By James Kobielus
Network World, 11/11/96

To make sure you get the biggest bang for your outsourcing buck, you need to have a well-thought-out acquisition strategy.

This entails using a request for proposal to define your requirements, creating an effective way to review those RFPs and then spelling out your expectations for the outsourcer in stark letters.

Many network functions are too important to entrust to the first outsourcer that sends you a glossy brochure. So be sure to have three alternate bids for each procurement. Then make sure that the technical proposals address the requirements specified in the RFP on a point-by-point basis. Your rule of thumb should be that any outsourcer that can't describe the work clearly in its technical proposal probably can't perform it well, either.

A good way to make sure RFPs are up-to-snuff is to establish an expert selection panel to review them. The panel should comprise a mix of technically savvy people and some experienced contract negotiators.

If the contract you're awarding is large enough, you should also consider bringing in a consultant with a track record of successful network outsourcing acquisitions. This panel should help you separate the proposals with considerable technical and management depth from those that simply read well, promise everything, but display a shallow grasp of your outsourcing requirements.

When it comes time to hammer out an agreement, consider structuring a deal with option years instead of a simple fixed term. No matter how attractive the outsourcer, you should always give yourself a contractual back door in case the relationship doesn't work out. A way to do that is to have the outsourcer work for an established period, and pick up option years if it meets your performance standards.

If the outsourcer is not up-to-snuff, you can easily discontinue the contract at the end of the base period, then seek another vendor or bring the function back in-house. However, bear in mind the difficulties of disentangling yourself from an entrenched outsourcer.

''The user has high switching costs associated with going from one outsourcing vendor to another,'' according to Peter Bendor-Samuel, president of Everest Software Corp., a Dallas-based provider of software that helps companies manage outsourcers.

To protect yourself further, you should never outsource the core financial, planning and management oversight associated with a network management function. To do so would be to cede too much control to an outside firm.

It is critical that you retain key managers and technical experts in-house who can inspect and critique every aspect of outsourcer performance and have access to the full range of contract operational data. You should budget no less than 5% to 7% of the outsourcing contract value on in-house management and oversight, says Chuck French, manager of consulting at META Group, Inc.'s Sourcing Strategies Consulting Practice in Reston, Va.

How do you know if an outsourcer is performing according to your expectations? You create very detailed service-level agreements and performance metrics, specifying everything from how fast you expect work to be done to what you consider to be a top-quality job. Then you should tie performance metrics to the outsourcer's compensation.

Aside from monitoring performance, you'll want to continually establish benchmarks that tell you whether you can cover the costs of the same functions internally for less than what you pay the outsourcer.

''Look for a low-cost outsourcer and then benchmark its costs every six months to a year,''Bendor-Samuel says. If you don't, he claims, the outsourcer may take advantage of you by raising prices over time. If you do, you'll have some flexibility to bring prices down over time should the benchmark justify a lower cost.

To keep even tighter control over the outsourcer, limit the amount of work that can be subcontracted to other firms. On larger deals, outsourcers often band into bidding teams that divide up functional responsibilities under the resulting contract. If taken too far, subcontracting can lead to finger-pointing, excessive costs, slow response and other problems that nullify the benefits of outsourcing in the first place.