Contract management roles and responsibilities

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1 Contract management roles and responsibilities This White Paper describes the formal arrangements for managing the relationship with the provider through a demand and supply organization. This is a governance framework, with key roles and interfaces, schedules for meetings and requirements for management reporting, underpinned by your organization s policies (such as security policy). With the outsourced service, you have to be very clear about who takes the lead, who is responsible for what and who pays for what. You might have to modify your organization s existing management structures; you will almost certainly need different reporting arrangements to support the principles of good communication and mutual understanding of responsibilities. ITIL version 3 describes governance in a sourcing context as the framework of decision rights that encourage desired behaviors in the sourcing and sourced organization. The informal arrangements (the soft aspects) for managing the relationship are described in the companion White Paper Managing the sourcing relationship. The demand and supply organization The demand and supply organization is the regulatory interface between the requests for services and their supply. It has three dimensions: the interface between the customer (demand) and service provider (supply) strategic, tactical and operational levels the mechanism for feedback. The demand organization focuses on the service demands from the business; the supply organization ensures that these demands are met. Customer and provider responsibilities are defined at the strategic, tactical and operational level; as far as possible these responsibilities should be mirrored, so that individuals at the same level of seniority in each organization are working together.

2 Figure 1 shows a simple model of the demand and supply management organization. Figure 1 Demand and supply management organization (simplified view) In practice, there are three models: centralized, decentralized and federal. With a centralized model (as shown in Figure 1) the demands of the business are coordinated in one function, mirrored by the provider s supply management function (also centrally coordinated). Service level agreements (SLAs) are agreed centrally. In a decentralized organization, every business unit in the customer organization decides on its own sourcing strategy; in a federal arrangement a central customer function agrees a contract with the provider, generally using some form of service catalogue to enable the provider and business units to deal with each other directly. (For more information on the differences between these models see Joha, 2003.) For convenience, in this White Paper we assume that a centralized model is in place. Demand management Demand management translates the IT needs of the business into a strategic direction and requirements for services. It addresses these key issues: what is the business priority? what IT services does the business need, now and in the near future? what service levels are appropriate? what price is the business willing to pay?

3 There are three levels of responsibility strategic, tactical and operational. At the strategic level, the customer is responsible for: formulating the IT strategy, as part of the business strategy and planning cycles financial policy in relation to the financial aspects of the contract identifying requirements for innovation, including IT architecture decisions monitoring the IT price and performance the sourcing strategy and monitoring the relationship with its major providers the consequences of compliance or legal issues At the tactical level, demand management focuses on: contract management program management for major changes in the business, including the initial transition project management for IT-related projects or new releases service level management monitoring performance customer or relationship management financial and security monitoring, audits and reviews. At the operational level, responsibilities include: routine service reports managing small change requests operational project management monitoring business-critical incidents overseeing resource and capacity planning contract administration. At this level the scope of the contract determines whether the customer or provider is responsible for the service desk, incident management and business continuity planning. Roles The following roles are involved in contract management: the formal contract owner, entering into the contract as the most senior manager for the contract. the service delivery manager, who is responsible for the tactical management of the contract and in many cases makes decisions within the framework laid down by the CIO or Board. The title 'service delivery manager' is also often seen in provider organisations and traces its origin to ITIL terminology. Within the customer organization, the service delivery manager has first-level responsibility for the service delivery for the business (internal customer). the operational service manager, who focuses on the operational management of the service. The issue here is handling incidents, standard service requests and smaller changes the procurement manager, involved with the service delivery from the procurement perspective the financial controller, who is involved with the service delivery from the financial perspective the architect, who is the technical specialist and is involved with the technical content-related choices for the customer organization the project manager, who provides leadership to projects for new IT functionality; a specialized variation of the project manager is the transition manager, who is responsible for the transition project on the customer's side the business sponsor, who is the principal for business projects that bring new IT functionalities to the business the information manager, who coordinates the information and functional needs for a part of the business.

4 the functional manager, who coordinates the functional change requests relating to a (set of) application(s) and usually initiates the change process. An additional role is the relationship manager, who is responsible for the day-to-day working relationship with the provider. Another important additional role is the professional customer, which might be an individual or a team, helping the business to communicate its requirements to the provider. This role has in-depth knowledge of the business, combined with technical and commercial understanding of what the provider can - and cannot - do. In practice, this role might be distributed between a number of individual specialists such as the architect, information manager and procurement manager. The role s competences should include: business analysis skills and knowledge of the organization s business good understanding of current developments in the IT industry/marketplace and of outsourced services in particular negotiating skills for dealing with contract changes (such as required variations in service or performance) and price negotiations good understanding of the technical aspects, sufficient to be able to understand technical recommendations or issues raised by the service provider (but in-depth practitioner knowledge is not required). Some organizations prefer to buy in specialist professional customer expertise when required. The advantage of this approach is that they can obtain expert advice on a range of topics that are subject to rapid change. However, it is important to ensure that the needs of the business are well understood if using external experts. Supply management The service provider s supply management (IT service delivery) roles should mirror those of the customer s demand management. Table 1 shows the three levels of supply management from the provider perspective, assuming a one-to-one relationship of customer and provider. Level Who Responsibility Strategic Senior management Promoting the partnership Demonstrating commitment to the relationship and customer s business Tactical Middle management Service planning and performance monitoring Relationship management Complaint management Change management Contract administration Operational Technical staff Service delivery Service desk facilities Technical support Table 1 Provider view of supply management The primary responsibility for senior managers in supply management is to promote the partnership within the provider organization as a valued element of its customer portfolio and to build a strategic relationship with senior management in the customer organization.

5 At the tactical level, the provider s contract manager (or management team) is responsible for activities including: tracking the interpretation of customer demands into service delivery monitoring service performance and reporting on key performance indicators (KPIs) as required forecasting and responding to changing customer needs identifying and managing exceptions, together with the customer contract manager escalating problems if necessary contract administration such as handling of purchase orders and invoices. At the same tactical level, relationship managers in both organizations are responsible for: encouraging a culture of collaboration and shared objectives organizing communications/information sharing with staff from both the customer and provider organizations managing the dispute resolution process. At the operational level, technical staff deliver the services, maintain the service desk and provide technical support as required. The level of detail in supply management is summarized in Table 2. Level of detail in supply management High level management Detailed management Provider takes the initiative for technicalcontent-related choices, initiates preliminary studies; customer monitors at high level and is focused on decision making Customer initiates preliminary studies for technical-content-related choices; detailoriented management and collaboration Table 2 Level of detail in supply management Communication: formal meetings and management reporting The structure for formal meetings and management reporting forms the basis for joint decision-making. It includes the day-to-day communication channels between the customer and provider, together with clear escalation routes. It is very important to design this structure appropriately for your organization and the needs of the business. In the example below we have organized a meeting structure at strategic, tactical and operational levels. Strategic level (once or twice a year) Partnership board a meeting that has the strategic objective of discussing the plans of the various parties and, where relevant, changing and coordinating them. In the case of multisourcing, this can be done with several external parties simultaneously. Contract committee the highest formal decision-making body for discussing contractual matters. Tactical level (four times a year) Innovation board meeting to agree the desired innovations in service delivery or related technologies. Service review board meeting in which the internal customers are also often involved; the focus is on the question of whether the service delivery is in line with what the customer really wants and what was agreed contractually.

6 Operational level (weekly to monthly) Service report meeting monthly service reporting is discussed, including any significant risks or issues, and improvement plans established and monitored where needed. Change advisory board meeting focused on determining changes that need to be made. Multi-sourcing arrangements In complex arrangements with multiple providers and/or multiple supply chains, ITIL version 3 recommends a Service Provider Interface (SPI) approach to help coordinate end-to-end management of critical services. In this approach integration points are mapped between the management processes of the customer and providers; SPIs are defined, maintained and owned by process owners. There are advantages in having integration processes and tools to make support applications from different providers communicate in real time. Two or more providers could be working together at the same support process; for example, one provider is delivering first level helpdesk and a different provider covers the expert (second level) technical support or the on-site support. The different providers are likely to use different tools to register and track requests and incidents, but the incident management process flows across all of them, so there is a need to integrate them all in order to have a global and consistent view of the support process, to measure and report the fulfilment of the SLA, how each provider s activity contributes to the performance of the process, etc. In a multi-sourcing environment, it is best practice to select partners who are ISO/IEC compliant (the international standard for IT Service Management). This is because ISO/IEC compliance provides a common framework that facilitates integration of the partners and their suppliers and thus reduces risk in maintaining the required service levels. The customer should also have an ISO/IEC compliant service management system in place. Critical factors for effective governance The following factors are reliable indicators of effective governance of the contract:: senior managers champion the partnership in both organizations (each organization, where there is more than one provider) governance arrangements are perceived as fair and interfaces are peer-to-peer strategic issues are clearly separated from day-to-day tactical and operational concerns roles and responsibilities are clear, with short reporting lines and staff are given appropriate authority to make decisions there is timely delivery of trusted service management reports from the provider escalation and dispute resolution routes are well understood and used correctly (see the next chapter). This White Paper is an extract from IT Outsourcing Part 2: Managing the Contract.

7 References IT Infrastructure Library ITIL Joha, A (2003) The retained organization after IT outsourcing the design of its organizational structure. Afstudeenscriptie Delft TU Delft Further reading IT Outsourcing An Introduction. Van Haren Publishing IT Outsourcing Part 1 Contracting the Partner. Van Haren Publishing IT Outsourcing Part 2 Managing the Contract. Van Haren Publishing esourcing Capability Model for Client Organizations (escm-cl). Van Haren Publishing esourcing Capability Model for Service Providers (escm-sp). Van Haren Publishing Implementing Strategic Sourcing. Van Haren Publishing

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