Notes on Managed Service and Outsourcing Implementation and Management

Notes on Managed Service and Outsourcing Implementation and Management:

Notes on Managed Service and Outsourcing Implementation and Management Alan McSweeney

Agenda:

January 11, 2011 2 Agenda Possible Managed Service Requirements Benefits of Managed Services Approach to Solution Analysis, Definition, Selection and Business Case Generation Contract Management Service Transition and Due Diligence Service Management and Operation Lessons Learned from Outsourcing Problems

Possible Managed Service Requirements:

January 11, 2011 3 Possible Managed Service Requirements Analyse existing processes Define requirements and proposed new supporting processes Define and document the requirements of an system to support the processes Generate a business case for the selection of a new system Identification of suitable products and vendors to be invited to propose a solution Produce material that can be incorporated into a tender for a system Define the process for evaluating proposals and responses from vendors Manage the team to perform the evaluation of the proposals and select the most suitable solution Additionally possibly assist in managing the implementation of the solution

Advantages of Managed Services:

January 11, 2011 4 Advantages of Managed Services Better use of staff: allows agencies to focus human resources on strategic planning and core mission support Cost savings: choose not to build and support IT and network infrastructure available in the commercial sector; use limited capital to purchase needed service levels and reduce total cost of ownership Ability to use optimal technologies: adjust types and mix of hardware, software, skilled labour, capital investment and technology to support changes in mission needs Rapid response to organisation and business changes: supplier is measured by ability to produce solutions

Types of Outsourcing Arrangement:

January 11, 2011 5 Types of Outsourcing Arrangement Efficiency/Utility (Make it Cheaper) arrangement outsourcing focuses primarily on cost control and, over time, cost reduction, with the goal of maintaining consistency in the delivery of services Business Enhancement (Make it Better) arrangement is about business productivity. The organisation’s performance, as compared with their competitors, will improve, resulting in movement toward defined business goals Transformational (Make me Money) arrangement is characterised by a partnership between the service provider and service recipient that is focused on innovation and new business, changing the very basis on which an organisation competes

Managed Service:

January 11, 2011 6 Managed Service The Basis for Managed Services is the ITIL framework which has as its foundation the Configuration Management Database (CMBD) The CMDB holds all relevant information for IT assets that make up a Managed Service The basic building block of the CMDB is the configuration item: “The core component of a service describing structure and details of the item and relationships with other items”

Managed Service Design and Reporting Approach:

January 11, 2011 7 Managed Service Design and Reporting Approach Analysis Document Business usage and processes covered by Oracle systems, review structure and available data and identify and gaps Build service view of components Understand what is (and is not) being monitored Design Define CMDB data hierarchy Overall service to be reported on Components System availability rules Impact rules Define what to be reported on: Outages Capacity and performance problems Agree BNM reporting requirements, presentation, format and drill-down facilities Build Build CMDB of service data Build reporting facility

Benefits of Managed Services:

January 11, 2011 8 Benefits of Managed Services Managed Services offers an alternative approach for a client to acquire IT or telecom support services Managed services solutions are designed and delivered by service providers according to a predefined statement of deliverables and generally includes end-to-end service, service level agreements, and assets (if desired) A managed service typically includes monthly recurring service-based pricing offering a more predictable cost approach for the client Ongoing visibility of operational performance is provided and managed through pre-agreed performance parameters (known as service-level agreements) The client may include their unique performance requirements such as degree of control and visibility, security, availability, capacity, service continuity and other requirements as it relates to the specific service Because this is a core competency, the service provider is able to optimise the best balance of facilities, processes, resources, tools, and metrics, resulting in the best overall value for the client Cost effectiveness is typically achieved through instituting process standards and establishing and supporting a standard operating environment (SOE) consisting of COTS (Commercial Of the Shelf) services and solutions Managed services can be delivered either in a BOCO (Business-owned, contractor- operated) or COCO (contractor-owned, contractor-operated) model and is largely based on client preference

Developing a Vision for IT Services is Required:

January 11, 2011 9 Developing a Vision for IT Services is Required What do we do today? What do our customers want us to do? What changes do we need to make to align with our customers needs? How will they pay for those services? How will we deliver those services consistently and measure their delivery? What kind of organisation (Governance/Contract Management/Structures/Staff/Skills/Service Providers) will we need to achieve it? What service management processes (ITIL/ITSM) we should use?

Service Model Triangle – What Service Model do You Want to Implement?:

January 11, 2011 10 Service Model Triangle – What Service Model do You Want to Implement? Organisation Service Provider Customers Provides Services Requests Services Monitors Service Provision Reports on Service Provision Requests Services Monitors Service Satisfaction and Provides Services

Approach:

January 11, 2011 11 Approach Step 1: Undertake activity analysis and identify weaknesses ‘as is’ with current processes Service Delivery role Customer feedback on services and issues Cost of service provision by location Local practice differences Contract structure/SLA’s Use of automation and tools to smooth workflow and reduce duplication of effort Service card costs, revenue and profit by service Existing and new Lines of Service and process for handling

Approach:

January 11, 2011 12 Approach Step 2: Develop ‘to be’ processes and implement, write RFP for service provider Redefine Service Delivery role Assess customer requirements for IT services today and in the future Review service card and adapt based on customer feedback Reduce cost of service provision, and identify rate card changes Leverage best practice in some locations across all locations Identify economies of scale Identify and implement opportunities to upsell services Leverage lower cost locations Identify and reduce cost of service provision through automation and tools How to standardise service across all locations Develop RFP and RFP evaluation criteria

Steps 3-6:

January 11, 2011 13 Steps 3-6 Dependent on 1 and 2, but should generally be designed to allow you to: Manage transition to service provider Determine what new services will be required Design a service delivery requirement and model for the incoming service provider to bid for Design a compensation structure for the incoming service provider that aligns achievement of IT services objectives and goals with the contract reward/remuneration schedule

High Level Approach:

January 11, 2011 14 High Level Approach Execution Planning Foster clear and consistent Executive and Programmatic communication Manage team or sub-contractor partners and manufacturers on customer goals and metrics Think in terms of outcomes Continually measure relevance of metrics to evolving missions Make sure my definition of success the same as the customers! Can we deliver the optimal outcome based on what we do best? Great opportunity to reach informal understanding agreement on feasible outcomes. Prime Contractor Use effective QASP procedures to self assess quality as well as contractor quality Base incentives and disincentives on clear relevant metrics that everyone understands Does the SOO sufficiently describe the desired outcomes? Will the contracting method provide enough competition? Is the contract type commensurate with risk? Define the desired outcome well enough to structure an enforceable contract. What contracting method will we likely use? Which contract type? Contract Office Continually assess relevance of metrics Maintain open lines of communication open Defining outcomes in writing is hard work. Define how we measure performance to meet the desired outcome What result do we want to create? Defining “end state” or desired outcome. Conducting market research to see who else has solved that problem, met that need. Program Office 7. Manage performance 6. Select the right contractor 5. Decide how to measure and manage performance 4. Develop a PWS or SOO 3. Examine solutions 2. Describe the problem that needs solving 1. Establish an integrated solutions team Analysis Acronyms PWS = Performance Work Statement SOO = Statement Of Objectives QASP = Quality Assurance Surveillance Plan

Approach to Solution Analysis and Definition:

January 11, 2011 15 Approach to Solution Analysis and Definition Based on stakeholder participation Organised as a set of four fundamental views Technical view Functional view Business view Implementation view Stakeholders

The Four Solution Definition Views – Building a House Analogy:

January 11, 2011 16 The Four Solution Definition Views – Building a House Analogy Business View Implementation View Why do I want a new house? residence, entertainment, business affordability location independence image Functional View What should the new house give me? uses / room layouts peace & quiet, security garden, trees garage, pet needs Technical View How will it be built? foundation, framing, heat/ac, plumbing, ... utilities: - electric, water, comms, roads security systems controls materials With what will it be built? sourcing - suppliers - specific models financing phasing moving

Approach to Assessment:

January 11, 2011 17 Approach to Assessment Business requirements drive strategy and architecture Capturing business requirements is essential Define key principles/policies/critical success factors for IT Identify implementation constraints Requirements Strategy Architecture Implementation Functional Technical Implementation Business

Fact Find and Solution Assessment Approach:

January 11, 2011 18 Fact Find and Solution Assessment Approach Actions Actions Implementation Principles Rationales Implications Obstacles Implementation View Business View Actions Technical View Obstacles Implications Rationales Technical Principles Functional Principles Rationales Implications Obstacles Functional View Actions Business Drivers Goals Business Principles Rationales Implications Obstacles

Approach to Solution Identification and Evaluation Process:

January 11, 2011 19 Approach to Solution Identification and Evaluation Process Formal solution management process that can be adapted easily to suit individual requirements

Business Case Generation:

January 11, 2011 20 Business Case Generation Prepare a business case prepared that justifies the investment An appropriate business case is needed to support a decision to make an investment in a project, programme or change Preparing the business case so it can be presented for agreement requires a clear understanding of the proposition in terms of scope, objectives, options, implementation and investment and return

Business Case:

January 11, 2011 21 Business Case The business case should contain information in five key areas: strategic fit, options evaluation and identification, procurement and implementation, whole-life costs and plan for achievement Strategic Fit Business need and its contribution to the organisation's business strategy Key benefits to be realised Critical success factors and how they will be measured Options Evaluation and Identification Cost/benefit analysis of realistic options for meeting the business need Statement of possible soft benefits that cannot be quantified in financial terms Identify preferred option and any trade-offs

Business Case:

January 11, 2011 22 Business Case Procurement and Implementation Proposed sourcing option with reasons Key features of proposed commercial arrangements Procurement approach/strategy with supporting details Whole-Life Costs Statement of available funding and details of projected whole-life cost of project (acquisition and operation), including all relevant costs Expected financial benefits Plan for Achievement Plan for achieving the desired outcome with key milestones and dependencies Contingency plans Risks identified and mitigation plan External supplier plans Resources, skills and experience required

Effective Contract Management :

January 11, 2011 23 Effective Contract Management PBC (Performance-Based Contracting) Objectives structured into contracts and multiple incentive arrangements Effective contract administration starts early with contract management planning Begins during the acquisition planning phase Recognises the performance-based elements of the contract The Contract Management Plan is in place before after the time of award Requirements are structured in a results or outcome oriented manner Positive and/or negative incentives are included Quality Assurance Surveillance Plans are required

Ensuring the Quality of Performance:

January 11, 2011 24 Ensuring the Quality of Performance QASP (Quality Assurance Surveillance Plan) Develop early - during the early stages of the RFP (SOW) Tool to evaluate contractor’s performance Provides a structured approach to performing quality inspections and surveillance Establishes frequency and types of inspections Focuses on results - quality and timeliness QASP linked with Performance Evaluation Management Plans (PEMPs) PEMPs establish the performance evaluation process and fee determination process PEMPs may be used to fulfill QASP requirement

Service Transition Process:

January 11, 2011 25 Service Transition Process

Organisation Change During Transition to Outsourcing:

January 11, 2011 26 Organisation Change During Transition to Outsourcing Enabling the changeover to outsourcing. Organisational change cannot be considered successful if the intended outsourcing objectives have not been achieved. Supporting users. Users must understand the operation of the outsourced managed service arrangement and the roles and responsibilities of each party. Successful outsourcing implementations require explicit statement of this information. Integrating with changes in lines of service to provide complete solutions. Successful outsourcing requires synergies that only can be attained when people, processes, technology, and lines of service initiatives are planned, implemented, and integrated seamlessly. Maintaining processes for fast responses to challenges. Despite our best efforts, organisational change activities can never be fully planned and engineered. However, the organisational learning process provides the resources and means to respond to unplanned and unexpected organisational challenges brought about by outsourcing. Building the organisation’s capacity for sustaining outsourcing. The pace of change in the early stages of outsourcing is very fast. The success of outsourcing depends on maintaining the flexibility to respond to a rapid series of change requirements from the client’s business units. The organisational change process provides a disciplined approach for managing the organisational dimension of future challenges the outsourced organisation will experience.

Transition and Transformation Management (TTM):

January 11, 2011 27 KEY: Key Quality Review Milestone Activity Customer Engagement Stage TTM Phase Key Reporting Events Handoff Events Transformation Criteria Achieved Development & Bid Negotiate & Close Ts & Cs Contract Signed Service Commencement Review Transformation Reviews Transformation to Delivery Handoff Transition Delivery Solution Handoff Due Diligence Post Contract Verification Courts Service Transfer Transformation Final Integrated Transition Plan Transition Initiation/Kick-off Transformation Initiation/Kick-off Stabilisation Standardisation Transformation Close Ongoing Delivery Planning Proposal Support Customer Management Office Service Commencement Preparation Preliminary Transition & Transformation Plans Transition Closure Transition Criteria Achieved Transition to Delivery Handoff Pursuit Handoff(s) Transition and Transformation Management (TTM)

Planning, Due Diligence and Transition Phases:

January 11, 2011 28 Planning, Due Diligence and Transition Phases Transition Solution Handoff Due Diligence Post Contract Verification BNM Transfer Final Integrated Transition Plan Transition Initiation/Kick-off Planning Proposal Support Customer Management Office Service Commencement Preparation Preliminary Transition & Transformation Plans Transition Closure

Due Diligence Objectives:

January 11, 2011 29 Due Diligence Objectives Enhance understanding of business solution to be provided Confirm scope of services, roles, responsibilities and service levels Gain better knowledge of mission critical IT services and how they relate to the business objectives Enhance operational understanding to enable refinement of service transition and transformation plans Ensure service provider proposes the best and most suitable service Opportunity to mutually gain a greater insight of company and service provider cultures, skills, partners and knowledge

Value of Due Diligence:

January 11, 2011 30 Value of Due Diligence Confirmation of assumptions Verification of financials Ensure risks are mitigated, accepted and sized Identification of new risks Validation of transition plan to new service Safeguard of shareholder value Discovery and understanding of culture and management style Verification of the infrastructure and operational methodologies Identify opportunities to add additional value Building the trust relationship with the customer Providing confirmation of no deal-breaking criteria

Due Diligence Guiding Principles:

January 11, 2011 31 Due Diligence Guiding Principles Work collaboratively and co-operatively with the customer Support customer business objectives Evolve and build relationships Solidify common goals and focus Framework for future collaboration The goal is No Surprises

Elements of Due Diligence :

January 11, 2011 32 Elements of Due Diligence Engagement Planning Execution Analysis Reporting

Due Diligence Process Overview:

January 11, 2011 33 Due Diligence Process Overview Definition & planning define requirements document impacts and assumptions define cost drivers define & confirm approach Planning Execution Analysis Results Data Collection conduct data room visits conduct interview/discussions conduct site visits Data Analysis assess financial impact complete deviation reports document variances Output recommendations to SOW T&C’s, risk adjustments recommendations for costing model

Making SLAs and OLAs Work :

January 11, 2011 34 Making SLAs and OLAs Work Service Level Agreements and Operating Level Agreements should: Be developed with contractor Be measurable and achievable Align with the deal Align with the organisation’s goals (relevant measures and metrics) Have effective incentives and disincentives to drive desired behavior Should be consistent with your strategic objectives Effectiveness -- functional alignment with mission, committed delivery of service to stakeholders, leverages diversity in the marketplace, complies with regulatory mandates, and delivers outcome/impact within applicable constraints) Enhancement – process and productivity improvement (claims processed, personnel productivity Transformation – Business performance improvement (revenue growth, market growth) Efficiency -- Cost improvement and cost control Availability, response, resolution

Sample Service Level Agreement Structure:

January 11, 2011 35 Sample Service Level Agreement Structure 1 Service Level Agreement 1.1 Introduction, Purpose and Scope 1.2 Structure of This Document 1.3 Scope of SLA 1.3.1 Purpose of SLA 1.3.2 Involved IT Partners, Locations and Departments 1.3.3 Customer Departments Involved 1.3.4 Responsibilities 1.3.5 Services Not Covered By This SLA 1.3.6 Changes to SLA 1.3.6.1 Termination of Agreement 1.3.6.2 Amendment to Agreement 1.3.6.3 New Services and Applications 1.3.6.4 Levels of Effort 1.3.6.5 Renewal of Agreement 1.3.6.6 Review Process 1.4 Support Operating Model 1.4.1 Support Structure 1.5 Application Support Services 1.5.1 Overview 1.5.2 Managing Incidents and Service Calls 1.5.3 Support Services and Service Options 1.5.4 Performance Measures 1.5.5 Warranty Period 1.5.6 Escalation Process 1.5.6.1 Services and Application Criticality Classification 1.6 Service Options Details 1.6.1 Service and Hours by Application and Service 1.6.2 Holiday Coverage by Application and Service 1.6.3 Business Critical Periods by Application and Service 1.6.4 Application and Service Support Models 1.6.5 Escalation Contacts by Application and Service 1.6.6 Key Contacts by Application and Service 1.6.7 Review Meetings 1.6.7.1 SLA Review Meeting 1.6.7.2 Operational Review Meeting 1.6.7.3 Service Provider Review Meeting 1.6.8 Partner Service Level Agreements 1.7 Communication Schedule 1.8 Signatures

Service Change Management:

January 11, 2011 36 Service Change Management Changes during the course of the delivery of a service are inevitable and can affect the scope, cost and delivery Change Management is a systematic process that allows for changes and at the same time aims to minimise the negative consequences of these changes

Change Control Steps:

January 11, 2011 37 Change Control Steps Planning – Establishing change management plans, processes and expectations during project planning Initiation – Recognising the need for a change and documenting the request Review – Reviewing the request for completeness Approval for Evaluation – Approving the cost for further evaluation, if needed Evaluation – Evaluating the change request in detail to understand its impact on the project Review, Negotiation and Approval – Assessing the results of the review and or evaluation, the impact on the project and deciding the course of action Implementation – Putting the approved change decisions into action Review and Verification – Reviewing and assessing the results of change implementation Closure – Capturing lessons learned and administratively closing the request

Lessons Learned from Outsourcing Problems - 1:

January 11, 2011 38 Lessons Learned from Outsourcing Problems - 1 Smoothly Transferring Services And Resources - A common cause of failure is the ineffective management of the transfer of services and resources to the service provider, leading to service delivery problems. Successful service providers rigorously control the transfer of services and resources to ensure that the new service is able to adequately deliver the service and the service continuity is maintained. Maintaining Stakeholder Expectations - A common source of failure in sourcing engagements is a difference in expectations between the client, the service provider, and the suppliers and partners. Identifying and managing those expectations helps to ensure a common understanding of what is necessary for success. Translating Implicit And Explicit Needs Into Defined Requirements With Agreed Upon Levels Of Quality - A frequent cause of failure in sourcing is that the service provider does not fully understand the needs of the client. Successful service providers rigorously gather and analyse the stated and unstated needs, then translate those needs into a set of documented requirements. Successful service providers also recognise that needs change over time and establish provisions for gathering and analysing modifications to their services.

Lessons Learned from Outsourcing Problems - 2:

January 11, 2011 39 Lessons Learned from Outsourcing Problems - 2 Reviewing Service Design And Deployment To Ensure An Adequate Coverage Of The Client’s Requirements - Frequently, failure in sourcing is caused by the service provider not fully addressing the needs of the client. To ensure that the service delivery will meet the client’s needs successful engagements include rigorous reviews of the service design and deployment activities by the clients and the service provider prior to service delivery. Managing Client’s Security - Managing security and controlling critical data and assets are critical to establishing trust. Security management includes protection of intellectual property, confidentiality, and privacy concerns. Monitoring And Controlling Activities To Consistently Meet The Service Delivery Commitments - Successful service providers rigorously monitor their service delivery activities to ensure that the client’s commitments are being met. Actions are taken to resolve and prevent problems, thereby escalating issues as appropriate to ensure that they are addressed in a timely basis.

Lessons Learned from Outsourcing Problems - 3:

January 11, 2011 40 Lessons Learned from Outsourcing Problems - 3 Monitoring And Managing Client’s And End User’s Satisfaction - Success is not always defined in terms of meeting the agreed upon commitments, because clients and end users may be unsatisfied even when commitments are being met. Successful sourcing engagements monitor the satisfaction levels of the stakeholders to identify problems and take action. Managing Employee Satisfaction, Motivation, And Retention - IT-enabled sourcing often involves challenges during transition, deployment, and service delivery. High employee turnover jeopardises the service provider’s ability to meet its client’s requirements and undermines their expected gains and performance levels. Proactively monitoring and managing employee satisfaction and motivation can improve personnel retention and effectiveness. Managing Technological Shifts And Maintaining The Availability, Reliability, Accessibility, And Security Of Technology - By definition, technology is a key component of outsourcing. Major challenges for the service provider include keeping pace with rapid changes in technology and effectively managing the technology infrastructure while changes are incorporated.