incentives.



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• Variable time and variable costs – Major risks are handled by the client– The client needs to put extra effort on checking whether

only legitimate effort and expense are invoiced– Supplier has little incentive to keep the costs down– Variation:

• Variable time• Variable scope and cost ceiling• Variable time and materials with fixed scope and cost

ceiling.



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• Evolutionary Acquisition or Phased Development or Incremental Delivery– Gets paid at the end of each increment/phase– Fund or reward of the next increment depends

on the supplier’s performance



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Collaborative agreements

• Vested Outsourcing– Focus on outcomes, not transactions– Focus on what, not how – Define clear and measurable outcomes– Use pricing model incentives that optimize

cost/service trade-offs• Avoid fixed fee or cost-plus

– Has governance structure with insight, not oversight



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Award-Fee Contracts for Evolutionary Acquisition

• To increase flexibility in contracting system– Flexibility – tailor to fit your project– Responsiveness – Use technology to facilitate

the acquisition process– Innovation – continuously develop and

implement initiatives to streamline and improve the process

– Discipline – cost, schedule, performance metrics

– Streamlined and effective management



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Evolutionary Acquisition Variants and Invariants

Invariants VariantsAccommodates evolving requirements Degrees of flexibility employed

Degrees of time phasing utilized

Multiple deployments to the field supported

Overlapping versus non-overlappingO&M versus RDT&E funds used

Considerations in each cycle … PLUS technology insertion opportunities

Choice of development processChoice of contract vehicle and typeNature of incentives used to stimulate performanceChoice of risk resolution techniques

Emphasis is on total life cycle The variety of tasks included in the life cycle

Decision point at the end of each increment involves multiple stakeholders

Choices of decision-making method employed (risk-based funding, etc.)

Content of deployment is driven by risk consideration (market, operational, etc.)

Trade space used for deciding what to deploy

Managing stakeholder life cycle commitment is done via anchor points How teamwork issues are managed



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Seven Critical Success Factors

• Schedule Preservation• Continuous Integration support• Cost Containment• Technical Performance• Architecture and COTS compatibility• Program management• Risk Management



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Rating Guide for Seven Software Critical Success Factors

Criteria Score Weight Weighted Score

Factor I – Schedule Preservation 0.20

Factor II – Continuous Integration Support 0.15

Factor III – Cost Containment 0.20

Factor IV – Technical Performance 0.10

Factor V – Architecture and COST compatibility 0.15

Factor VI – Program Management 0.10

Factor VII – Risk Management 0.10

TOTAL SCORE



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Typical Timelines and Award Fee Amount

Evaluation Period

From To Available Award Fee

First Upon Contract Award 25% of Development Schedule 25%

Second 25% of Development Schedule 50% of Development Schedule 25%

Third 50% of Development Schedule 75% of Development Schedule 25%

Fourth 75% of Development Schedule End of Award Fee period of performance

25%

TOTAL 100%



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ICSM



BPO Advantages

• Productivity Improvements • Cost Savings• Improved HR• Focus on Core Business Competency• Increased Capability



BPO Disadvantages

• Recent Studies• Knowledge Disappears and is Transferred

to the Outsourcing Partner• Poor Quality Control• Restoring Operations is Complicated• Lack of Loyal Employees• Reduction in Strategic Alignment



5 Managerial Steps That Pay Off

1. Go Offshore for the right reasons• Shifting a broken process overseas may not

fix it2. Choose your model carefully

• Could cost more…..(I’ll fix this part)3. Get your people on board

• Employees and middle managers can make the bold move happen….or stop you in your tracks



5 Managerial Steps That Pay Off

4. Be prepared to invest time and effort • Often what is lacking in offshore partners is a

lot of deep process knowledge 5. Treat your partners as equals

• Telling your partners exactly what to do and how to do it is not conducive to the entire process

Documents

Outsource, System Acquisition