Bringing outsourcing back home

Agencies are finding that the outsourcing of information technology projects

is not a panacea. In fact, insourcing — the decision to move projects in-house — is picking up the slack when outsourcing fail, according to industry experts.

Federal agencies spend more than $26 billion on outsourcing each year,

but not all projects are successful.

According to a 1995 report by market research firm The Standish Group

International Inc., only 16.2 percent of application development projects

are completed on time and on budget, and more than 31 percent are canceled

before being finished.

"The same agencies and vendors that trumpet their success also have

failures to perform," said Ed Emig, director of customer services for OAO

Corp., an IT systems integrator. "No one wants to talk about the failures."

Outsourcing fails when an agency inadequately defines the requirements,

has unrealistic expectations or has outsourced the wrong project, according

to industry experts who spoke at last month's FOSE trade show in Washington,

D.C.

For example, when the Commerce Department's Minority Business Development

Agency in 1997 decided to update its database to provide customers with

online resources, it soon found that the services it originally outsourced

did not meet its changing requirements.

The agency spent more than nine months working with Environmental Systems

Research Institute Inc. to modify the system to meet its new needs for customized

maps. But in the end, the agency decided to solicit bids from other vendors.

"It was not ESRI's fault," said Michael O'Hara Garcia, chief information

officer at MBDA. "What we were asking them to do was outside their level

of expertise. They provided what we needed at the time."

MBDA decided to lease MapQuest technology and services and use in-house

personnel to customize the mapping programs.

When an agency decides to outsource a project, the contract must be

very specific. A vendor must be made aware of the performance requirements,

including how success will be measured, necessary interfaces, a timetable

and the consequences of a failed project, industry experts said.

"You can be informal when a project is in-house. You don't have to write

down all the instructions for work or explain how a system will be used,"

Emig said. "When you outsource a project, it is very important to document

everything to make sure both parties understand the expectations and have

something to refer to."

Sometimes, the outsourced project simply may not be feasible. Other

times, vendors become overzealous and make unattainable promises.

If an agency decides to outsource a project because it cannot find qualified

personnel to perform the task, it should expect that vendors will face the

same challenge.

"A vendor does not have people sitting around waiting for a phone call,"

said Pat McConnel, chief analyst for the Internal Revenue Service's Office

of Technical Contract Management. "If [agencies] can't find people to fill

positions, [agencies] can't expect vendors to."

To prevent outsourcing failures from disrupting services, agencies must

have a contingency plan, Emig said. Someone within the agency must monitor

the vendor's performance.

The IT infrastructure must be kept in-house so that agency personnel

are aware of the technology that has been implemented, panelists said. Agency

personnel must also be kept up-to-date on a proj-ect's progress to ensure

that someone in house can pick up where the vendor leaves off. Personnel

should review lessons learned as part of the transition to insourcing.

"Insourcing requires developing staff who are competent and qualified

to provide the services desired," McConnel said.

Added Emig, "[Agencies] need to know where all the skeletons are and

where the work in progress is. When outsourcing fails, an agency shouldn't

just take over the function, but should set goals to improve the function

that failed."

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