The risk-averse CIO's guide to outsourcing

By following some key management principles, IT chiefs can outsource with confidence, writes Alex Sandercock

Although outsourcing has become an established way for many organisations to manage their helpdesk, datacentre or applications more efficiently, this sits against a backdrop of some well-documented outsourcing disasters, where common themes are spiralling costs and unacceptable service provision levels.

This has attached an element of risk to outsourcing that it doesn’t really deserve. Providing a few key points are taken on board at the outset, outsourcing risks can be minimised.

A golden rule of outsourcing is never to outsource a problem. Unless you know what your exact requirements are and can convey these to a supplier, the risk of failure increases. To get the best outsourcing deal, in terms of pricing and service, the operation needs to already be in a position for suppliers to take them over.

A detailed understanding of a supplier’s costs, including their margin, will help businesses establish mature relationships with suppliers. The total fixed fee for all services provided should be broken down to show pricing for each activity, and allow for fluctuation in volume over time. There should be ad hoc charges for other work and one-time costs for the transition period. And service levels should be linked to rebates to be provided if desired standards are not met.

It is also important to be realistic about the length of contract ­suppliers appreciate longer revenue streams and will charge less for longer contracts. But many firms are reluctant to commit to long-term deals, so a balance must be struck.

Outsourcing is a marriage of sorts, between a delegation process and a services contract, so it requires a partnership approach. Regular reporting and review meetings on both the initial handover and ongoing delivery are fundamental. As is the need to retain a knowledge base within the user organisation, because without this it becomes impossible to adequately manage the supplier and makes any subsequent transfer of contract doubly difficult.

Alex Sandercock is a director ar Turnstone Services