business economics and managerial decision making phần 9 potx

194 EXECUTING AN OUTSOURCING PROJECT worker visas In addition, state legislatures in at least five states are considering laws banning outsourcing of government services contracts to foreign vendors These bills pose risks to organizations seeking to use offshore vendors because costs are involved in reabsorbing processes that had been outsourced PROJECT RISKS Project risks are defined as the potential that the BPO initiative may not provide the cost savings, strategic advantages, or productivity improvements anticipated The reasons for this potential risk are too numerous to list Unexpected incompatibilities between software infrastructures could prove intractable and lead to delays, cost overruns, and lost business The cultures of the two companies may pose unyielding challenges that become more trouble than they are worth Changes in U.S or foreign labor laws could upend the cost equations that had been the primary reason for the offshore outsourcing To mitigate project risks, the BPO buyer should first assess its readiness to undertake the outsourcing project before making the leap This includes assessing the organization’s ability to adapt to change, the presence of an internal BPO champion, and the time that is available to make the transition and ramp the project to full operational mode Organizations that have a poor track record in managing large-scale change are at a higher risk of project failure than those that have a record of successful change management An organization’s record of success in this area is indicative of its organizational culture and is likely to be consistent in the BPO initiative The presence of an internal BPO champion, especially one with broad influence within the organization, can reduce project risk The internal BPO champion can be relied on to work long hours and lay awake nights thinking about solutions to project problems when other members of the PMT are sleeping well The time available to transition a process from buyer to vendor can also affect the risk profile of the project In general, the less time available for the transition, the higher the risk It is often not practical to move all of a process to an offshore BPO vendor at once Buyers should increase the time available to implement a BPO transition, building on successes along the way A technique that can be used to mitigate risks associated with project timing is to develop a reasonable value horizon The term value horizon refers to the amount of value the organization expects to receive from the BPO project in a specific amount of time For example, an organization that expects to reduce costs by 25 percent within three months may not be able to realize that value horizon because of project implementation costs However, a 25 percent cost savings within two years may be achievable and would set the appropriate value expectations Business Risks and Mitigation Strategies 195 The PMT often ignores the risks associated with unrealistic expectations on the part of the BPO buyer’s executive team Project expectations must be managed from a variety of perspectives: up, down, horizontal, and external.4 Upward expectations management refers to the procedures the PMT follows to ensure that the organization’s executive team (and the BPO project steering team) is informed about project risks, their potential costs, and mitigation strategies Downward expectations management refers to the challenge of managing employee expectations as the project unfolds The PMT must also manage the expectations of managers in nonoutsourced functions and those of customers, suppliers, and other stakeholders external to the organization who have a need to know Managing senior leadership expectations is critical to the BPO project Too-high expectations among senior managers can lead to overly critical feedback and potential plug pulling on a project that cannot meet excessively lofty expectations.5 Elevated and maybe even unreasonable expectations among senior management should be expected with the current level of media attention and hype that surrounds outsourcing The PMT must ensure that senior managers are aware of the many challenges a BPO project faces and manage expectations accordingly.6 Some have called this process “managing up.”7 There are many effective techniques for managing up Of course, this can be a delicate process because managing expectations up the chain of command may also often require that senior leaders be educated on technical or other issues.8 To manage the expectations of senior leaders, the PMT should develop a project plan that articulates not only the problems and challenges likely to be encountered, but also those that have a lower probability of occurring A good technique for communicating risk and managing expectations is to develop a BPO risk-probability matrix The matrix will include as many reasonable risks as the PMT can envision, including those that are classifiable as worst-case risks The BPO risk-probability matrix will also include the mitigation tactics that are either in place or that would be mobilized in the event that the risk became real Exhibit 10.2 provides an example of a BPO risk-probability matrix The BPO risk-probability matrix should be widely circulated and updated as needed This document will serve as the starting point for understanding the wide range of potential risks associated with the project and their potential costs In Exhibit 10.2, costs are expressed as a percentage of total project costs It is important to note that the cost figures expressed in the BPO riskprobability matrix are in addition to those already agreed to in the BPO contract—in other words, they are meant to specify potential cost overruns Another effective technique for managing the expectations of the executive team is to include one or more senior leaders on the PMT This individual will serve in the liaison role and maintain communications between the PMT and the executive team The liaison will be responsible for regularly EXECUTING AN OUTSOURCING PROJECT 196 EXHIBIT 10.2 Sample BPO Risk-Probability Matrix Risk Probability Cost Implementation will take longer than expected One or more key staff will resign 95% Hardware/software inadequate for project 30–40% Customers will be dissatisfied or lost 10–15% Legal issues in foreign country 2–5% Mission-critical data will be lost or damaged War breaks out in vendor country 1% 60–70%