How to design a scalable IT Outsourcing Contract

Your IT Outsourcing Contract and the accompanying Application Costing model should accommodate any change to the application portfolio over the duration of the service contract.


Design your IT Outsourcing Contract for Scalability by following these four main practices:

Allow for new portfolio entrants
    • An application portfolio is never steady state – it is under constant churn. Applications enter and leave a contract due to multiple reasons.
    • A predominant driver of such churn is the lifecycle of the applications – when
    • IT Make or Buy decisions can also lead to applications retiring or new ones entering a portfolio.
    • Design your model so that it scales not only with the size of the application portfolio but also with the individual nature of the applications – an application that today is serving only the users in the UK might tomorrow serve users in Asia Pacific. You should not be in a situation where you renegotiate the costs for with each such change.


Follow the Demand Curve
  • Design your contract so that the costs follow the curve of demand
  • Demand can come in multiple forms – in terms of time, services rendered, support required (additional hand-holding), and reaction time
  • Your negotiated costing model should flex with the demand enforced upon it.


Facilitate What-if scenarios
  • Go beyond following the demand curve – you should be able to predict its impact.
  • The demand on an application often depends on the costs of the impact of the demand. The change in costs of running an application in reaction to business circumstances should be pre-designed.
  • Make these changes easy to calculate – so that the model lends itself to developing what-if scenarios and the business cases of such changes.
Ride over the spurts of additional support
  • Scalability should also lend itself to temporary and foreseeable bouts of spurts in support required.
  • Discuss and negotiate the costs for such spurts. This prepares both sides – the IT service provider is aware that such an event could occur and at least prepares for emergencies in the operating model. Your IT team budgets for occasional spurts in costs.

In summary: Discuss and negotiate a scalable contract so that it gives peace of mind to both your IT team and the service provider. It avoids unnecessary friction during the management of the service contract.

Is your current IT Outsourcing Contract scalable? What are the dimensions influencing your scalability?


photo credit: tricky (rick harrison) via photopincc


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