For example, it's important to consider how the vendor calculates cost of living adjustments (COLA) and how that will impact costs over time. "Many IT outsourcing (ITO) vendors have different COLA rates that are country-dependent," says Mark Ruckman, outsourcing consultant with Sanda Partners. " If the ITO vendor is saving you a large amount today by offshoring to a country with hyper-inflation, the cost savings will quickly erode."
2. Think Like a CFO "The CIO needs to understand CFO's objectives," says Brad Peterson, partner in the Chicago office of Mayer Brown. Finance leaders want cost savings, sure. But they're also interested in cost deferral, trading fixed cost for variable costs, and asset ownership.
"Some favor a light asset ownership model so they can improve their return on assets," Peterson says. It's also important to consider how reported financial results differ from the outcomes IT may experience on the ground. "The results you produce may not be visible in reported financial statements, which is what the CFO is looking for," Peterson says.
"The make vs. buy assessment [should] not only include the total cost of ownership analysis, but should also take into account other considerations that are critical to the CFO," says Pace Harmon's Martin. "These include implications to current personnel, impact on business risk, and operational performance -- all of which have financial implications."
Don't know where to begin? Insource some financial know-how into the IT organization. "IT increasingly adding to their staff finance people either borrowed from procurement or brought into IT," says Masur.
3. Consider the What-Ifs "CFOs are focused on managing risk-- whether it's legal, operational or market-based. But quite often we see CIOs assuming, when they do their outsourcing analyses and business cases, that there's a base case that just continues for years," says Peterson.
Meanwhile, the finance chief is wondering what happens if the business doubles in size or we sell off a business unit or there are some new regulatory changes.
4. Quantify Nonfinancial Value IT wants more than cost cutting from IT outsourcing, but selling soft benefits to finance requires quantification. "If the CIO wants the CFO to consider things other than cost, they need to articulate and quantify the value to be received," says Masur. "It's not enough to say we're going to upgrade our capabilities or we're going to add features and functionality. You need to provide the cost-benefit analysis."
