Decision-Making Methods in MIS Outsourcing

This chapter commences with a discussion of corporate and government decision-making processes and the management sciences that support development of decisions. Special decision-making considerations, trade-offs analyses, and cost-benefit studies all figure into decisions that result in outsourcing. Technologies that support different methods of decision-making include data warehouses and data mining, rules-based logic, heuristical processes, fuzzy logic, and expert-based reasoning are presented. The chapter presents case studies and current and evolving technologies. The following sections will address the decision-making methods that are used in considering, executing and monitoring outsourced MIS projects or in service lines related to provision of information services in the organization.

The Case for Centralized IT Contract Management

n this chapter a model is developed that describes four forces that move organizations toward centralized IT contract management. Specifically, the model illustrates how centralizing IT contract management enhances organizational performance in four areas. First, centralizing IT contract management allows for a corporate level view of technology, which supports not only interoperability, but also optimizes software license inventory. Second, it combats vendor opportunism by creating a set of contract negotiators who have as much knowledge as the vendor’s contract negotiators. Third, it enhances information retrieval, but locates the physical contracts in a central location, which allows the legal department, project managers, and senior managers to quickly and reliably locate contract details. Fourth, it provides the proper motivation to project managers and contract negotiators by rewarding each job separately rather than by lumping the rewards for timely project completion together with the rewards for efficient contract negotiation.

Lessons Learned from Successes and Failures in Information Systems Outsourcing

This chapter presents a process map of information systems outsourcing decisions and factors which influence the outcome of the outsourcing project at each decision point. The author takes a broad view of outsourcing projects and examines IS outsourcing successes and failures in context of project phase. Brief examples are provided to illustrate various outcomes of the decisions faced by both outsourcing vendor and client. The chapter also presents a summary of lessons learned about information systems outsourcing and recommendations for future research.

Establishing Performance Metrics for Managing the Outsourced MIS Project

This chapter presents the tactics and metrics an organization applies after having made a decision to use outsource providers. Tactics are used to define the nature and specifics of the outsourcing arrangement, as well as to select the contractual basis of the agreement. Organizations that elect to use providers geographically distant from the client site are cautioned to carefully evaluate capabilities, as well as legal and security issues related to external outsourcers. For these purposes, it is critical to align measures of performance compliance in the form of metrics on each MIS outsourcing relationship. When negotiating and establishing the terms of the outsourcing arrangement, management should ensure that appropriate performance metrics are identified and included, as well as flexibility for change is built in to the contract. This chapter addresses some of the methods, as well as some of the metrics that might be used in such contract agreements. The use of contracts and service level agreements are discussed, as well as in depth techniques for conducting validation and background checks on outsource suppliers. Sample outlines for service level agreement preparation and performance specifications are included for the practitioner.

Is the Business Model Broken? A Model of the Difference Between Now and Pay-Later Contracts in IT Outsourcing

This chapter seeks to evaluate the dominant IT outsourcing contracts model (pay-later) as compared to an alternative model (pay-now) in light of changing economic conditions. We integrate practitioner observations in the spirit of mathematical transaction cost problems to develop a conceptual economic model to compare these two types of contracts. We uncover three very important facts which suggest that pay-now contracts are always at least as good as pay-later contracts, and pay-now contracts are better than pay-later contracts when economy is volatile. These findings provide a rich insight into the problem of failing IT outsourcing contracts since the prevailing poor state of economy. We further discuss the implications of our findings and suggest that simply shifting the contract from a pay-later to a pay-now will fix the IT outsourcing business model.

A Framework for Evaluating Outsourcing Risk

This chapter provides a framework for evaluating and mitigating the risks associated with IT outsourcing projects. Outsourcing projects have been met with successes and many failures. The causes of such failures must be systematically investigated in order to provide managers guidance to avoid future risks from outsourcing projects. This chapter discusses the outsourcing relationship, highlighting the primary causes of project successes and failures, then offers a framework for evaluating vendor relationships to avoid contingencies that may lead to failure. The authors hope this framework will serve as a guide for managers of firms seeking to outsource various IT functions, as well as managers of vendor firms who seek success in these relationships.

Planning for Information Systems Outsourcing

This chapter presents an overview of the pertinent aspects of planning for the outsourcing of information systems projects. The first major section of the chapter presents a historical perspective on the evolution of information systems outsourcing practices so the reader can understand subsequent sections of the chapter in context. The next major portion of the chapter deals with the need to examine goals, strategies, core competencies, and critical success factors as well as presenting all the functional areas of information systems that are candidates to be outsourced. Also included are discussions of the need to perform cost/benefits analysis and to consider cultural and other factors. The concluding section deals with all the factors that should be examined in preparing and administering outsourcing contracts.

The Application of Real Options to the R & D Outsourcing Decision

This chapter is a companion chapter to Chapter XVI, Real Option Appraisal in R&D Outsourcing. We provide two real-world case studies of the application of real options to answer the question: “How do practicing planners and managers use and value flexibility in development projects?” The first case study we develop is based on the outsourcing decision-making process, more specifically, a two-stage vendor selection approach (applying real options theory) to adopting a supply chain management (SCM) system in a Shanghai-based transportation company — Chic Logistics. In the second case study, we use the example of the National Ignition Facility (NIF) to illustrate how decision-makers identify uncertainty and value flexibility in project analysis, and by deliberate decision, increase their options and thereby project value.

Real Option Appraisal in R & D Outsourcing

This chapter will stress MIS’ strides in R&D outsourcing, and it will also detail the risks and uncertainty associated with the process of outsourcing core areas of the business such as R&D. Moreover, the chapter will propose the use of real option analysis to assist in the decisions of: “Why should a firm outsource R&D?” and “How does a company select a viable vendor using a two-stage process?” The purposes of this chapter include: a discussion of the cutting edge usage of outsourcing for R&D; and, to alleviate the R&D outsourcing risks, we will explore the two-stage vendor selection approach in information technology outsourcing using real options analysis.

A Goal Programming Model for Evaluating Outsourcing Partners on a Global Scale

A critical concern for firms that decide to outsource their information technology (IT) functions (or other operational functions for that matter) is the evaluation on a global scale of potential outsourcing partners. In order for outsourcing to be successful, corporations must identify outsourcing partners that offer a good fit with the firm’s overall outsourcing strategy. Unfortunately, little has been written to aid corporations in making complex decisions involving the evaluation of potential outsourcing partners. This chapter presents a goal programming model that combines the concepts of global outsourcing, the management science technique of goal programming, and microcomputer technology to provide managers with a more effective and efficient method for evaluating potential IT outsourcing partners. The chapter extends the existing literature on outsourcing by applying a computer optimization model to outsourcing partner selection in a way that has not been done before.