Overseeing an IT outsourcing arrangement takes time and preparation. Here’s why

Just because you’ve outsourced your IT doesn’t mean everything falls on the shoulders of your partner. As I wrote in the first part of this series on helping a client with an IT outsourcing deal, organizations have to think about overall governance of the agreement, managing the services and managing the commercial terms

In this column I’ll look at managing the services.

According to our definitions, services management represented the guts of the outsourcing initiative where the so called “rubber meets the road”. No matter how well the other aspects – governance, finances and contract management – were performed, nothing would matter unless the services were stable and fit for business.

We figured the key aspects to managing services were as follows:

Service Issues Management

Undoubtedly, we knew that problems would occur following transition. Some of these problems would be solved as a natural part of service delivery, but others would become issues that would need to be closely managed. We figured it is most important that issues be identified (and agreed to between my client and the vendor), prioritized and tracked through resolution. This would ensure the vendor was focused on resolving the right issues. Almost as important would be highlighting “aged issues” that may not be of extreme priority, but were languishing in the eyes of the users.

Each issue on the list needed to have an owner and a target date for resolution. As well, key activities and their completed dates would be maintained as an audit trail. Of course, computerized tools were readily available to perform any record keeping, highlighting and alert functions.

Escalation Management

Typically initiated by critical service interruptions or lingering service issues, escalation management would “percolate” through the ranks of both the vendor and my client, ensuring that the right levels of management were involved at the right time. The vendor and client needed to clearly understand and document the escalation triggers, escalation path and timing for service incidents, starting with the impact to mission-critical services through to the annoying issue which should have been resolved some time ago.

In establishing the policies, practices and timing for responsible escalation, we needed to ask one key question, “Who should know about this before being told by someone else?” As an example, if there were an interruption to a mission-critical service, my CIO should be notified immediately so that he could be the first to discuss the business impact and potential bypasses with the COO and those user executives who were most severely affected.

Again, record-keeping would be important to a successful escalation-management process.

Performance Management

Most outsourcing contracts have imbedded Service Level Agreements (SLAs) – whether they are meaningful or not is another issue. It is very important (if not crucial) to get these right during contract negotiations. Often, a vendor will display its favourite list and use that as the basis for negotiation. However, my client was able to focus on the two or three that really mattered

In this case, my client, a bank, did not have a great deal of difficulty realizing that the mean time to answer the phone at the help desk could not compare to the availability of the automatic teller machine network. One was an annoyance, whereas the other could result in the loss of large sums of money (and reputation) in a very short period. However, we needed to bear in mind that a chronically missed, moderately important service level could fester to the point that it became very disruptive to the overall relationship.

The vendor reports must be understandable from the perspective of the business, and the review mechanism should ideally involve meaningful dialogue intent on rectifying performance issues (as opposed to the typical “finger pointing”). In addition, if the vendor is truly striving for continuous improvement, it should be asked to raise the bar on important service levels following a sustained period of attainment. Our outsourcing contract actually contained provisions to ensure that was done.

Demand Management

Outsourcing costs can escalate unless demand is properly managed. Most outsourcing arrangements have thresholds of consumption (based on units of service) which, when exceeded, attract additional pricing at premium rates. Some vendors, of course, are hoping for excessive demand to increase their yield from the outsourcing deal.

Apart from monitoring the units of consumption and taking action well before thresholds are exceeded, we determined that there was another aspect of consumption that must be managed. Often, additional or “ad hoc” requests are accommodated within the scope of base services up to a certain threshold, following which changes will be levied. These are the types of requests that users were used to asking the internal service provider to perform. Now, under the outsourcing scenario, it was necessary to somehow strike the balance of ensuring that these requests were authorized before the vendor addressed them, without injecting the kind of bureaucracy that slows down business.

Often, the key to successful cost management in the majority of outsourcing situations is effectively managing demand.

 

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