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AD/M Outsourcing

The final outsourcing scenario that we will review is the outsourcing of an entire application development and maintenance department. Such outsourcing usually extends over multiple years and may be linked to a much larger outsourcing initiative, which could include the outsourcing of the entire IT organization. Once again, we observe a much different measurement dynamic from what we encountered with the first two scenarios.

In this scenario, the customer continues to monitor the management and performance of individual projects and the maintenance of the application portfolio. However, usually a much higher or broader performance view is taken when the service-level measures for an entire IT department are being considered.

The issues driving AD/M outsourcing engagements include the following:

  • Assessing the impact of new technology

  • Increasing profitability

  • Reducing costs

  • Improving customer service

  • Improving time to market

  • Increasing financial control

Service-level measures that are formulated to support an AD/M outsourcing arrangement are usually multilayered. The contract may require a primary set of service-level measures that measure overall performance on an organization-wide basis. In addition, the contract may require a set of service-level measures to monitor specific project deliverables.

This scenario is similar to an agreement that you might have with a contractor building your house, in which there are specific measures relative to the details of the house such as room dimensions, electrical capacities, and the like. However, the overall performance is more likely to be monitored as time to market, final cost, and overall quality of workmanship.

A well-defined process should be followed to establish the proper service-level measures for an AD/M arrangement. This process requires an understanding of the goals and objectives of the outsourcing arrangement, identification of the measures that will monitor the performance or the achievement of those goals, and determination of the proper level of service to expect initially and on a continuing basis.

The goals and objectives of the outsourcing initiative are developed at a senior management level and are documented in a strategic business document. The identified business drivers express the expected outcomes of the outsourcing arrangement in terms of increased profitability, market positioning, and improved service. The challenge is to derive a set of service-level measures that will effectively monitor how these elements are affected—positively or negatively—by the activities being executed at the software development level.

In addition to defining or discovering the business drivers, it is critical to consider the performance of the software practices within the development organization itself. For example, any existing problems with the ability to deliver clearly stated and accurate requirements need to be identified when service-level measures are being established. The introduction of a third-party provider that has taken over the existing development staff will not immediately improve the development organization's capability to provide clear requirement specifications.

Through analysis of the business drivers and the performance considerations of the development environment, a set of applicable metrics is derived (see Figure 5). For each service-level metric identified, a metric profile is created. Each profile includes a definition of the metric, its stated purpose, the data elements required, and the formula to calculate.

Figure 5

Metrics derived by analysis of business drivers and performance considerations

The next step in the process is to establish the actual values or levels of performance that must be assigned to each service-level metric. We must determine reasonable values for the established service levels. If we have established time to market as a service level, we need to determine the proper interval of time to be expected. If cost is going to be measured, what is a reasonable cost? When quality is integrated into the set of service measures, what are the defect density levels? We can determine these values best either by establishing organizational performance benchmarks or by relying on industry data.

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