Portfolio Assessment for Outsourcing Contracts

People say that change happens for one of two reasons: evolutionary or revolutionary. When considering outsourcing information technology (IT), change rarely happens due to evolutionary means, since it is not a natural occurrence to intentionally decouple IT systems and move components to another entity at a different location. In these days of globalization outsourcing usually means turning over aspects of your application portfolio to a company based outside of your own country and operating in diverse geographic locations spread across multiple time zones.

IT change is more often revolutionary and the decision to outsource is made by a senior executive committee or even by a non-IT group, such as the Finance department. So, the question presented to the IT group is not “Do we outsource?” but more “What to outsource?”

It’s widely known that certain aspects of the software development life cycle (SDLC) are better suited for outsourcing than others. As an example, interacting with the end users and eliciting requirements is best managed by analyst that are part of the company owning the customer relationship. On the other hand coding and testing are easily adopted to turning over to a third party who may have a larger pool of resources from which to draw and may even have better processes support application development. Handing over a legacy portfolio to a qualified third party to ‘moth ball’ or simply ‘keep the lights on’ is fundamental to most large outsourcing vendors, and in doing so allows the outsourcer to focus on new products or a technology refresh.

Other factors weigh in on decision regarding what to outsource, such as product life cycle, budget, domain knowledge, and overall readiness to support an outsourcing engagement. Within this in mind the process in determining what to outsource should not be taken lightly. Recognizing there is no single parameter or component that is a complete indicator of which portfolios are right for outsourcing, it is generally an entire set of factors that combined give indications when one portfolio may be more appropriate than another for outsourcing.


When evaluating a portfolio for outsourcing potential, I suggest a balanced approach in assessing the portfolio, so that no one factor overshadows the other factors or adversely influences decisions. My experience has shown that there are three categories of parameters that must be considered:

• Business contribution of the portfolio
• Skills required for development and support
• Platform characteristics on which the portfolio operates

There is a simple but dynamic process for evaluating portfolios and assessing their potential for successful outsourcing. Based on years of experience in managing millions of dollars in outsourcing engagements and overseeing hundreds of projects and statements of work (SOW), I have found a set of criteria that are comprehensive, yet equally aligned with the three categories. A simple questionnaire that scores responses and can be utilized to rank potfolios relative to each potfolio's adaptability as determined by proven industry best practices.

Business factors

1. Business Continuity, what is the risk to going business of a failure in this portfolio?

2. Competitive Advantage, does this portfolio provide an advantage over similar product from competitors?

3. Investment Budget, is the annual portfolio budget for development and support greater than the minimum threshold to justify the ramp-up costs?

4. Relationship Complexity, how complex is the contributor arrangements, such as the number of vendors or stakeholders?

Skills Related

5. Domain Dependencies, what, if any, domain knowledge dependencies are there for successful sourcing by a third party?

6. Skills Availability, how available are the skills in the open market that are required supporting all development and operational needs?

7. Readiness, are SMEs trained and are tools in place to adequately support the sourcing ramp-up?

8. Knowledge Transfer, what is the length of time it takes an average technician to become productive on the applications?

Platform characteristics

9. Product Life Cycle, where is the portfolio (or product) in its life cycle?

10. Platform Stability, how complex are the systems and tools on which the applications will run?

11. Maintenance, what percent of the portfolio budget is allocated to maintenance and production support?

12. Instances, are there multiple instances or derivatives

As I have indicated not every portfolio is easily adapted to outsourcing. Once vendors have been vetted and contracts signed, then changing vendors or brining the development back in-house can be even a larger initiative than the original outsourcing due to ramp-down and knowledge transfer. A focused assessment of portfolios prior to outsourcing can pay huge dividends in the end.