Managing risks in information systems outsourcing: An approach to analyzing outsourcing risks and structuring incentive contracts |
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| Institution: | 1. Department of Information Systems & The Information Systems Research Institute, Virginia Commonwealth University, 1015 Floyd Avenue, Richmond, VA 23284, USA;2. School of Information Technology Management, Ryerson University, Canada;1. University of Bern, Engehaldenstrasse 8, 3012 Bern, Switzerland;2. University of California, Berkeley, 443 Soda Hall, Berkeley, CA 94720, USA;3. University of Fribourg, Boulevard de Pérolles 90, 1700 Fribourg, Switzerland;4. Department of Electrical & Computer Engineering, University of Alberta, Edmonton, T6R 2V4 AB, Canada;5. Department of Electrical and Computer Engineering, Faculty of Engineering, King Abdulaziz University, Jeddah 21589, Saudi Arabia;6. Systems Research Institute, Polish Academy of Sciences, Warsaw, Poland;1. University of Bari, Department of Economics, Italy;2. LUMSA, University of Rome, Department of Economic and Political Sciences and Modern Languages, Italy;1. University of Wyoming, College of Business, Department of Management and Marketing, Dept. 3275, 1000 E University Avenue, Laramie, Wyoming 82071, United States;2. Brigham Young University, Marriott School of Business, Business Management Department, 686 TNRB, Brigham Young University, Provo, UT 84602-3113, United States;3. Miami University, Farmer School of Business, Department of Management, 800 East High Street, Oxford, OH 45056, United States;1. Centre for Global Sourcing and Services, Loughborough School of Business and Economics, Loughborough LE22 3TU, United Kingdom;2. Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, United Kingdom;3. Grenoble Ecole de Management, 2 rue Pierre Sémard, 38000 Grenoble, France |
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| Abstract: | Information systems outsourcing is now almost standard practice for many companies. Outsourcing the information processing activities is a complex issue that entails considerable implications for the strategy of the firm. An important mechanism for managing the performance of outsourcing vendors is incentive contracts. But to develop an outsourcing contract the IS manager must quantify risks and benefits. However methods and tools for analyzing and quantifying outsourcing risks that IS managers have at their disposal are rudimentary. In this paper we offer a method and some mathematical models for analyzing risks and constructing incentive contracts for IS outsourcing. We are aware that most managers do not like to use mathematical models, consequently we have minimized the technical discussion and have illustrated how this model could be implemented using spreadsheet software for ease of use. |
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