Use software to keep track of outsourcing costs
As more application management activities go offshore and outsourcing in general becomes a mainstream strategy, IT directors should be looking for innovative ways to better manage their outsourcing relationships.
When a large share of the work delivered by the IT department is done externally, it is important to monitor the quality of the software delivered, benchmark the costs and retain intellectual capital in-house.
Outsourcing means transferring the responsibility for managing assets to a third party, with a resulting loss of knowledge. Losing this knowledge can quickly translate into losing control over the relationship, leading to drifting costs and increased risks.
To date, the industry response has been to rely on service level agreements, increased quality assurance control and other management expenses, resulting in a reactive and costly approach to the problem. Unless outsourcing contracts are monitored, with the user having a full knowledge of the contractor's work and the projects they are involved in, there exists the opportunity for misunderstanding, technical confusion and increased costs.
This has been the case with many high-profile outsourced contracts, in some cases leading to disastrous consequences for the company's business operations.
One solution to help mitigate these risks is Application Portfolio Management. APM relies on automated software code analysis and meaningful metrics of applications. With APM, users can see and monitor the applications that their contractors maintain.
Further advantages for the APM user become apparent when outsourcing contracts are located overseas: here anticipated cost savings may be achieved only at the price of quality or, worse still, simply wiped out through unanticipated extra management expenses. The clarity and trans-parency that APM provides helps detect technical issues up-front, and also limits costs such as those through changes to the contract and other maintenance.
According to analyst firm Forrester, the Application Portfolio Management market will grow from its present £8.5m to £226m over the next four years. One reason for this is that existing IT applications consume more than 70% of application budgets, so organisations are moving towards APM to benefit from the scrutiny of IT systems it provides and the improvements in decision making for in-house and outsourced applications.
APM automatically delivers reliable and objective facts about the maintainability and technical quality of outsourced applications. Transparency helps both sides optimise the application management activities, leading to cost reduction and increased responsiveness.
APM helps IT firms keep full control of their applications even if they are outsourced to a mainland, near-shore or offshore partner. Large service providers such as IBM Global Services, Capgemini and InfoSys have also started using APM.
The longer IT organisations ignore APM software, the more it will cost them. Firms are having to work in the dark, are forcing their service partners do the same and thereby wasting time, money and resources that would be better spent on development.
Vincent Delaroche is chairman and chief executive of software supplier Cast
This was first published in June 2004