Business Process Outsourcing 1 (BPO1)

(Module 3)

IT-BPM
ENGAGEMENTS
(Module 3)
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 Business Process Outsourcing 1 (BPO1)
(Module 3)

Topical Overview
• Client-Service Provider Relationship
• IT-BPM Contract
• IT-BPM Contract Financials
• Regulatory Requirements

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Business Process Outsourcing 1 (BPO1)
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Client-Service
Provider
Relationship
CLIENT-SERVICE PROVIDER RELATIONSHIP 3
 Business Process Outsourcing 1 (BPO1)
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Concerns of the Client Company

Choosing the right vendor entails a lot of concern on the part of the client
company. The client can choose the right vendor or service provider by asking
the following questions:
1. Will the vendor be reliable? To answer this, client must:
• check on the vendor’s history
• check on the number of years the vendor has been in the outsourcing
business

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• check the recent financials of the company

• check the number of employees on the vendor’s payroll
• check for client testimonials as well.

2. Will the quality of products and services provided by the vendor

meet our expectations?
• clients can look into the customer references provided by the vendor
• get a free trial that the vendor offers
• check whether the vendor is ISO certified

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3. Will I be made aware of the total life-cycle cost of the service?

• the client should be made aware of the total product cost that can
accrue over the course of the product life cycle
• be informed ahead of time about the different types of hidden costs
such as maintenance, infrastructure, training, and transition
4. Will the vendor keep my confidential data safe?
The vendor should take data privacy seriously by providing data security
on two levels:
• infrastructure security including firewalls, access controls, data
encryption, etc., and
• human resource security that involves pre-recruitment checks and
signing of non-disclosure agreements (NDA).
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5. Will the vendor deliver as per the specified deadlines?

To ensure that your work gets completed by the pre-agreed deadlines,
• choose a vendor with strong client referrals
• take care that realistic deadlines are set to start with

6. Will the vendor’s problems with employee attrition affect me?

Yes, they may. To be on the safe side,
• choose a vendor with a sufficient number of cross-trained
employees
• choose a vendor with enough employee buffer capacity

CLIENT-SERVICE PROVIDER RELATIONSHIP 7

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7. Will I be liable to face unknown risks by outsourcing?

Unknown risks can affect a business at any given time.
• Take the time to analyze and study the various risks involved in
outsourcing
• have a suitable back-up plan in place, in case anything goes wrong.
• choose a vendor willing to invest in a reliable business continuity/
disaster recovery and risk mitigation plan.

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8. Will the vendor be transparent and deal fairly in your financial

dealings?
• insist that the vendor agree to fully transparent and fair financial
dealings before signing the contract.
• check up past client references to see if they have faced any
problems with the vendor in question.

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9. Will the offshore vendor comply with our statutory laws and regulations?

• offshore vendor may not be fully aware of the statutory laws and
regulations of the country to which the client belongs.
• violation of such laws may entail the client to moral, if not legal damage.
• the client should choose a vendor who is aware of, and willing to abide by
the laws and regulations of the client’s home jurisdiction especially
regarding employee working conditions, environmental concerns, privacy
infringement rules, etc.

CLIENT-SERVICE PROVIDER RELATIONSHIP 10

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10. Will the vendor’s culture match that of my organization?

While the vendor’s culture may not match that of your organization’s on all
scores, a certain degree of similarity must exist with regard to business ethics
and workplace culture.
• Base your selection on how you feel during your initial communication
with various potential vendors.

https://www.outsource2india.com/why_outsource/articles/ten-customer-concerns.asp

CLIENT-SERVICE PROVIDER RELATIONSHIP 11

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Concerns of the Service Provider

Just like the client, the service provider (the outsourcer) also has some
concerns.
1. Scope of Work
• details when the services are required.
• defines the services or tasks and the conditions for payment and
dispute settlements
• foundation of a services contract
• gives clear directions to the service provider before the work begins.
http://smallbusiness.chron.com/write-scope-services-agreement-43857.html

CLIENT-SERVICE PROVIDER RELATIONSHIP 12

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Concerns of the Service Provider, continued…

2. Performance Metrics
Performance measurement and management are continuous processes that
identify and eliminate process inefficiencies at an early stage. What to
measure?
 Vendor Capability
o the quality of the service delivered
o cost of services
o vendor responsiveness
o Service Level Agreement (SLA) compliance

CLIENT-SERVICE PROVIDER RELATIONSHIP 13

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Vendor capability (continued)…

o infrastructure capability
o technological advancement
o staff expertise
o exception handling ability
o intangible aspects of vendor performance such as innovation and
flexibility.
o process/output enhancement
 value-add to customer service processes, and
 reduction of time-to-market to determine outsourcing success.

CLIENT-SERVICE PROVIDER RELATIONSHIP 14

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3. Benchmarks to ensure work quality

 Financial
o Baseline comparisons such as historical trends and what-if-scenarios,
including insourcing or using a different service provider
o Total Cost of Ownership (TCO)
o Change in key financial parameters: revenue, operating costs,
infrastructure, accounts receivable, remuneration, etc.
o Deviation from ROI

CLIENT-SERVICE PROVIDER RELATIONSHIP 15

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 Operational Efficiency / Service Quality

o Quality: accuracy, reliability, availability
o Time: delivery speed, response rate, continuous updates
o Customer/user satisfaction
o Operational expertise and adaptability
o Creative solutions
o Security of tasks and documentation
 Relationship
o Communication: timely, sincere, impartial, open
o Collaboration: problem solving, adhering to requirements, conflict
resolution, positive interaction, flexibility
CLIENT-SERVICE PROVIDER RELATIONSHIP 16
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 Strategy
o Alignment of goals and vision by both parties
o Meeting outsourcing objectives
o Benefits and competitive advantage
 Growth
o Training and improvement programs
o Increase in employee efficiency
Service providers need to adopt a meticulous design of KPIs (Key
Performance Indicators). These KPIs must be regularly assessed, evaluated,
and discussed in order to accurately measure the outsourcing performance.
http://www.fsokx.com/Thought-Leadership-Prespecitves/Outsourcing-Performance-Metrics-What-Matters-and-Why

CLIENT-SERVICE PROVIDER RELATIONSHIP 17

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IT-BPM
Contract
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What is an IT-BPM Contract?

An IT-BPM contract is an agreement between a client company and a third-
party service provider to take over a non-core, “pre-agreed portion” of the
client's business operations.
An IT-BPM contract typically includes:
 defining statements
 a scope of work
 performance measures, and
 boilerplate that addresses breaches, nonperformance, and recourse.

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Defining Statements

• The contract first defines terms and makes basic contractual statements.
• The statements section names the parties, defines the length of the contract,
indicates the fees involved or points to a fee schedule, and enumerates the
goals and principles that govern the relationship as the parties work together
to manage the project.
• Iteration of goals and principles sets a basis for equitably modifying the
contract if circumstances require without having to stop work and
renegotiate.

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Scope of Work

• The BPO contract is a performance-based contract.

• The next section of the document defines the scope of work that states
exactly what the service provider is responsible for handling.
• It defines the deliverables, or what qualifies as complete service delivery
under the contract that will entitle the provider to payment.

IT-BPM CONTRACT 21
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Performance Measure

• A typical BPO contract sets performance measures.

• Tasks are benchmarked according to a timeframe.
• Minimum levels of service quality are established as measures for
performance satisfaction across tasks.

IT-BPM CONTRACT 22
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Boilerplate that Addresses Breaches, Nonperformance, and Recourse

The final section of a IT-BPM contract will contain all of the boilerplate and
legalese needed for the contract to be effective in applicable jurisdictions. Chief
among these clauses are guarantees of
 confidentiality
 non-competition, and
 ownership of work product.
This section will also establish occurrences that constitute a breach of the
contract and set procedures for legal recourse.
http://www.wisegeek.com/what-is-included-in-a-bpo-contract.htm

IT-BPM CONTRACT 23
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What is a Master Service Agreement?

Definition
• a contractual document that specifies performance objectives
• outlines the responsibilities of both parties.
• lists the current and prospective services to which the agreement applies.
• state performance objectives as Service Level Agreements - written service
performance targets that the service provider and customer agree on.
• help companies manage customer expectations, clarify the roles and
responsibilities of both parties, improve service delivery and build rapport.

IT-BPM CONTRACT 24
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Purpose

• MSAs facilitate and simplify contract negotiation.

• MSAs help company and its customers work through most of the broad, but
significant concerns that could derail a contract upfront.
• MSAs make companies focus more on specific contractual concerns, such as
price and time frame, when an actual contract arises.
• MSAs help companies avoid time pressures and have time to carefully
identify and address any potential issues.

IT-BPM CONTRACT 25
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Advantages

• MSAs help companies avoid the potential issues that arise from poorly
constructed contracts.
• MSAs help companies avoid contractual disputes and reduce the risk of
litigation.

http://yourbusiness.azcentral.com/master-service-agreement-27227.html

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Timeline of a Contract
The timeline of a contract spells out the Start Date (“Go Live”) and the
Duration.
Start Date
• A contract should be dated so that the parties can refer to it easily.
• The date of the signing of the contract should also be indicated.
• Unless the contract says when it will start, the contract is effective on the
date of the last signature.
• It’s a good idea to date the contract and then define that date as the “Start
Date.”
• http://www.dummies.com/how-to/content/finishing-up-a-business-contract.html

TIMELINE OF A CONTRACT 27
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Duration

Duration refers to the number of working days or calendar days, from a

specified commencement date to a specified completion date, as provided for in
a contract. It is also called contract time.
http://www.businessdictionary.com/definition/contract-period.html#ixzz3v6Pwdfpu

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Specific Essential Requirements

Most contracts contain four major parts –
• the master agreement
• operating principles
• Statement of Work (SOW), and
• Service Level Agreement (SLA).

https://www.linkedin.com/pulse/20140619180819-6070925-the-essentials-of-a-good-bpo-contract

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Service Level Agreement (SLA)

The essential elements of the SLA:

• Start and end dates of the service
• Schedule for reviewing performance
• Data to be used in measuring the service level
• Required levels of service
• Measurements to be utilized
• Measuring period
• Minimum quality of work
• Provisions and penalties for over- and underperformance
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Master Contract

The essential elements of a Master Contract:

Defines overall legal arrangement; Codifies operating rules; Provides legal
protections; Price/fees; Services; Terms; Obligations; Trademarks and
copyrights; Trade secrets and intellectual property protection; Ensuring the
security and privacy of your data; Applicable Law; Responding to a vendor
that fails to perform its duties; Termination of relationship
Indemnifications and warranty; Confidentiality; Force Majeure
Conflict resolution; Term expiration and renewal; Other notices

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Operating Principles

The essential elements of a Operating Principles:

Define how parties will work together; Logistic of engagement; Handoffs;
Reporting protocols; Governance procedures; Work orders/methodology for
scheduling work; Work forecasts; Support processes – problem resolution,
etc.; Communication plan; Conflict resolution; Change management process;
Performance measurement process; Disaster recovery; Exit strategy; and
Security plan

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Statement of Work

The essential elements of a Statement of Work:

• The scope and nature of the engagement
• Roles and responsibilities of client organization
• Roles and responsibilities of vendor organization
• Metrics for evaluating performance
• Resources in case things do not go as expected

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IT-BPM
Contract
Financials
IT-BPM CONTRACT FINANCIALS 34
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CAPEX and OPEX

CAPEX or Capital Expenditure, is a business expense incurred to create
future benefit (i.e., acquisition of assets that will have a useful life beyond the
tax year). For example, a business might buy new assets, like buildings,
machinery, or equipment, or it might upgrade existing facilities so their value as
an asset increases.
OPEX or Operational Expenditure on the other hand are those expenditures
required for the day-to-day functioning of the business, like wages, utilities,
maintenance, and repairs. Opex is the money the business spends in order to
turn inventory into throughput.
http://www.diffen.com/difference/Capex_vs_Opex
IT-BPM CONTRACT FINANCIALS 35
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Process Costing
• Used when there is mass production of similar products, where the costs
associated with individual units of output cannot be differentiated from each
other. In other words, the cost of each product produced is assumed to be
the same as the cost of every other product.
• Under this concept, costs are accumulated over a fixed period of time,
summarized, and then allocated to all of the units produced during that
period of time on a consistent basis.

http://www.accountingtools.com/overview-process-costing

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Labor Cost
• The cost of wages paid to workers during an accounting period on daily,
weekly, monthly, or job basis, plus payroll and related taxes
and benefits (if any).
Direct Cost
• An expense that can be traced directly to (or identified with) a
specific cost center or cost objective such as for labor,
material, fuel or power.
http://www.businessdictionary.com/definition/labor-cost.html#ixzz3vrq3qYkz

IT-BPM CONTRACT FINANCIALS 37

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Loaded Cost
• additional costs, such as taxes, benefits and supplies, which increase your
actual employment costs. The fully-burdened labor cost is the full hourly
cost to employ a worker for the hours she actually works, which includes
wages and the “burden” of the additional costs.

http://www.businessdictionary.com/definition/labor-cost.html#ixzz3vrq3qYkz

IT-BPM CONTRACT FINANCIALS 38

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IT-BPM
Regulatory
Requirements
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Regulatory Requirements
• The restrictions, licenses, and laws applicable to a product or business,
imposed by the government.

http://www.investorwords.com/4150/regulatory_requirements.html#ixzz3vrvRw1TI

IT-BPM REGULATORY REQUIREMENTS 40

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Group Activity

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Group
Presentation

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References
• https://www.outsource2india.com/why_outsource/articles/ten-customer-concerns.asp
• http://smallbusiness.chron.com/write-scope-services-agreement-43857.html
• http://www.fsokx.com/Thought-Leadership-Prespecitves/Outsourcing-Performance-Metrics-What-Matters-
and-Why
• http://www.wisegeek.com/what-is-included-in-a-bpo-contract.htm
• http://yourbusiness.azcentral.com/master-service-agreement-27227.html
• http://www.dummies.com/how-to/content/finishing-up-a-business-contract.html
• http://www.businessdictionary.com/definition/contract-period.html#ixzz3v6Pwdfpu
• https://www.linkedin.com/pulse/20140619180819-6070925-the-essentials-of-a-good-bpo-contract
• http://www.diffen.com/difference/Capex_vs_Opex
• http://www.accountingtools.com/overview-process-costing
• http://www.businessdictionary.com/definition/labor-cost.html#ixzz3vrq3qYkz
• http://www.investorwords.com/4150/regulatory_requirements.html#ixzz3vrvRw1TI

REFERENCES 43