A Portolio Risk Maagt Prsptiv o Outsourig Todd Littl, Ladark Graphis O o th hallgig issus with outsourig, partiularly wh lookig to oshor providrs, is dtriig whih projts to outsour ad how to bala a ovrall projt portolio. Ladark Graphis has b ivolvd i oshor dvlopt or 3 yars ad has wrstld with this issu or so ti. At irst w wr ousd o th pur oois o th dvlopt osts. Th sigly low osts or oshor dvlopt ad it look attrativ as a as to rdu osts. Th ollowig tabl idiats our xpri with th rlativ ost or a dvlopr or svral outris. Coutry Cost Ratio rlativ to US US.00 Caada 0.75 Idia 0.40 Pakista 0.25 Howvr, w ralizd that ost pr dvlopr was a rlativly aiglss tri o its ow. What is rally o itrst is th ost to dlivr th projt. Two additioal paratrs ilu th projt ost: th iiy o th dvloprs ad th itral aagt ovrhad rquird or th projt. Usig ths thr variabls w stablishd a irst ordr idiatio o th outsourig valu rtur o ivstt (s appdix or a or dtaild drivatio). Outsour Valu ROI = / ( + ) - Whr = OUTSOURCE iiy = Equivalt INTERNAL days pr OUTSOURCE day = INTERNAL Maagt ovrhad = INTERNAL days to gt OUTSOURCE day = OUTSOURCE rlativ ost = ost pr OUTSOURCE day / Cost pr INTERNAL day A ROI valu ratio o.0 idiats a brak v rtur o th outsourig ivstt. I th ROI is lss tha 0, th projt ost or to outsour tha it would hav ost to dvlop ihous. As a orward lookig tri, this ratio has sigiiat urtaity. W v s iiy () rag ro 0.0 to as high as.0, but th iiy a oly rally b stiatd si w do t rally kow how log this would hav tak had it b do itrally. I our xpri aagt ovrhad () tds to ru about 0.0 to 0.25. At last it is possibl to asur or prior projts as a idiator or utur projts.
I additio to th larg urtaity i th iiy, thr ar othr lts o risk that should b osidrd. O o th ost ot gltd aspts o outsourig is th hag i th risk proil. Th ollowig risks ar likly to b o or with a outsourig projt, partiularly with a oshor projt: Thial Risk Markt Risk Projt Risk Politial Risk Outsourr Risk Thial Risk Thial risk is a asur o th it btw th projt ad th skills ad apabilitis o th outsourr. It a also b prst i thr is risk assoiatd with th ability o th ustor to abl to dal with a outsourr. To a rtai xtt th thial risk is th priary drivr o th urtaity i th iiy tiod arlir. So o th qustios to b askd ilud: Dos th outsourig opay hav th thial skills ssary to do th work? Dos th outsourr udrstad th busiss doai? Ca th projt rquirts ad spiiatios b did to t th apabilitis o th outsourr? Markt Risk Wh thr is urtaity surroudig th rquirts ad spiiatios, thr is Markt Risk. Agil dvlopt is a xllt way to dal with hagig rquirts, howvr rot dvlopt is outr to ost o th pratis o agil dvlopt. Thos projts with high arkt risk ar typially ot good adidats or outsourig. Projt Risk Prhaps th biggst or i akig a outsourig disio is th risk assoiatd with a dlay or iability to dlivr to projt. Most opais do ot outsour thir or busiss or this vry raso. Dtriig th ost o dlay is ot asy, although th story always ss to b th sa i th projt is ot dlivrd o th proisd dat, hads will roll. Politial Risk May o today s outsourrs ar i dvlopig atios. So o ths atios do ot hav th ost stabl o govrts. Ladark irst startd workig with a Pakista outsourr i 2000. Th trrorist attaks i Nw York had a hug ipat o our ability to otiu busiss. Prior to that ti w had b abl to brig a ubr o popl ro Pakista to th US or traiig. Si that ti is has bo arly ipossibl to gt visas. Fortuatly w wr abl to gt th irst group traid ad hav had rasoabl suss with this arragt, but it did liit th projts ad ativitis that w ould outsour. 2
Outsourr Risk What is th otigy i th outsourr gos out o busiss? This risk ay b rlatd to th Politial Risk, but is or spiially lookig at th stability o th outsourig opay ad its ploys. Colusio W hav had suiit xpri with oshor outsourig to kow that thr ar opportuitis or ost rdutio. W hav had vry good luk with Caada whr w ar abl to sstially gt o-or-o iiy ad rap th ost bit with alost o risk. W hav had oly liitd xpri with Idia, although our part opay has had xtsiv xpri a Idia ir or a ubr o yars with grally good suss. Our xpri workig with a Pakista outsourr has b or rrati. W hav had so projts that hav b gratly sussul, ad othrs that hav b ailurs. Whil ah additioal projt tahs us sothig w, it is air to say that th risk proil is ivrsly proportioal to th ost proil. As a rsult w hav bgu to adopt th ollowig portolio alloatio or our dvlopt projts: Loatio US itral dvlopt Caada Idia Pakista Projt Typ Cor busiss, issio ritial, iovatio Projts wll suitd to th skills o our Caadia tas, pottially iludig or busiss. Maita ad hat projts o o-or busiss Maita ad hat projts that a tolrat projt risk, Tstig projts 3
Appdix: Rtur O Ivstt (ROI) or Outsourig Nolatur: ROI = Exptd Nubr o sta rquird i projt do Ihous Avrag burdd ost o Ihous sta Nubr o Outsour sta rquird Avrag burdd ost o Outsourd sta Aout o Irtal Maagt Ovrhad Avrag burdd ost o Maagt Ovrhad Cost ratio = / Eiiy = / Maagt Ovrhad ator = / Cost Savigs Cost Ivstd Cost Savigs = Exptd Cost Oshor Cost Oshor Cost o Ovrhad Cost Ivstd = Cost Oshor + Cost Ovrhad Exptd Cost Oshor = * Cost Oshor = * Cost o Ovrhad = * ROI = + Multiply by ROI = + i, th ROI = + 4
Bio Todd Littl is Sr. Dvlopt Maagr or Ladark Graphis Corp. Prviously h has had rols i Quality Maagt ad was Ladark s Dirtor o Sotwar & Thology. H has 25 yars o idustry xpri i various rols i sotwar dvlopt, quality, girig, osultig, projt aagt, ad gral aagt. Todd livs i Housto ad holds a M.S. i Ptrolu Egirig ro Th Uivrsity o Housto ad a B.S. i Chial Egirig ro Iowa Stat Uivrsity. H is a br o th Agil Allia, IEEE, Soity o Ptrolu Egirs ad is a rgistrd Prossioal Egir i th Stat o Txas. H ay b rahd at tlittl@lg.o. Currt rsarh itrsts ilud agil sotwar dvlopt. Todd is th Cor Chair or this yar s Agil Dvlopt Cor i Salt Lak City. LGC Bio Ladark is th ladig supplir o sotwar ad srvis or th upstra oil ad gas idustry. Th opay s sotwar solutios spa xploratio, produtio, drillig, busiss disio aalysis ad data aagt. Ladark ors a broad rag o osultig srvis that abl ustors to optiiz thir thial, busiss ad disio prosss. Visit th Ladark Wb sit at www.lg.o or or ioratio. 5