How can organizations evaluate whether or not to outsource?

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Deciding whether to outsource, what to outsource, and how to outsource are important topics for many organizations throughout the world. Organizations are turning to outsource to accomplish the following:

Access skills and technologies.Organizations can gain access to specific skills and technologies when they are required by using outside resources. As mentioned earlier,a shortage of qualified personnel is the main reason that companies outsource IT services.A project may require experts in a particular field for several months, or it might require specific technologies from an outside source. Planning for this procurement ensures that the needed skills and technologies will be available for the project.

Reduce both fixed and recurrent costs.Outsourcing suppliers often can use economies of scale that may not be available to the client alone, especially for hardware and software. It can also be less expensive to outsource some labor costs to other organizations in the same country or offshore. Companies can use outsourcing to reduce labor costs on projects by avoiding the costs of hiring, firing, and reassigning people to projects or paying their salaries when they are between projects.

Allow the client organization to focus on its core business.Most organizations are not in business to provide IT services, yet many have spent valuable time and resources on IT functions when they should have focused on core competencies such as marketing, customer service, and new product design. By outsourcing many IT functions, employees can focus on jobs that are critical to the success of the organization.

Provide flexibility.Outsourcing to provide extra staff during periods of peak workloads can be much more economical than trying to staff entire projects with internal resources. Many companies cite better flexibility in staffing as a key reason for outsourcing. As you learned inChapter 2, Apple says it could not produce several of its products fast enough without outsourcing.

Increase accountability.A well-writtencontracta mutually binding agreement that obligates the seller to provide specified products or services and obligates the buyer to pay for themcan clarify responsibilities and sharpen focus on key deliverables of a project. Because contracts are legally binding, there is more accountability for delivering the work as stated in the contract.

Organizations must also consider reasons they mightnotwant to outsource. When an organization outsources work, it often does not have as much control over the aspects of projects that suppliers carry out. In addition, an organization could become too dependent on particular suppliers. If those suppliers went out of business or lost key personnel, it could cause great damage to a project. Organizations must also be careful to protect strategic information that could become vulnerable in the hands of suppliers. According to Scott McNealy, co-founder and former CEO of Sun Microsystems, Inc., "What you want to handle in-house is the stuff that gives you an edge over your competitionyour core competencies. I call it your 'secret sauce.' If you're on Wall Street and you have your own program for tracking and analyzing the market, you'll hang onto that. At Sun, we have a complex program for testing microprocessor designs, and we'll keep it."6Project teams must think carefully about procurement issues and make wise decisions based on the unique needs of their projects and organizations. They must also be aware of political issues, as described in the following example.

Outsourcing can also cause problems in other areas for companies and nations as a whole. For example, in 2004 many people in Australia were concerned about outsourcing software development. "The Australian Computer Society says sending work offshore may lower the number of students entering IT courses, deplete the number of skilled IT professionals, and diminish the nation's strategic technology capability. Another issue is security, which encompasses the protection of intellectual property, integrity of data, and the reliability of infrastructure in offshore locations."8A 2018 article stated that the job market for IT workers in Australia did improve as several companies brought jobs back to the country. "We start 2018 off the back of a strong, stable run of jobs growth where the labour market grew by over 383,000 positions in the past 12 months," said Nick Deligiannis, Managing Director of Hays in Australia and New Zealand. "Basically, more people are looking for and finding work."9

The success of many IT projects that use outside resources is often due to good project procurement management.Project procurement managementincludes the processes required to acquire goods and services for a project from outside the performing organization. Organizations can be either the buyer or the seller of products or services under a contract or other agreement.

There are three main processes in project procurement management:

1.

Planning procurement managementinvolves determining what to procure and when and how to do it. In procurement planning, one must decide what to outsource, determine the type of contract, and describe the work for potential sellers.Sellersare providers, contractors, or suppliers who provide goods and services to other organizations. Outputs of this process include a procurement management plan, procurement strategy, bid documents, procurement statement of work, source selection criteria, make-or-buy decisions, independent cost estimates, change request, project documents updates, and organizational process assets updates.

2.

Conducting procurementsinvolves obtaining seller responses, selecting sellers, and awarding contracts. Outputs include selected sellers, agreements,change requests, and updates to the project management plan, project documents, and organizational process assets.

3.

Controlling procurementsinvolves managing relationships with sellers, monitoring contract performance, making changes as appropriate, and closing out contracts. The main outputs of this process include closed procurements, work performance information, procurement documentation updates, change requests, project management plan updates, project documents updates, and organizational process assets.