The Top Ten Outsourcing Tips

A Chillibreeze report

Outsourcing is to help companies reduce costs, focus on core competencies and gain competitive advantage. Essential planning and management is critical for any outsourcing process to succeed. One must analyze the ABCD before outsourcing. i.e.

Alignment: Is outsourcing the right move for your business?
Business case: Have you taken all costs into consideration?
Culture: Can you bridge the cultural difference between your company and the outsourcer?
Delivery: How will you define success?

The top 10 tips for any outsourcing venture are as follows.

1. What’s best to outsource? - Outsource non-core tasks. This enables the organization to focus on building the core strengths by optimizing resources. The core areas should be identified and never be outsourced.

2. Cost-Benefit Analysis and Risk Assessment - Any company planning to outsource needs to analyze the economics of such a venture. The cost benefit analysis, return on investment and risk assessment are important for any decision making on whether or not to outsource.

3. Incremental Outsourcing - Always start with a pilot project to understand the capabilities and performance of any service provider. Subsequently, increase the scope and complexity of work outsourced. Never sign long term contracts at the beginning of any new outsourcing relationship, which has not been tested for performance and business ethics.

4. Define Project Objectives, Schedule, Milestones and Benchmarks - One of the essential components of the planning process is to clearly define the objectives, deliverables and keep realistic schedules. It is in the overall interest of the firm as well as the service provider to agree upon the schedule, milestones and performance benchmarks.

5. Comprehensive Evaluation of Proposals - Ask the bidders to give details of previous experience on similar type of projects as well as client references. You should make certain the previous work meets your quality and style requirements. It is best to inform if you observe any shortcomings. If you are seriously considering short listing the service provider, you may ask for mock-ups or a detail work plan.

6. Select the Service Provider based on Competence and Experience - Never make low cost as the one and only selection criterion. Experience in the same sphere as the project as an important criteria long with other factors such as professional competence of the team. If you want software development for banking requirements, you must select a team that has actually worked on a few projects of similar requirements. It is good to have check with the former clients on performance issues. Always discuss your concerns and priorities with the service provider before you finalize.

7. The Cultural Frequency - It is good to have a sneak preview of the work culture of individuals or companies before you outsource work, especially to a foreign company or individual. Some understanding of cultural nuances with respect to time, email etiquette, language, festivals etc will help establish a good working relationship.

8. Phased Payments - Payments should be linked to milestones/ deliverables during project implementation. This is a good way for both parties to keep check on volume of work, quality and issues that emerge during the various stages of execution. Average installment should be in the range of 20-30% of the total project cost..

9. Clauses in Agreement - Along with other mandatory requirements in the agreement, two essential clauses that should be included are:

Support Services: It is important include a support services clause to ensure continued technical support after the project is over.
Intellectual Property Rights: The agreement should clearly define as to who owns the rights to the final product.

10. Project Documentation - The agreement and any amendments to it should be in writing and signed by senior members of both organizations. It is good to keep as record all emails and documents exchanged on critical project deliverables, schedules, payments etc.

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The Top Ten Outsourcing Tips

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