The 5 Pillars of a successful Outsourcing Contract Pricing Model

Your organization is demanding more transparency in your Outsourcing operation and contract. The onus lies on your ability to study your operation and define your reasons for outsourcing. Then design a contract with your service provider in a way that you achieve the quality you need while forming a partnership with your service provider.
This post summarizes my last few posts of September and brings it together into the best practices that form the Five Pillars of an Outsourcing Contract Price model. The Five Pillars help you to model your operation into the pricing model – and can form the foundation and definition of your contract.

“STEER”ing your way to a successful Contract

The basis of a successful partnership with your service provider is a well-designed outsourcing contract. A successful contract stands the test of time if its pricing model is designed well. You can judge a pricing model by the way that it satisfies the following five best practices that I summarize with the acronym STEER (Scalable, Transparent, Encourage the Right Behaviour, Elastic, Risk-balanced):

5 Pillars Best Practice Outsourcing Contract

The 5 Pillars of a successful Outsourcing Contract Price Model

  • Scalable to handle Future Scope: the model should scale and accommodate all kinds of changes to the application portfolio over the duration of the service contract.
  • Transparent and Granular: Establishes a price per application and makes the price effect of each service easily calculable and transparent.
  • Encouraging the Right Behavior: the pricing should encourage good intent and reward good behavior from the service provider.
  • Elastic – the model should be flexible and breathe with the business and, at any given point of time, should reflect the effort required to provide the service.
  • Risk-balanced – the model should allocate operational risk to that party (IT Department or Service Provider) that can mitigate the risk best

Has the STEER model helped you?

Are there parts of your existing contract that you want to change after reading these posts? What will you do differently the next time?

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