Appendix 1: Analyzing Functional IT Areas

This section identifies specific types of projects, technologies, or services that are generally considered to have some justifications for doing an internal versus external service provision analysis. The sections highlight some important concerns for each topic, and provide some metrics for evaluating in-house and external service levels.5

Web Site Development and Maintenance

The growth of the Internet has led to an explosion of interest in Web sites and Web traffic. Planning out the requirements of the agency site, and the use of new technologies or service provision methods will benefit the staffing decision process.

Reasons to Outsource

Reasons to Insource

Metrics

Web site management is still relatively new, meaning that metrics are still underdeveloped. Quality of service metrics relating to how often the information is refreshed, server downtime, and response to visitor requests can be applied. Other metrics to consider are the number of hits received from unique addresses, how well the site targets its main customers (the general public, corporations, educational institutions, etc.) and responses from customer surveys that document the effectiveness of the site in raising awareness and assisting the customer.

WANs

Wide area networks (WANs) are often primary candidates for outsourcing cost comparisons because economies of scale and vendor efficiencies are significant. Resource services provisions can be a harder decision. Outside vendors may be better able to offer repair, maintenance, and added resources to handle peak request loads. If, however, the communications provide “front-line” services, such as representing the agency to clients, the communication is so critical to the organization that the loss of control is too high of a risk to take.

Reasons to Outsource

Reasons to Insource

Metrics

Equipment costs and service charges can be compared to other vendors to ensure a fair price is set. The satisfaction of end users with staff and equipment performance levels (down time, services offered, time to repair, actual bandwidth provided, etc.) should also be measured.

Sample WAN metrics include:

LANs

Local area network (LAN) services are increasingly popular as candidates for outsourcing, but can also entail higher risks because of the importance of network connectivity and speed to the enterprise.

Reasons to Outsource

Reasons to Insource

Metrics

Many of the same metrics that are applicable for the WAN also apply to the LAN.

Sample LAN metrics include:

Desktop Management

Reasons to Outsource

Note that the agency or university needs to include metrics to ensure that end users can continue their work without interruption. The vendor must clearly understand its responsibilities and how payment for services is determined. Determining cost savings can be difficult, as hidden support costs are now made explicit by the vendor. Thus, costs may seem higher for outsourcing, even if they are actually lower if soft dollars are included. Outsourcing benefits can be lost if end users are charged for support, so they then rely on non-IT resources for assistance.7

Reasons to Insource

Metrics

Quality of service/service level metrics are crucial. The goal is to measure end user satisfaction, performance improvements, and cost reductions in the total cost of ownership for the IT architecture. Benchmarking vendor performance against other service providers can also be useful. Current service levels should be used as a primary benchmarking tool before outsourcing areas such as help desk management.

Sample desktop management metrics include:

Applications Maintenance

Reasons to Outsource

Reasons to Insource

Metrics

Time line measurements such as problem resolution time will be useful. Quantitative metrics measuring business case improvements (i.e., faster caseload processing) must also be included. Stating the opportunity costs of staff time will be useful for identifying best uses of existing resources.

Applications Development

Reasons to Outsource

Note that despite these advantages, such deals must be managed carefully, with special attention paid to delivery schedules, the rate of progress and end-user satisfaction. Make sure that the responsibilities of the contractor are clearly delineated according to the end user needs and end results desired. Security considerations are also important. Current security alerts for outsourcing software application development include hidden code and back doors. There must be some independent or internal function established to make sure all code written is part of operations and complies with objectives. Clearly defined outcome success metrics are crucial to the success of these contracts, as is the vendor’s relationship with the organization.

Reasons to Insource

Metrics

Focus on the development of deliverables, measuring business improvements in customer service or other value-added activities. There should be an actual measurement process for business improvements, rather than simply stating that a service improvement will be shown. Customer satisfaction with the products, obtained through surveys and metrics, such as speed of response to user change requests, is an important concern. Beware of quantity-based metrics, which assume that all responses require the same amount of work.

Applications development metrics can be divided into three types:

Sample applications development metrics include:

Data Centers

Mainframe/data center operations were among the first IT items to be outsourced, as the emphasis was on consolidation of services to achieve greater economies of scale.8 Outsourcing all or parts of the data center requires an understanding of the role of the mainframe and other resources of the agency. If new applications development remains important for the mainframe, then it is a strategic asset and outsourcing may not be the best option. If mainframe services are to be transitioned to client/server or simply kept as an “essential utility,” then outsourcing those services may provide cost savings and business advantages.9

Reasons to Outsource

Reasons to Insource

Metrics

Meaningful contract metrics should show performance outcomes relating to efficiency, improved response time, and customer satisfaction. Measure for services and functionality, rather than operations.

Sample data center metrics include:

Special Consideration

The General Appropriations Act of the 75th Legislature, Article IX, Section 45 contains a rider concerning use of the West Texas Disaster Recovery and Operations Data Center that must be taken into account.

Disaster Recovery

Disaster recovery services are important to any outsourcing contract. In any outsourcing effort, the organization must ensure that the vendor can continue to provide essential services in case of a disaster or other business interruption. Resources responsible for outsourcing management should also be aware of who the disaster recovery planners are within the agency. Make sure that any completed contract that comes back in-house for operation and maintenance is brought to the attention of the disaster recovery planners so that it is covered in the internal disaster recovery plan. To outsource disaster recovery, identify critical business needs and evaluate the vendor’s ability to provide the needed capacity within the required time frame for restoration of services.

Reasons to Outsource

Reasons to Insource

Metrics

Two useful metrics in disaster recovery agreements are a map of estimated capacity increases against vendor charges for increases and a standard for processor capacity evaluation.

Special Consideration

The General Appropriations Act of the 75th Legislature, Article IX, Section 45 contains a rider concerning use of the West Texas Disaster Recovery and Operations Data Center that must be taken into account.

Business Value Metrics (for all cases)

The satisfaction of end users and increased operating efficiencies are generally desired IT outcomes.

Specific areas to look at include:

Appendix 2: Legislation

It is important that all state and federal legislation be considered in the decision-making process. Legislation influences costs and benefits. The following list of references is not intended to be comprehensive. As of this publication, the legislation cited is current. Each new legislative session will bring changes that must be considered.

Catalogue Purchase Procedure—Texas Government Code, Chapter 2157.

Contracts for Major Information Systems—The General Appropriations Act of the 75th Legislature, Article IX, Section 92.

Information Resources Management Act—Texas Government Code, Chapter 2054.

Interagency Contracts for Information Resources—Texas Administrative Code, Volume One, Part X. Department of Information Resources. 201.7

Professional and Consulting Services—Texas Government Code, Chapter 2254.

Purchase of Information Resource Technologies—The General Appropriations Act of the 75th Legislature, Article IX, Section 43.

Quality Assurance Review—See the Information Resources Management Act and The General Appropriations Act of the 75th Legislature, Article IX, Section 44.

Use of the West Texas Disaster Recovery and Operations Data Center—The General Appropriations Act of the 75th Legislature, Article IX, Section 45.

Appendix 3: Reasons for Insourcing and for Outsourcing

Insourcing

Strategic Considerations

Strengths

Weaknesses

Enable staff to develop professionally

Project resources/timeline may not allow time for re-skilling

Use existing best-in-class abilities

· Opportunity cost of resources time may be high
· Best use of resources may be elsewhere

Maintain control over important agency projects

Internal management and skills are insufficient to achieve project success

Minimize risks of managing a vendor relationship

· Must continue to resolve internal resource problems and weaknesses.
· If resources leave, project deadlines may be jeopardized.

Responsiveness to change - no contract adjustments needed

Difficulties with addressing scope change may still affect project timelines and budgets

Financial Considerations

Strengths

Weaknesses

Costs are more defined and explicit, and more easily controlled

Time and labor overruns may occur in the environment, and cost impact on overtime, etc. may vary significantly from month-to-month

Leverage the use of existing IT equipment and skills

An optimal solution may require newer technologies and skills

Extra costs of contract management overhead are forgone

Day-to-day, detailed management costs are experienced

Outsourcing

Strategic Considerations

Strengths

Weaknesses

Can be leveraged to improve operating efficiency, and migration to better and more efficient methods of computing can be facilitated

Loss of control over day-to-day decision-making.

Enable changes in an agency’s culture and processes

Risk of becoming tied to one vendor or technology, making responsiveness to changes more difficult.

Allows IT personnel to focus on strategic planning and new areas of development/core processes

· Outsourcing agreement must be managed effectively by knowledgeable staff to ensure vendor’s ability to deliver services and products.
· Identification of core processes may change over time.

Provides access to expert knowledge in old and new technology areas

Ensure knowledge transfer so that reductions in staff skills and staff knowledge of IT needs/systems is minimized.

Can be leveraged to respond quickly to legislative mandates, new technologies, and new business needs

· High exit barriers
· Once a contract is entered, it can be difficult to back out

Financial Considerations

Strengths

Weaknesses

Cost savings on equipment and staffing through vendors’ economies of scale

May become tied to obsolete technology so vendor can achieve economies of scale

Smoother cash flow as predetermined amounts go to the vendor, who buys material and equipment

Locking in to one vendor without the ability to take the program in-house or switch to another vendor will cause price increases when the contract is renewed

Access to technology without capital investment

· Cost of outsourcing agreement is dependent upon contract terms and conditions for changes, maintenance, etc.
· Cost may spiral quickly.

Management time and money savings through reduced need to oversee day-to-day operations

Costs to agency in terms of staff time for contract management may be higher than anticipated

Appendix 4: Sample Strategic Decision Matrix

The information presented in this appendix is adapted from The Queensland Government Guide to Best Practice in IT Outsourcing. (Queensland, AU: Department of Public Works and Housing, Information and Procurement Division. June, 1997. Available from http://www.qgts.qld.gov.au/ )

Table 1

Table 1 is a blank matrix that could be used or adapted by agencies and universities. In this table, all IT activities are under evaluation for internal or external staffing decisions.

IT Technical Area—Infrastructure Platforms /

IT Service Area

Hardware Platform 1

Hardware Platform 2

Hardware Platform 3

Communica-
tions

Application 1

Application 2

Application 3

Application 4

Application Development

                

Application Support

                

Asset Management

                

Disaster Recovery

                

Education

                

Hardware Support

                

Help Desk

                

IT Strategy

                

Operations

                

Systems Integration

                

Table 2

Table 2 provides an example of how this matrix would look when filled out for one IT service area. One matrix would need to be filled out for evaluating in-house provision of these services, and a second should be filled out to evaluate external service provision. Evaluations need to be done in various iterations:

  1. First, evaluators identify areas of strategic importance. In this case, strategic importance was defined as short-term and long-term.

  2. Next, evaluators use their previously established criteria for costs and benefits and identify areas where costs or benefits were perceived for in-house production of services.

  3. Finally, evaluators define the elements of risk that exist for the service provider, and identify where risks exist for in-house provision of these services.

  4. At the end, the matrix provides a visual tool of the strengths and weaknesses of internal IT services. Evaluators can then easily identify candidates for outsourcing based upon their established definitions and criteria. A decision could be made to rely on internal or external resource either by IT Service Area or by IT Technical Area. In the example below, the agency would wish to keep PC application development in-house, but outsource the rest of its application development activities.

IT Technical Area—Infrastructure Platforms / Applications

   

X

    

X

X

X

X

X

 

IT Service Area

 PCs

LAN / WAN

Mini / Mainframe

Commu-
nications

Account- ing

Payroll

Customer Mgt.

Procure- ment

X

Application Development

o o

o

o o

o

o

o

o

o

 

Application Support

                
 

Asset Management

                
 

Disaster Recovery

                
 

Education

                
 

Hardware Support

                
 

Help Desk

                
 

IT Strategy

                
 

Operations

                
 

Systems Integration

                
Key  
o Short-term objective
o Long-term objective
o Benefits seen from the use of in-house resources
  Risks seen from the use of in-house resources
X In-house resources would be the best option, according to the weights and goals used here
X External resources would be preferable, according to the weights and goals used here

Table 3

Table 3 shows a revised matrix that could be used for one particular project. Since only one area of IT is under consideration, the matrix can be simplified. In this case, the identified project criteria are listed down the side, and the various providers are evaluated on their ability to match the project criteria. This table does not show the weights of the criteria, which would be an important factor in the final decision.

Applications Development
Project Criteria

In-house

Partnering with
another agency

Vendor 1
(another agency)

Vendor 2

Technical skills required

        

Knowledge of agency processes

        

Resource availability

        

Management skills

        

Deliver on time

        

Deliver within budget

        

Knowledge of outcome requirements

        

Delivery of expected services

        

Experience with similar projects

        

Understanding of system dependencies
and relationships

        

Quality assurance techniques

        

Performance measures / benchmarking
analysis

        


Aggregate Evaluation

        
Key  
o Short-term objective
o Long-term objective
o Benefits seen from the use of in-house resources
o Risks seen from the use of in-house resources
X In-house resources would be the best option, according to the weights and goals used here
X External resources would be preferable, according to the weights and goals used here
X High priority criteria

Appendix 5: Sample Quantitative Cost Matrix

This matrix is taken from the 1992 DIR draft publication Analysis of Project Acquisition Alternatives for Information Resources Technologies. It is intended as an example only. Agencies and universities should modify this to reflect their own quantitative criteria.

 

In-House

Agency Y

Private

Other

Planning

        

Direct costs

$X

$Y

$Z

$W

Indirect costs

$X

$Y

$Z

$W

Contract costs

$X

$Y

$Z

$W

Contract administration costs

$X

$Y

$Z

$W

Subtotal

$XXX

$YYY

$ZZZ

$WWW

Percentage of In-house

100%

YYY%

ZZZ%

WWW%

Development

        

Direct costs

$X

$Y

$Z

$W

Indirect costs

$X

$Y

$Z

$W

Contract costs

$X

$Y

$Z

$W

Contract administration costs

$X

$Y

$Z

$W

Subtotal

$XXX

$YYY

$ZZZ

$WWW

Percentage of In-house

100%

YYY%

ZZZ%

WWW%

Implementation

        

Direct costs

$X

$Y

$Z

$W

Indirect costs

$X

$Y

$Z

$W

Contract costs

$X

$Y

$Z

$W

Contract administration costs

$X

$Y

$Z

$W

Subtotal

$XXX

$YYY

$ZZZ

$WWW

Percentage of In-house

100%

YYY%

ZZZ%

WWW%

Operations

        

Direct costs

$X

$Y

$Z

$W

Indirect costs

$X

$Y

$Z

$W

Contract costs

$X

$Y

$Z

$W

Contract administration costs

$X

$Y

$Z

$W

Subtotal

$XXX

$YYY

$ZZZ

$WWW

Percentage of In-house

100%

YYY%

ZZZ%

WWW%

Total Costs

$XXX

$YYY

$ZZZ

$WWW

Total Percentage of In-house

100%

YYY%

ZZZ%

WWW%

Appendix 6: Sample Qualitative Matrix

This matrix is taken from the 1992 DIR draft publication Analysis of Project Acquisition Alternatives for Information Resources Technologies. It is intended as an example only. Agencies and universities should modify this to reflect their own qualitative criteria. Note that the sum of the weights of all the qualitative factors should total 100%.

 

Weight (%)

In-house

Agency

Private

Other

Market availability

          

Resistance

          

Quality of Service

          

Impact on Employees

          

Legal Environment

          

Government Control

          

Materiality

          

Sensitivity

          

Technological Risk

          

Current Problems

          

Weighted Totals

100%

        

Appendix 7: Vendor Evaluation Process

Suggested Steps

  1. Form the selection team

  2. Vendor information gathering phase—issue a Request for Information (if agency is not familiar with vendor attributes, a Request for Information can be issued to gather vendor information)

  3. Set a realistic schedule (be sure to understand the task, then set the schedule)

  4. Develop a Term Sheet

  5. Define and evaluate current objectives and operations

  6. Define evaluation criteria and weights before issuing bid requests (to maintain objectivity)

  7. Prepare Request For Proposal

  8. Evaluate the bids

  9. Select a vendor

  10. Negotiate a contract

Develop Term Sheet

Vendor Pool Selection (4-6 Vendors)

Check vendor references with past clients.

—Experience and expertise:

—Financial stability—check credit reports, bank references, and other business related reports.

—Does the vendor have adequate resources?

—Subcontracting:

—Flexibility:

Vendor Finalist Evaluation

Negotiations should be conducted with at least two vendors to provide a competitive edge.

Consider:

Appendix 8: Transition Considerations

Responsibilities

What are the agency IT staff responsibilities (for the transition and after the transition)?

What are the vendor’s responsibilities (for the transition and after the transition)?

What role do end users have (during the transition and after the transition)?

What are the actions that need to take place to transfer equipment, knowledge, etc.?

Who is on the agency management team?

What are the lines of communication between the vendor and the agency?

What is the reporting schedule?

Tasks

What are the specific tasks that need to be done?

What is the priority of each task?

What is the time frame for the transition, and where are the milestones in each time line?

What dependencies exist between tasks?

Assets

What assets and licenses will need to be acquired?

What assets and licenses will need to be transferred?

What life cycle assets?

What assets have been produced and who owns them (e.g., documentation, code, planning documents)?

Appendix 9: Sample Contract Negotiation Elements

Special Note

The following information is provided for information purposes and is not intended as legal advice. You are strongly urged to consult your agency’s legal counsel in connection with any outsourcing contract negotiation issues.

Develop a Team

Include the following:

Contract Negotiation

When negotiating different contract elements consider these questions.

First define what it is, then determine the following:

Key Contract Elements

Considerations

Contract Pricing

Remember that outsourcing vendors are expecting to profit on the deal. Negotiation should focus on the value of the contract to the organization and on lowering expected profits to reasonable levels. Fixed price contracts can be beneficial, but if the computing environment is in transition or undefined, a loss in flexibility can occur. The vendor will become unwilling to work with the organization to address problems if their profit levels sink too low.

Third Parties

Recognize the positive and negative aspects of third parties. Consultant firms can play a large role in determining whether to outsource and in selecting a vendor. Hiring a third party to manage the contract does free IT management to focus on the project and to be accountable for the project and specifications, but it also adds to the total cost and creates another layer of communication between the organization and the contractor. Address whether or not vendor can use a third party and decide who has input on third party selection.

Terms and Conditions

Developing standard agency contract and/or Request for Proposal (RFP) formats will be beneficial in the negotiating process. Make sure that vendors address everything in the RFP. Vendor contracts usually contain terms less favorable to the user, and provide vendors with additional leverage in negotiations.

Pay close attention to all contract terms and conditions, and ensure that the most critical measurements and terms for the agency are included in the contract. If it is not in the contact, it is not in the deal, regardless of what a vendor representative may say.

Vendor Staff

Identify whether the primary vendor plans to use subcontractors—if so, clear responsibility for the subcontractors’ performance should remain with the primary vendor. Dealing with several contractors and vendors quickly adds to the complexity of the undertaking; especially if the agency is responsible for coordinating between vendors or has negotiated separate deals with different parties.

Weigh the benefits of vendor staffing conditions, such as minimum commitment terms and the right to remove any personnel for performance reasons. While it can help stabilize agency IT management and ensure expert assistance, there may be trade-offs in cost and vendor flexibility.

Accountability

Financial penalties can be included in the contract to ensure vendor performance, with appropriate allowances made for customer error and the opportunity to fix first-time problems quickly without penalty. Define the management role of the organization in relation to the vendor.

Standardization

Include options to use open technology solutions and establish clear migration plans. If you are developing a multi-year contract, you do not want to be locked in to obsolete technologies or proprietary systems that will be more expensive in the long run. Establishing standards will make it easier for the vendor to manage the resources, and make migration and benchmarking easier.10

Appendix 10: Additional Resources and Information

Technology Information Center

The Technology Information Center (TIC) at the Department of Information Resources offers information resources and research expertise to Texas state agency and university personnel who are seeking to make informed decisions about information technology. TIC staff research all topics relating to computer and telecommunications technologies, including vendor and product selection, IT management, IT careers and staffing, contract negotiation, and much more. Resources include books, journals, government publications and reports, CD-ROMs, and online access to research advisory services.

Contact the TIC 8am to 5pm Mondays through Fridays for assistance.

Telephone: 1-512-475-4728 or 1-512-475-4790
Fax: 1-512-475-4759
E-mail: tic@dir.state.tx.us
Web Site: http://www.dir.state.tx.us/TIC/

IT Research Services

The following IT research services provided assistance on this paper:

Gartner Group, established in 1979 by Gideon Gartner, provides multiple services based on specific information technologies. The service that provided assistance in developing the outsourcing paper is the External Service Providers Government service.

Giga Information Group, established in 1995 by Gideon Gartner, offers unified research coverage in a single service known as the Giga Advisory.

META Group, established in 1989 by Dale Kutnick and Marc Butlein, offer seven core information technology services. The service that provided assistance in developing the outsourcing paper is Services & Systems Management Strategies.

All three research and advisory services are Catalog Information Systems Vendors for the State of Texas. Information about pricing can be obtained by visiting the General Service Commission’s web site, http://www.tbpc.state.tx.us/stpurch/cisv.html, or by telephone at 512-463-8889. The Department of Information Resources has negotiated statewide contracts with META Group and Giga Information Group. To inquire about participating in the contract, please contact Cooperative Contracts at 800-464-1215 or 512-305-9713.

Valuable Comprehensive Resources

The Queensland Government Guide to Best Practice in IT Outsourcing. Queensland, AU: Department of Public Works and Housing, Information and Procurement Division. June, 1997. Available from http://www.qgts.qld.gov.au

Chapman, Robert B. and Kathleen R. Andrade. Insourcing After the Outsourcing: MIS Survival Guide. New York: American Management Association. 1998.

Klepper, Robert and Wendell O. Jones. Outsourcing Information Technology, Systems & Services. Upper Saddle River, NJ: Prentice-Hall. 1998.

The Outsourcing Environment

White Paper: Outsourcing Information Technology. Washington, DC: General Services Administration, IT Management Practices Division. February, 1998. Available at http://www.itpolicy.gsa.gov/mkm/gsaepp/finalout.htm.

Minoli, Daniel. Analyzing Outsourcing: Reengineering Information and Communication Systems. New York: McGraw-Hill, 1995.

Identifying Agency Needs

The Outsourcing Life Cycle - Part 1. Stamford, CT: META Group, Services and Systems Management, November 15, 1996.

Privatization: Questions State and Local Decisionmakers Used When Considering Privatization Options. Washington, DC: General Accounting Office, April, 1998.

Sourcing Strategy Part 1: Business Alignment and IT Strategy. Stamford, CT: META Group, Services and Systems Management. In publication.

Sourcing Strategy Part 2: Evaluating Options. Stamford, CT: META Group, Services and Systems Management. In publication.

Cappelli, William. CQA: Outsourcing Rationales. Cambridge, MA: Giga Information Group, November 24, 1997.

—- Outsourcing Decision Anatomy, Part 1. Cambridge, MA: Giga Information Group, December 12, 1997.

—- Outsourcing’s Fourth Wave: Managed Services for IT. Cambridge, MA: Giga Information Group, October 9, 1997.

Datapro Information Services. IT Outsourcing: Choose the Right Options and Avoid Risk. Delran, NJ: Datapro Information Services, May, 1996.

—- Outsourcing: Operational and Legal Stratagems. Delran, NJ: Datapro Information Services, October, 1996.

—- Outsourcing and Out-Tasking Trends. Delran, NJ: Datapro Information Services, November, 1997.

—- Outsourcing: The Imperatives. Delran, NJ: Datapro Information Services, March, 1997.

Hoyt, Douglas B. “Whether to Outsource and Downsize.” Auerbach Data Center Operations. Boca Raton, FL: CRC Press, 1997.

Lacity, Mary C., Leslie P. Willcocks, and David F. Feeny. “The Value of Selective IT Sourcing.” Sloan Management Review. Spring, 1996: 13-25.

Establishing Analysis Criteria

Antonucci, Yvonne Lederer and James J. Tucker, III. “IT Outsourcing: Current Trends, Benefits, and Risks.” Information Strategy: The Executive’s Journal, 4, no. 3 (Winter 1998): 16-26.

Kirk, T. A Road Map for Sourcing IT Services and Support. Stamford, CT: Gartner Group, Managing Distributed Computing, March 10, 1998.

Cost-Benefit Analysis

Analysis of Project Acquisition Alternatives for Information Resources Technologies. Austin, TX: Department of Information Resources, 1992. Discussion draft.

Guide to Implement the Competitive Cost Review Program. Austin, TX: Office of the State Auditor and the State Purchasing and General Services Commission, 1989.

How to Conduct a Feasibility Study. Austin, TX: Department of Information Resources, 1992.

How to Prepare and Use Estimates Effectively. Orlando, FL: Quality Assurance Institute, 1996. Videotape and workbook.

Quantitative Considerations—Dollar Costs

Berg, T., T. Scudder, and B. Stewart. Financial Considerations in Outsourcing Transactions. Stamford, CT: Gartner Group, Management Strategies and Directions, October 28, 1996.

Khosrowpour, Mehdi. Managing Information Technology Investments With Outsourcing. Harrisburg, PA: Pennsylvania State University. 1995.

Martorelli, William. Evaluating the Cost Motivation for Outsourcing. Cambridge, MA: Giga Information Group, August 30, 1996.

META Group. The Outsourcing Life Cycle - Part 2. Stamford, CT: META Group, Services and Systems Management, November 15, 1996.

Quantitative Considerations—Measurements

Cohen, L. and S. Hawkins. Benchmarking: Gain for the Pain in Managing Outsourcing. Stamford, CT: Gartner Group, External Service Providers Government, August 25, 1997.

—-. Service-Level Agreement Outline, Part 1. Stamford, CT: Gartner Group, External Service Providers Government, January 17, 1997.

—-. Service-Level Agreement Outline, Part 2. Stamford, CT: Gartner Group, External Service Providers Government, January 17, 1997.

Qualitative Considerations—Risk

A Guide to Assessing Risk in Key Accountability Control Systems. Austin, TX: Office of the State Auditor, July, 1997.

Updating the Sourcing Life Cycle: Mitigating Outsourcing Risk. Stamford, CT: META Group, Services and Systems Management Strategies, February 6, 1998.

Cohen, L. and J. Leigh. Government Outsourcing - Analyzing the Risks. Stamford, CT: Gartner Group, External Services Providers Government, December 13, 1996.

Da Rold, C. Outsourcing Customer Risk: How to Manage It? Stamford, CT: Gartner Group, Monthly Research Review, April 1, 1998.

Earl, Michael J. “The Risks of Outsourcing IT.” Sloan Management Review. Spring, 1996: 26-32.

Harding, Elizabeth U. “Reducing Risk in Outsourcing Applications.” Application Development Trends. October, 1997: 33,38.

Terdiman, R. and E. Zidar. Government Outsourcing Risks: Technology Change. Stamford, CT: External Service Providers Government, June 17, 1997.

Zidar, E. and R. Terdiman. Risks in Managing Government Outsourcing Deals. Stamford, CT: Gartner Group, External Service Providers Government, June 1, 1997.

Qualitative Considerations—Staffing

Martorelli, William. Addressing the IT Staffing Crisis: Recruitment, Retention, and Retraining. Cambridge, MA: Giga Information Group, February 23, 1998.

—-. Ideabyte: Full-Time vs. Temporary Staffing Decision Not as Clear Cut as It First Appears. Cambridge, MA: Giga Information Group, December 31, 1997.

Vendor Selection

The Outsourcing Life Cycle - Part 4. Stamford, CT: META Group, Services and Systems Management, November 19, 1996.

Outsourcing Vendor Selection Criteria - Parts 1, 2, and 3. Stamford, CT: META Group, Services and Systems Management, March 7, 1997.

The Outsourcing Vendor Selection Process. Stamford, CT: META Group, Services and Systems Management, March 7, 1997.

Hoyt, Douglas B. “How to Select an Outsourcing Vendor.” Auerbach Data Center Operations. Boca Raton, FL: CRC Press, 1997.

Transition Management

Mylott, Thomas R., III. Computer Outsourcing: Managing the Transfer of Information Systems. Englewood Cliffs, NJ: Prentice-Hall, 1995.

Contract Negotiation

Managing the Sourcing Relationship - Part 3. Stamford, CT: META Group, Services and Systems Management, August 21, 1997.

Outsourcing Contract Ts & Cs: Save Yourself some Legal Fees. Stamford, CT: META Group, Services and Systems Management, September, 25, 1997.

Outsourcing Contract Ts & Cs Parts 2 and 3. Stamford, CT: META Group, Services and Systems Management, February 6, 1998.

Outsourcing Contract Ts & Cs Part 3 - Saving More Legal Fees. Stamford, CT: META Group, Services and Systems Management, February 6, 1998.

Caldwell, Bruce, Bob Violino, and Marianne Kolbasuk McGee. “Hidden Partners, Hidden Dangers.” InformationWeek, January 20, 1997: 38-52.

Martorelli, William. Renegotiating Outsourcing Transactions. Cambridge, MA: Giga Information Group, November 27, 1996.

Contract Management and Evaluation

Managing the Sourcing Relationship - Part 1. Stamford, CT: META Group, Services and Systems Management, June 6, 1997.

Outsourcing Management Issues. Stamford, CT: META Group, Services and Systems Management, June 22, 1995.

Cohen, L. Organizing to Manage ESPs. Stamford, CT: Gartner Group, External Services Providers Government, October 16, 1996.

Fabris, Peter. “Relationship RX.” CIO. November 1, 1997: 41-46.

Fluss, D. The Net Present Value of Getting Out of an Outsourcing Deal. Stamford, CT: Gartner Group, Customer Service and Support Strategies, September 18, 1997.

Harris, M., D. Fluess, L. Starita. Canceling an Outsourcing Deal: Higher Education Risks. Stamford, CT: Gartner Group, Higher Education Technology Strategies, March 2, 1998.

James, Geoffrey. “Outsourcing Litigation: Tipping the Scales Your Way.” Datamation. November, 1997: 48-53.

McFarlan, F. Warren and Richard L. Nolan. “How to Manage an IT Outsourcing Alliance.” Sloan Management Review. Winter, 1995: 9-23.

Terdiman, R. Six Tips and Techniques for Managing Outsourcing Deals. Stamford, CT: Gartner Group, External Service Providers Government, April 23, 1998.

Web Sites

Riggs, Brian. “Web Outsourcing Hits Big Time.” LAN Times 14, no.6 (March, 1997): 1, 24.

Rubin, Howard. “Metrics and the ‘Net.” IT Metrics Strategies. III, no. 7 (July, 1997): 1-4.

LANs/Desktops

Grupe, Fritz H. “Outsourcing the Help Desk Function.” Information Systems Management. Spring, 1997: 15-22.

Martorelli, William. Desktop Outsourcing Presents Significant Challenges. Cambridge, MA: Giga Information Group, March 17, 1997.

—- Desktop Outsourcing Prices Vary Widely - As Do the Services They Purchase. Cambridge, MA: Giga Information Group, March 19, 1997.

McGee, K. Updated Network Outsourcing Vendor Selection Criteria. Stamford, CT: Gartner Group, May 29, 1996.

Terdiman, R. and J. Leigh. Outsource to Control the Distributed Systems Environment. Stamford, CT: Gartner Group, External Service Providers, February 20, 1998.

WANs

Structuring a Network Outsourcing Deal. Stamford, CT: META Group, Global Networking Strategies, July 30, 1997.

Cappelli, William. CQA: LAN/WAN Outsourcing: Pros and Cons. Cambridge, MA: Giga Information Group, December 31, 1997.

—- Network Benchmarking. Stamford, CT: META Group, Global Networking Strategies, June 27, 1994.

McGee, K. Voice Equipment, Services and Staffs Can Be Outsourced. Stamford, CT: Gartner Group, Customer Service and Support Strategies, December 22, 1997.

Applications Development

Martorelli, William. Trends in Applications Outsourcing. Cambridge, MA: Giga Information Group, April 7, 1997.

Zidar, E. and L. Dunbrack. Vendor Management for System Implementations. Stamford, CT: Gartner Group, External Service Providers Government, March 3, 1998.

Data Centers/Mainframes

Cohen, L., and J. Leigh. Should Governments Outsource Mainframe Operations? Stamford, CT: Gartner Group, External Service Providers Government, November 18, 1996.

Da Rold, C. Data Center Outsourcing Contract Duration: Keep It Short! Stamford, CT, Gartner Group, External Service Providers Europe, March 6, 1998.

Martorelli, William. Record Remains Muddled for Data Center Outsourcing Cost Savings. Cambridge, MA: Giga Information Group, April 29, 1997.

Disaster Recovery

Dunham, Ralph. “Are You Ready for Disaster?” Computing Canada 23, no.7 (March 31, 1997): 32.

Glossary

Major information resources project
A major information resources project is any information resources technology project identified in a state agency’s biennial operating plan with development costs that exceed $1 million and that:

Global outsourcing
Global outsourcing (meaning globally inclusive in nature) involves the wholesale turnover of IT management to a contractor, whether the contractor is a vendor or another state agency. All aspects of IT are provided by contract services to the organization and in house resources remain only to oversee the contract and provide input on business and technology alignment.

Sectional outsourcing
Sectional outsourcing (or out-tasking), in contrast, involves the strategic outsourcing of certain aspects of IT management (e.g., disaster recovery services, applications development or data center operations) as a result of determining that the business goals and objectives are not best served by providing these services in house.

Transitional outsourcing
Transitional outsourcing occurs when a vendor or another agency is hired to oversee or manage technology change for an organization. The vendor is brought in to provide needed expertise in technologies, project management, and knowledge transference. Once the transition has been accomplished, in-house resources manage the system.

Insourcing
The term insourcing appeared after the initial outsourcing market had developed. As organizations became more experienced with IT and their business needs, some processes that were outsourced were moved back in-house, giving rise to the term “insourced.” For the purposes of this paper, the tem refers to any IT work done internally. Insourcing can also involve the use of contracted resources to work on a project managed and controlled internally. It is equivalent to an in-house project, but temporarily hired personnel are used rather than an in-house team.

Core competencies
Core competencies are areas of special expertise unique to the agency. They represent the “key skills, characteristics, and assets necessary to excel in current and future business activities,” and enable the agency to achieve its mission.11 Core competencies are critical to an agency’s success, and will change over time with the agency. Typically, such items as strategic planning and project management skills are considered to be core competencies, and are not outsourced.

Business value, business case
The terms business value and business case pertain to an agency’s analysis of various IT options and how they impact the main mission and goals of an agency. A business case should demonstrate how the option chosen represents the best possible support of the agency. Financial, operational, and strategic reasons will be explored and presented according to how each factor was weighed. Business value refers specifically to the benefits side of the business case.

Soft costs
Soft costs refer to costs that are not clearly broken out. These costs are not readily identifiable to a function, but support the function. Examples of soft costs are employee benefits, administrative support and equipment (e.g., fax machines, copiers, pagers), legal support, overhead, and facilities charges. These costs are either rolled into a vendor charge or are charges not always considered by the agency when establishing internal costs. Soft costs should be recognized on both the vendor and agency sides to ensure an equal comparison of costs.

End Notes

1 “State and Local Business Process Outsourcing Forecast 1996–2001,” Washington Technology, June 13, 1996, 9.

2 Bruce Caldwell and Marianne Kolbasuk McGee, “Outsourcing backlash,” Information Week, September 29, 1997, 14–16.

3 Elizabeth U. Harding, “Reducing Risk in Outsourcing Applications,” Application Development Trends, October, 1997, 34.

4 William Cappelli, Outsourcing Decision Anatomy, Part 1, Giga Information Group, December 12, 1997.

5 Special thanks to William Martorelli of Giga Information Group for his assistance with metrics.

6 Steve Rigney, “VPN Outsourcing: Leasing Your WAN,” Computer Shopper, October 1997, 606.

7 William Martorelli, Desktop Outsourcing Presents Significant Challenges, Giga Information Group, March 17, 1997.

8 The definition of “data center” here is the one provided in the Department of Information Resources’ Instructions for Preparing the Biennial Operating Plan, June, 1997.

9 L. Cohen and gentlemen. Leigh, Should Governments Outsource Mainframe Operations? Gartner Group, November 18, 1996.

10 Thomas Hoffman, “Outsourcing requires up-front work by users.” Computerworld, December 22, 1997, 33.

11 Definition from the United States Geological Survey Strategic Plan at http://online.wr.usgs.gov/stratplan/splan/main.html.

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