Thought for the day: Weighing up the outsource risk

A careful balance of insourcing and outsourcing can offset risk and give you optimum return on investment, says Bob Fawthrop.

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A careful balance of insourcing and outsourcing can offset risk and give you optimum return on investment, says Bob Fawthrop.




This year's IT Directors Forum confirmed that IT budgets for 2003 are generally going to decrease or remain static, with IT heads forced to deliver immense value for every pound.

Of utmost importance for many users is aligning their IT and business strategies to make better use of IT spend. Alignment was also high on the agenda at the Corporate IT Forum but, interestingly, a move away from outsourcing towards in-house IT became the hot topic. Many senior IT executives expressed concern at the risks involved with outsourcing and are considering in-sourcing key projects.

These sentiments will not lead to a complete move away from outsourcing. But the key to reaching optimum return on investment at the lowest risk is to balance the delivery of IT services using in- and outsourcing.

There is a perception that in-sourcing is relatively risk-free compared to outsourcing, but that is not necessarily the case - the risks are just different. If a business is selective and outsources elements of its IT, while retaining other elements internally, then both in- and outsourced risks can be controlled. Moreover, the total risk can be reduced by selectively outsourcing based on expertise and who has the ability to manage it most effectively.

Achieving this optimum solution relies on a careful consideration of business needs, timetable, existing infrastructure and management. This is no different to regular project planning, plus taking into account the best way to manage risk. In turn, this highlights the importance of selecting an outsourcing partner who understands your business needs, technology, processes and your organisational culture.

While non-critical systems and commodity IT are top of the list for outsourcing, specialist systems that require domain knowledge and management should also be considered if the level of risk is offset by potential business gains. At the opposite end of the scale, mission-critical systems, such as business continuity, may well be best managed internally.

Several businesses have taken an optimum-risk, selective approach to managing their IT, all of them retaining key elements in-house and outsourcing where possible. When implemented successfully, this approach gives businesses the requisite IT support while maximising budgetary efficiencies.

IT directors will remain under pressure to deliver for the foreseeable future. However, instead of just making cutbacks, assessing the risks and making good tactical decisions will definitely give you more bang for your buck.

What do you think?

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Bob Fawthrop is LogicaCMG's managing director of outsourcing

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