Coming up with the accurate contract volumes and structure is extremely important for a successful outsourcing contract, according to Alsbridge Inc., a benchmarking, sourcing and transformation advisory firm. The firm today released a report, “Keys to Driving a Successful Outsourcing Contract,” which discusses the key aspects of any contract that can drive the initial projections of savings and return on investment.
Chip Wagner, CEO, Alsbridge Inc., says, “If some or all of these aspects are not carefully thought out and strategized, you can expect mixed degrees of impacts on the financial benefits of your outsourcing contract.” The main aspects are:
• Resource’s types and baselines
• Fixed and variable portions
• Unit rates
• Dead bands
• Re-Negotiation points
According to the report, making sure that the base volumes are correct for the life of the outsourcing contract will ensure accurate pricing and minimize adjustments in the contract due to “change.” While fixed and variable components are a must for getting the “best price,” unit prices, that make up the ARC’s (additional resource charges) and RRC’s (reduced resource charges) in a contract, are the vehicle that enables both the client and service provider to adjust the overall charges of the contract.
Further, the report suggests incorporating dead bands and renegotiation bands in the outsourcing contract. Dead Bands minimize the billing complexities of minor changes to the resources consumed. The rationale is that service provider costs do not change significantly in order to respond to different call volumes, as the service desk has some flexibility, and capacity built on the model. The Renegotiation band is a point in the contract when the resource volumes and charges from a service provider have changed significantly and may begin to have an impact on the way the outsourcing contract was setup initially.
“Get the resource volumes right, both initially and over the life of the contract, and this will be the major driver in achieving success,” says Dieter Thompson, president Alsbridge. “Also, getting the variable portion right will help to ensure that changes in volume are aligned with changes in your price.”
For further details, download the complete whitepaper Keys to Driving a Successful Outsourcing Contract.