IT Outsourcing Pricing Models

There are several types of outsourcing pricing models that can be adopted. Many outsourcing organizations these days use a “product” based approach whereby packaged solutions or services are bundled together to create a solution for the customer. This approach usually requires the customer to conform with “standards” laid down by the vendor. Some vendors will therefore include a “transformation” phase in the transition to the outsourcing vendor. Many customers do not want to “transform” and as a result another approach to pricing the solution is required.

An alternative to a “product” based pricing model is to ask the vendor to price their solution based on the resources required to meet the Service Level Agreements that you require. Often this is difficult because the vendor will tell the customer that they do not know how many resources are required to perform certain tasks because their resources are “leveraged”. If the vendor cannot or will not create a resource based model then you can use the Outsourcing Pricing Models on the Consulting Cloud Website to estimate what the price of the service from the vendor should be. The Outsourcing Pricing Models on the site will require you to estimate the number of resources (can be decimal points of resources) that you will need. You will also be asked what additional costs might be involved. These costs include software licensing, network costs, infrastructure etc.

By using the Consulting Cloud Outsourcing Pricing Models you can then compare the prices that your Outsourcing Vendor is proposing. This will reduce your risk, provide negotiating leverage and increase your chance of a value for money result.

The Outsourcing Pricing Models available on the site have all been used by several large IT Outsourcing Organizations.

Selecting the right IT outsourcing vendor is not just about tight contracts, SLAs and price

Whilst solid contracts, service levels,  price and thorough due diligence are extremely important in the evaluation process for any prospective IT outsourcing vendor, many organizations do not actually “know” the vendor before selecting them as their preferred service provider.

However getting to know your prospective IT outsourcing partner before you actually start doing business with them is no easy task. You need to see through the sales pitch and dig deep inside the vendor organization, meeting and talking to some of the actual people who will be delivering the service. A Service Delivery Manager, the Manager of the Service Center and the Technical Services Manager are always good starting points, and of course face-to-face meetings with some of the vendor’s existing customers. If the vendor will not allow you to talk directly to their people,  that should immediately raise red flags about how the vendor operates. Don’t be scared to ask to meet their people and be persistent, as sometimes these individual discussions can reveal a lot about the culture of the IT vendor you are about to partner with.

What you should be “digging for” is to determine whether the vendor has a good “cultural fit” with your organization.

The selection of an IT outsourcing vendor should not just be an IT activity. It should be a whole of business decision. After all it is the business that will suffer if the selected vendor does not fit with the way your organization operates, its culture and the way you deal with your customers. 

For these reasons it is often wise to form a small panel of senior people within your organization to assist with the selection process. Your panel should include representatives from Sales, Marketing, Manufacturing, Finance, HR and Supply Chain etc. Key people who run the operational  areas of your business. Obviously these people will not be able to add value to the technical side of the due diligence working sessions, but they should attend key meetings and presentations where the vendor is presenting their service delivery model, pricing methodology, escalation processes and customer references for instance. They should also attend the customer reference meetings if that is logistically possible. 

What I have successfully done in previous IT outsourcing vendor selection processes is to arm the selected panel with a list of questions that will gauge their perceptions about how close a fit the IT outsourcing vendor is to the customer organization’s operating model and culture. These questions are fairly generic and require the panel members to rate their perceptions after a presentation or meeting.  For instance - is your organization in the “sweet spot” for the vendor? – rating 1 (low) to 10 (high). In other words is the vendor organization geared to handle a customer of your organization’s size?  

When I have used this selection technique in the past, I have been pleasantly surprised that the panel members with diverse backgrounds and knowledge of outsourcing and IT have rated the prospective outsourcing vendors with very similar ratings. 

The method of using a panel also ensures that there is buy-in from other parts of the business and that their views on the vendor’s fit have been taken into account during the selection process. 

You can download the FREE set of questions and the ratings model (in Excel format) at http://www.consultingcloud.org/IT_templates/vendor_evaluation_matrix

The results might just assist you to obtain a much more balanced view of the fit of the outsourcing vendor to your organization’s strategy, operating model and culture.

Using contractors? How exposed are you?

It is common practice these days to supplement internal staff with experienced contractors to create a flexible workforce that can be ramped up and down in accordance with business demand, budgets and strategic needs. Often contractors are hired for short term assignments but are “extended” for long periods of time. This is usually due to additional projects becoming available or if the company needs some “insurance” to effectively support applications or infrastructure where the skills are not available in-house.

In my experience many contractors are engaged without a contract or agreement. This gives rise to potential misunderstandings of expectations, behavior, confidentiality, insurance, indemnity, intellectual property rights etc.

For example, I have observed contractors (without formal contracts)  requesting to be paid for public holidays, office functions and internal meetings. In addition, I have also seen situations where intellectual property rights are in dispute as well as contractors using the company’s time to conduct other business activities whilst on the contracting company’s premises.

As a consequence, (without a formal contract in place) this can leave the organization and potentially the contractor highly exposed to litigation, breaching workplace laws and even damaging the company’s reputation.

Often contracts are not established because there is a sense of urgency to engage the contractor with a particular skill immediately. In this case it is usually “a let’s get the contractor started and get the paperwork sorted out later” attitude. But unfortunately the “paperwork” rarely gets completed, leaving everyone potentially exposed. In fact many organizations are reluctant to retrospectively roll out contracts for contractors because they are fearful there will be a “push back” or even a “revolt” about the conditions in the contract.

In many other cases, the company engaging the contractor does not have a contract available and it is seen as a costly task to obtain legal advice to create one.

Creating your own contractor contract is actually not that difficult or costly if you have a template to start with.

A good contractor contract should always cover the following areas:

• term of the contract
• service to be provided and expected performance of the services
• reporting requirements on progress
• professional behavior
• compliance
• status of contractor
• indemnity
• legislative regulatory and government requirements
• fees and invoices
• expenses
• equipment (who provides what)
• confidentiality
• intellectual property rights
• moral rights
• warranty
• insurance
• termination
• conflict of interest
• access and security
• dispute resolution
• notices
• governing law

A complete sample contractor contract can be downloaded from the Consulting Cloud website.

Feel free to contact me directly if you need some advice and guidance or alternatively add some comments to this post.

 

 

 

 

 

 

 

Consulting Cloud announces first Micro Consulting Service Packages

Consulting Cloud is delighted to announce the release of our  first four Micro Consulting Service Packages on our new website www.consultingcloud.org

Micro Consulting is a service provided by Consulting Cloud whereby small clearly defined packages of Consulting work are delivered in a guaranteed timeframe, by experienced Consultants,  for a fixed price over the internet. Read more about Micro Consulting in my previous post Micro Consulting and emerging trend?

The initial Micro Consulting Service Packages are:

1. Business Case Review - This service is ideal for anyone who needs some support and reassurance about the quality, completeness and persuasiveness of a Business Case that is about to be submitted to Executives or the Board.

2. Service Catalog Assessment - If you have an existing Service Catalog and you would like an external assessment on its structure, strengths and weaknesses and how it could be improved, this service could be worth considering.

3. IT Project Health Check -  A service ideal for anyone wishing to conduct a quick external review or health check on a project. This could occur before the project commences, if there is concern about an existing project or if you just want some piece of mind that the project projections, dependencies and potential risks have all been accounted for.

4. Cloud Server setup and configuration - Ideal for anyone who wishes to establish a cloud based server environment quickly using Amazon’s EC2 Cloud platform. The steep learning curve can be avoided by using this Consulting Cloud service to setup a robust, scalable and secure server environment with Amazon on your behalf.

All services are realistically priced. They are delivered only by our highly experienced and highly regarded Micro Consulting Team, whose bios are presented on the Consulting Cloud website.

We have many additional Micro Consulting Service Packages in the pipeline so please follow us through this blog, sign up as a member on the Consulting Cloud website, or join the Linkedin Micro Consulting discussion group.

 

 

Some essentials for developing a compelling Business Case

When you are developing a Business Case there are 3 main overall objectives that you should strive to achieve:

The Business Case should stand alone. i.e. anyone reading the Business Case document should not require additional information to accept  the case put forward. The Business Case should be objective. Ensure that your personal feelings, prejudices or preferences do not pollute the facts and data presented. Make the case compelling. There should be no doubt left in the readers’ mind about proceeding.

 

To achieve the above you will need to focus the following areas:

Do your homework

Your analyses must be comprehensive. Research must be conducted and some reasonable, educated assumptions must be defined in order to clearly present the anticipated benefits. While factual data may be known,  allowances must be made for potential variations. Sensitivity to these possible variances can enable you to more thoroughly analyze the possible results of the project or initiative.

This awareness of not only the “most likely” results, but the “best-case” and “worst-case” scenarios as well, is a crucial element in creating a compelling Business Case. With this information, CEOs can more easily determine whether the entire solution (or even a single component) is worth the full investment; even if all worst-case scenarios are realized. Failure to account for the worst-case scenarios can leave companies with substantial losses, and questioning how a project with a great projected ROI (return-on-investment) failed to meet expectations.

Define the benefits in detail  

Within the context of a compelling Business Case, the term “benefit,” and all that it represents must be defined. The resultant impact of any solution, project, or initiative is termed a benefit when that impact is generally recognized as being positive for the company’s business operations; and ultimately the organization’s bottom-line.

A compelling Business Case will include details supporting each benefit (factual data, educated and reasonable assumptions, KPIs, timeframes, etc.), and will relate each of these elements within an anticipated financial impact (typically dollars per year).

 If a CEO or Board member questions the purpose or inclusion of a particular benefit, the Business Case author must be able to quickly justify its impact on the company’s bottom line.

Clearly identify the KPI for each benefit – make sure KPIs can be measured

Make sure these KPIs are clear and most importantly can be measured.

For example, adopting a new desktop virtualization system will drastically reduce the staff needed to maintain your current IT infrastructure (benefit). But what is the KPI? It could be the number of hours IT staff spent maintaining the current server annually, or the average number of incidents requiring IT support. Without clearly identified KPIs, CEOs will not have the ability to determine the validity of a specific benefit, or measure the progress of an implemented initiative.

Clearly outline the risk of no investment (do nothing strategy)

Often overlooked, but just as critical in developing a compelling Business Case, is the “do nothing scenario” outcome. If the investment is not made, what could happen to the company’s bottom line? Could the company lose customers? Or market share? Could some future costs be avoided if the investment is made today?

To clearly explain all the potential risks associated with any given solution, project, or initiative, a compelling Business Case must not only include the possible risks of moving forward, but also the economic risks of not investing. These risks can include a lost opportunity to gain a competitive advantage, resultant fines from a failure to comply with licensing rules, and increased IT or operational and maintenance costs.

Alignment with the company’s strategic goals

A good Business Case provides a simple justification of a particular initiative or solution, often resulting in a positive ROI. However, if the proposed solution does not align with the company’s strategic goals, the ROI becomes irrelevant.

In order for a potential solution, project or initiative to be deemed “viable”, it must be aligned with the company’s strategic IT and business goals. For example, a proposed solution may considerably improve your IT operations, but at the same time, could confuse and derail current company operations.

A compelling Business Cases goes beyond ROI—it clearly explains how a solution is aligned with both the technology strategies and the business strategies. Demonstrating and ensuring this alignment will further the entire company’s ability to attain short and long-term business goals.

I hope these tips assist you in developing your Business Cases. Obviously there are many other things to consider  to ensure that you develop a “bullet-proof” Business Case. In many cases it can be very beneficial to have someone externally review your Business Case before it is presented. This can identify strengths and weaknesses, its chance of success and prospective questions that might be directed at the author.

 If you are looking for Business Case templates got to the Consulting Cloud website

Micro Consulting an emerging trend?

What is Micro Consulting? 

Micro Consulting is a fairly new concept whereby Consultants complete small engagements through the “short and sharp” delivery of knowledge, insight and opinion to Customers wanting assistance to achieve business objectives. The unusual characteristic about this new Consulting concept is that the services are usually delivered over the internet after a relationship has been remotely established between the Consultant and the Customer.

What is the perceived need for such a service? 

In the today’s dynamic and unpredictable business world, where there are significant pressures to simultaneously reduce costs and increase efficiencies, many organizations cannot afford, or have the time and resources, to engage large Consulting firms in lengthy and potentially disruptive assignments that have a high cost and risk to the business. 

Where skills are not available in-house to achieve the desired objectives, many modern and agile organizations are now looking at innovative ways to access the required expertise externally with minimum cost and risk and with a potentially higher benefit. In many cases these organizations (for example) might just be looking for assistance with getting started with a project or initiative or require knowledge and experience to solve a business or technical problem. This is where Micro Consulting fits in.   

Obviously, as with any Consulting assignment, there needs to be trust and rapport established between the Customer and the Consultant. With the pervasiveness and mobility of communications these days, there is really no need for face-to-face meetings in most cases. The Customer/Consultant relationship can be established over the internet, saving time, office space and significantly reducing the cost of the engagement. 

Micro Consulting is of greatest benefit where the assignment can be broken down into small and discreet “chunks” of work, so that the Consultant can slowly build credibility with the Customer as well as gradually broadening their knowledge about the Customer’s business and objectives.  

Below are just a few examples of assignments where Micro Consulting might work well : (all the examples are Information Technology related) 

•          Reviewing an Outsourcing Contract and Service Levels and recommending changes
•          Reviewing a Project Plan
•          Reviewing Project Risk
•          Discussing and recommending a project intervention strategy when a project is in trouble
•          Reviewing a Data Migration Plan
•          Assisting with the development of an Information Technology Strategy

The delivery model for Micro Consulting is not much different than face-to-face Consulting except it is performed remotely. Obviously with any Consulting assignment there will be some introductory and background discussion to be undertaken between the Consultant and the Customer. This would typically be performed at no cost, using tools available on the Consultant’s website, Skype, email, instant messaging etc. 

A cost estimate would be established and once approved,  the work would begin. Due to the fact that there is very little overhead for the Consultant and the assignments are typically small in size, the Consultant rates can be significantly less than market rates.

The near future 

Micro Consulting seems to be the next stage of the evolution of unpaid advice and guidance through communities such as LinkedIn. These platforms will most likely remain as a means to network and maintain professional credibility by keeping everyone up to date with skills, experience and current position. 

Some emerging sites like Maven have decided on a “private” model where the identity of all parties working together is not known. This might work for the “commodity” services like application development etc., but for anyone that has ever used a Consultant you will know that the Customer must be aware of the background, experience and professional profile of the person that they are entrusting their business information to. This leads us to favor an open and transparent Micro Consulting model as a critical success factor for this type of service in the future. 

Micro Consulting already has some resonance in the field of Medicine where medical problems can be diagnosed online for a fee. We believe that it will expand into other professional areas such as Information Technology and Business Consulting as the majority of people across the world get more and more connected. 

I am very interested in your views on the subject.

CenITex Ombudsman’s Report and media coverage overshadows challenges and good work

Tom Smyth

The Victorian Ombudsman’s Report on CenITex has been released and I felt that I should try to put things into perspective given that I worked at CenITex from its foundation until around July 2011.

My first comment is that apparently there were a few greedy individuals employed or contracted by CenITex who rorted the system for their own individual gain. I despise this type of behaviour and those people involved should be dealt with in accordance with the law.

The press has been very active in highlighting these issues and other inefficiencies at CenITex, but it is usually old news just being recycled in another format.

I thought it was time to put things into perspective given that these few “bad apples” are, in my view, overshadowing some of the significant good work of CenITex during the time I was there.

Firstly, the establishment of CenITex was a very courageous and ambitious undertaking by the Victorian Government. It was established to remove ICT duplication, reduce costs and streamline services to Government Departments and the community. There was a recognition that centralising the ICT function would require massive infrastructure and service delivery transformation in parallel to transitioning a huge number of people (VPS and contractors) into the centralised Agency (CenITex). 

There were also very tight timeframes imposed on the Program by the Department of Treasury and Finance DTF (GSD) who were funding the transformation activities. This transformation was to be named the ETS Program (Efficient Technology Services). 

The scale of change required very strong leadership, and strong support from DTF. We had very strong leadership from our CEO Peter Blades, but sadly CenITex did not receive strong backing from DTF. 

As each Government Department or Agency was approached to commence the Due Diligence activity before transitioning into CenITex, we encountered significant resistance from most of the Departments. This caused the ETS Transition Team to waste an enormous amount of time (and money) trying to convince the Departments to co-operate and to deliver critical information so that costs and risk could be effectively determined. During these roadblocks DTF rarely intervened. We also found that when Departments eventually passed on some information to the ETS Transition Team that it was incomplete, out of date or had been purposely modified to “hide” things like the number of IT people involved in various tasks within the Departments. The Departments were clearly “hiding” people so they could remain there and not be transferred to CenITex. 

After much wasted time, several of the Departments’ IT functions did move across to CenITex, but in most cases the in-coming costs of the infrastructure and services that CenITex was going to take over could still not be accurately determined by the transitioning Departments. (They did not know their own costs). As a consequence of this CenITex found some big surprises when they started paying their salaries and other expenses. 

During the time of transitioning the Departments into CenITex, CenITex was also transforming and uplifting its own Service Management environment with the replacement of tools, processes and business model as well as designing and developing a Whole of Victorian Government (WoVG) platform for infrastructure.  

In addition, because CenITex was a fairly new entity, it was establishing its own internal processes, based on a hybrid VPS/Commercial model. All of this activity was being overseen by DTF. It was inevitable that, particularly in the early days and because of the massive amount of change that was going on, some things were going to “slip through the cracks”.

Everyone that I worked with at CenITex (remember there are around 600 people there now) were consummate, highly committed professionals, whose sole interest was to ensure that the ambitious agenda set out by DTF was achieved.

It is annoying therefore when I read the recent press headlines that do not recognise the hard work and professionalism of all but a small number of CenITex people who are now charged with running and maintaining the majority of Government ICT infrastructure in the state of Victoria.

CenITex should be supported, not denigrated. Its achievements to date have exceeded just about any other Government Shared Services function in Australia. A massive undertaking that has made considerable ground despite the lack of co-operation from the Government Departments and the lack of Governance and support from DTF.

The Government should accelerate (not stall) the Agenda for ICT centralisation by investing in new technology and processes as the ultimate cost savings are enormous.

For the record:

(I do not work for CenITex, nor do I have any affiliations with any vendor or individual currently doing business there).