Managing Risk: Evaluating Proposals and Providers

After developing an overall IT outsourcing strategy and distributing an RFP to seek potential partners, it's time to take the next step and evaluate the proposals and providers themselves. Numerous studies have shown that a large majority of all IT projects fail to meet their goals in terms of schedule, cost or meeting customer needs. Having done risk assessments on scores of large projects, I can comfortably state that the majority of times this occurs is because somebody has oversold something. This does not mean that people intentionally set out to deceive, but rather that self-honesty is a rare trait among us all. Hopeful executives tell their boards that a project will be a painless panacea for all that ails the company; eager sales teams overestimate the ability of their technical teams to overcome all obstacles, and so on.
The end result is that when you receive the proposals from your potential partners, you must not only look to see how well the proposal works for your organization but how likely the vendor is to accomplish it. My eight-year-old is positive he can drive my car, but for some reason I just don’t give him the keysÉ

In looking at the responses and their providers, there are a host of questions about your potential partner that you'll want to know in addition to the nuts and bolts of the deal itself. Following are four general areas of focus.

Experience

Acme Outsourcing has just proposed a solution that is so elegantly sophisticated that you can envision your management team on the covers of industry journals for years to come. But has Acme ever done it before? This refers to more than just technical experience with both the hardware and software. Do they have experience managing your types of processes? A technical expert who is fluent in plant manufacturing systems may be of limited benefit if you're outsourcing an airline ticketing system.

Complexity

How many organizations will the service provider have to work with and manage? Does the proposed solution come entirely from their internal staff or will they need to manage other vendors and their teams? What is their relationship with those other vendors? How geographically dispersed is the solution? Is it one facility in Chennai delivering the service or a dozen facilities spread across the globe? If the solution is complex, the provider will be facing communication and coordination challenges that literally rise exponentially with each additional participant.

Leadership

Has the provider been the lead singer or the understudy on past performances? Not hiring the marquee performer can have its advantages (less money paid, less ego, fewer trashed hotel rooms, etc.) but that is a risk your organization should knowingly accept. There's a vast difference between leading a major outsourcing initiative vs. being a supporting actor on one.

Importance

How big is this opportunity to the provider? This goes beyond their interest in maintaining or building their reputation/share in the marketplace. If the entire company rides on delivering this deal for your organization, you will certainly have their undivided attention. But, if they need to commit 100% of their resources to the first battle, what troops do they have in reserve for emergencies? Conversely, your opportunity is understandably critical to you and your organization, but in the grand scheme of things may be too small to warrant effective support or sufficient attention from a behemoth outsourcing provider. A company used to directing hundreds or even thousands of technical resources for clients may not be able to narrow its focus enough to provide processes and costs appropriate to your needs.

Another simple risk management trick to use when reviewing proposals is this: While reading every statement, constantly ask yourself: How?

If the answer isn’t in the proposal, it should be. If you ask the provider and you get blank looks, then “there’s your sign” as the comedian says. For example:

  • If the provider proposes to ramp up 200 new help desk agents in a new facility in a month, ask: How?

    Telecom circuits alone can take over 60 days to order and install.
  • If the proposal recommends closing two facilities in Belgium and consolidating the work in a new company in Gdansk, ask: How?

    The response should quickly tell you whether the provider understands how to handle the famously powerful and mercurial European works councils that can stop plans like this cold.

In summary, by maintaining a healthy (but respectful) dose of skepticism, you can balance the solution offered by your potential service providers with their ability to truly deliver. It’s great to be chauffeured. Just make sure your provider really can drive.

Reprinted with permission from Alsbridge.

Useful Links:

Alsbridge:
http://www.alsbridge.com

Read Part 1, doing risk assessment in your outsourcing endeavors:
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Read Part 2, selecting service providers to bid:
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Read Part 4, covering disputes in the contract
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Read Part 5, a guide to setting SLAs
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Read Part 6, managing outsourcing after the contract is signed
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