Joint ACS/SQA/SPIN Technical Session

Outsourcing Hypothetical

Notes by Tom Worthington from the event

Room N101, Computer Science and Information Technology Building, North Road, ANU

Wednesday, 21 May 1997, 6:00PM

Introduction

These are some notes taken during an Outsourcing Hypothetical at a joint ACS/SQA/SPIN meeting in Canberra. This was intended to explore some issues with outsourcing.

Panel positions:

IT Manager
IT Quality Manager & OGIT Representative
IT Auditor
Process Improvement Manager
Corporate Manager
Moderator

Scenario

In its quest for economy and efficiency, the hypothetical Federal Department of Public Housing plans to outsource its IT function.

But will this really deliver the efficiencies expected? And what exactly should be outsourced? All of it? Maintenance? New development? Support? What should the selection criteria be for an outsourcer, and what controls should be built into the outsourcing agreement? How will the Department measure the effectiveness of the arrangement, and when is the best time to do that?

This month we have gathered a panel of people from professional associations representing a variety of viewpoints, including IT, corporate and quality management, IT audit and process improvement, and led by a moderator with experience in Government IT outsourcing. The panel will examine some of the questions associated with this topical area.

Possible Approaches:

Big Bang: Outsource all at once
Piecemeal: Outsource sections as the opportunity arises
Incremental: Have a planned approach over a period.

Preliminary statements from the role players

Corporate Manager

Pleased, but doesn't know what the details will be. Worried about:

Loss of intellectual property.
What happens if outsourcing fails and organisation has to resume the operations.
Informal support lost with staff removed.
How can the contract be written.
Rink in clustering arrangement.

IT Manager

Forced on us, but not "rocket science". Which bits can we get away with? Can outsource infrastructure (mainframes, LANs, workstations). Can't outsource applications development or maintenance, due to loss of corporate knowledge. In contrast infrastructure is more generic and easy to buy in. Big bang proposed: offer redundancies and transfer to outsourcer. Dragging the process out over months or years is detrimental. Can benchmark internal operations against industry "best practice". Need to inform the minister of risks of rapid implementation. The minister the has to make a political decision. In-house bid was not allowed (as in reality the Federal Government isn't), even though the in-house bid won in Defence.

IT Auditor

Process Improvement Manager

Net to the organisation. Few metrics available.
Application process development immature (1 on CMM scale)
Little management support of process improvement and cost driven
No role set for IT by senior management in business strategy. Seen as a cost.

The Big bang would be trusting ourselves to a chosen benefactor and risky. Need a process to improve work, regardless of outsourcing or not. Without this outsourcing will make the situation worse. Users should have a role.

IT Quality Manager

Need to consider the customers. Working on ISO9000 accreditation.

Who dictates the final product? Outsourcer has a different perspective: to make money. Must monitor outsourcer's performance.
Who specifies the processes used? Need to understand the processes used.
How do we protect our interests? Well written contracts. Have a requirement to protect the public interest.
What about IT Computability? Maintain the compatibility we need.
Can we change outsourcer? Need to be able to change supplier easily. Penalties are not effective if we are locked in.
How do we maximise value? Use industry best practice and metrics, such as function points.

Incremental approach better than "big bang". Require ISO9000 compliance by outsourcer. Start with mainframe outsourcing. 18 month to 2 year contracts.

OGIT Representative

Lack of standardisation between agencies. Need for common view. Lack of control. Many small separate contracts are being drawn up, with increased costs.

IT Auditor

Proberty of tender process. Privacy issues. Ongoing viability of tenderers. Provision for external auditing of outsourcer. 18 months too short for contract, more like five years.

Questions from Audience

Will it save money?: Studies show "no".
Should there be guarantees of continuity of staff?: No. Salaries are the highest cost option.
Is it okay for the in-house team to help prepare the RFT? No, for reasons of probity.
What is the big deal? Haven't we been using facilities management for years? Its policy now and is much like fm. Moderator's theory was that it was to fix up the mess with previous devolving of responsibility for IT.
Original saving was projected at $2M, now less than $.5M. Why do it? Ideology.
If we have 1/3 as many public servants, will this make outsourcing less viable? Unlikely by year 2000.
Incremental or big bang? Incremental, BB, consolidation period (long as two years) before outsourcing.
What is to stop them sending the work overseas?: Nothing.
What is to stop profits going overseas?: Government will encourage partnering with small local companies, but panel sceptical.
Why not keep the computers and outsource the managers? Laughter from audience.
How do you quantify the risks?: Must be done qualitatively.
How is dispute resolution handled? OGIT has a standard contract which deals with this.
Privacy and Audit:Privacy Act will be amended to cover outsourcers. Access by audit office and internal auditors will be in standard agreement.

Audience vote for different strategies:

Big bang: 2
ad-hoc : 7
incremental: 30 something.