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Managed Services: Identifying Benefits and Avoiding Risks

The new outcome-based technology outsourcing service model known as Managed Services indeed supports Information technology’s newly acquired role as a business growth enabler. But how are companies coping up with this new paradigm shift of IT outsourcing? Frank Johnson finds out.

Managed services may be hailed as the best model for businesses with a long term growth plan to adopt IT outsourcing. As the holy grail of technology outsourcing, the Managed Services model is equally beneficial for the vendors as much as it is for the outsourcing organization.

In the previous article, we learnt some of the salient features of the Managed Services. Let us revise the key traits of this model before moving on to evaluate its benefits and risks:

  •     The fully outsourced managed Services model endows the vendor with complete responsibility of deliverables.
  •     Vendors acquire complete decision making authority in carrying out their responsibilities to meet the quality and timeline of the deliverables.
  •     The budget for a project is calculated on a per-personnel basis and is fixed for a certain time span. Sometimes, it is also fixed for the entire project, making it a ‘fixed priced’ managed service.
  •     In fixed price managed services, the vendors get a free-hand in making important decisions pertaining to the deliverables. He may allocate shared resources for a task too.
  •     Managed Services are adopted when the scope of a project is clearly charted out.
  •     The success of the model depends upon the vendor’s understanding of the client’s exact requirement.
  •     The client acts as a reviewer and is also responsible for budget tracking and contract management.
  •     The vendor selects the resources and manages the expectations of the stakeholders.
  •     There is a comprehensive Service Level Agreements (SLAs) for each desired deliverable as per the contract. Breaching the contract in any way may amount to a penalty.
  •     Deliveries can be onshore, offshore or both.

Business organizations typically adopt the Managed Services model as a continuation of their existing Staff Augmentation commitment and not from day one of a project roll-out. Let us now take a look at the benefits and potential risks involved in adopting the Managed Services model:

Benefits of Managed Services:

  •     Since the vendor takes up the responsibility of delivery and management of stakeholder expectations, the client can divert its attention to other important strategic initiatives.   
  •     Vendors enjoy the freedom and the ‘interference-free’ work environment. This enhances their project-management capability.
  •     Vendors are also able to formulate long term strategies that can benefit the client – directly or indirectly.
  •     Vendors further gain the power to apply their knowledge of best practices into the project. This boosts the performance of the personnel and helps to leverage the best productivity from the available resources.  
  •     The Service Level Agreement (SLA) gives the client a complete peace of mind about managing stakeholder expectations.
  •     The SLA driven approach also makes process improvements possible, thereby delivering significant and quantifiable benefits to the client.
  •     Knowledge acquisition and retention becomes streamlined and sustainable.

Risks involved in Managed Services

  •     Vendors may sometimes be reluctant to take up additional responsibilities of management.
  •     A vendor’s non-understanding of the client’s requirements may affect the deliverables. A communication gap may further deteriorate the matter, causing grave loss of time, money and resources.
  •     Blames games are common in a multi-vendor scenario. While one vendor takes care of infrastructure, the other manages applications. A lack of mutual understanding between them, a communication gap or reluctance in taking up responsibilities may have negative consequences on the project and may cause a huge loss to the client organization.
  •     Process improvements may sometimes amount to cutting down on the number of personnel involved in the project. Such a scenario may not be found favorable to a vendor who may suffer due to a mismatch and a consequent loss in his billing.
  •     Re-allocation of an existing contract due to non conformance to the SLA or any other performance or delivery issue may pose a new challenge in front of the client. While the existing vendor will seldom be cooperative, the re-allocation may cost the client organization a fresh investment.

These were some of the benefits and risks of Managed Services. It must be remembered that while choosing to adopt the Managed Services model, organizations or businesses must define the scope of their desired deliverables as clearly as they map the IT work scope. This is the key to a successful outsource-based management and it helps organizations to measure their desired results, both in terms of delivery as well as performance metrics. In both scenarios clarity and risk identification are equally important.

Avoiding Risks
The five most important steps of a well planned outcome based Managed Services model are:

  •     Planning
  •     Transition
  •     Stabilization
  •     Improvement
  •     Optimization

Of the above-mentioned stages, transition is indeed the most complex and this is precisely why it constitutes the maximum risks. Top level management at an organization may hesitate in sharing (or outsourcing!) their managerial role to a vendor who is the third-party in a Managed Services model. However, with careful planning, risk identification and mitigation, both the client and the vendor can arrive at the desired results.

Careful planning:As mentioned earlier, the first step towards a successful project is careful and meticulous planning. A project plan typically defines the scope of work, the desired outcomes, all important delivery deadlines and the cost – each aspect customized to the client’s requirements to provide maximum value and sustainability. Once communication is forged between a client and a vendor, the potential risks can be easily identified and mitigated by both the teams.

Open lines of communication:Open and constant communication between client organizations and vendors keeps the picture clear, keeps both the parties on their toes and ensures optimized productivity leading to a successful implementation and completion of the project. The vendor can adapt to the client’s culture and communication style and further assist in resolving unforeseen hindrances in order to arrive at the shared goals in an quick and efficient manner.

Breaking down of the transition process:Another way to mitigate risks in a Managed Services model is by dividing the transition process into small sub phases and establish a portfolio based approach. This will help both clients and vendors to pay attention on the most intricate details of the task at hand, contain the risks at a natal stage and prevent it from spilling over the next stage of the process.

The main aim of Managed Services is to free the IT subject matter experts and the top management in any organization from their traditional maintenance, support and project management functions. A well implemented Managed Services model allows them to concentrate on other strategic areas of business, play a vital role in initiating innovative growth initiatives and lead the organization to an all-round development.

This article by Frank Johnson is in continuation to his series on ‘Managed Services’.  Frank is a regular editorial contributor on technology products and services that help small to mid size businesses.  To know more about Project Management applications and strategies, you may interact with him here

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