Guide to ICT Sourcing - Managing ICT Sourcing as a Lifecycle
Managing ICT Sourcing as a Lifecycle
Contents of this Chapter:
- A Four-phase ICT Sourcing Lifecycle
- Phase I: Case for change
- Phase II: Decide sourcing strategy
- Phase III: Undertake procurement
- Phase IV: Transition and manage
- Where does your Agency Sit in the Lifecycle?
- Timing for Agencies that have External Sourcing Agreements
Given the complexities and risks of ICT sourcing, agencies need to be methodical and analytical about the way they assess, select and manage their sourcing requirements – this requires much more than a series of one-off purchasing decisions.
A Four-phase ICT Sourcing Lifecycle
Sourcing is a continuous process – a lifecycle that starts by understanding the case for change, then choosing the best sourcing option, assessing vendor offers, and transitioning to and managing the chosen sourcing solution. The lifecycle begins again when a renewal decision must be made, or when changes have occurred that could affect an agency’s self-managed strategy.
We have developed a four-phase approach to guide agencies through this lifecycle (Figure 4).
Figure 4: The four-phase ICT sourcing lifecycle
By following the lifecycle, agencies will be able to develop ICT strategies that are defensible and accurate, and are grounded in an unbiased assessment of their ICT sourcing options. This, in turn, will ensure that top management can easily understand and make well-informed decisions about the agency’s ICT strategy. It should also help build executive commitment to the outcomes, and ensure alignment with overall business objectives.
At any given time, different agencies will be at different phases of the lifecycle, and some may well be across multiple phases for different components of their ICT. Large and complex agencies may have ICT activities with both shorter terms (such as telecommunications contracts) and longer terms (such as a five-year hardware contract). This may result in ICT activities that are ‘out of phase’. In these cases, it may be more difficult to understand the costs or the effort needed to change, as there is likely to be a more complex interaction between the various elements.
Officials should refer to their Chief Executive’s Instructions, or other operational guidance, for specific directions that may apply to their agency’s activities at all stages of the procurement cycle. In addition, at all stages of the process agencies should maintain appropriate documentation of all decisions and actions, to provide a record and facilitate scrutiny of their procurement activities in the future.
The objectives of each phase are described below.
Phase I: Case for change
The objective of this phase is to consider changing sourcing arrangements to meet the agency’s strategic ICT objectives. Agencies that self-manage their ICT could consider switching to external sourcing, while agencies that already have external sourcing arrangements need to determine whether they should renew or consider other options.
Phase I includes four modules for understanding the current sourcing strategy, one of which involves understanding the costs and the real value of the existing sourcing strategy. To perform this cost and real value analysis, agencies could use the economic diagnosis tool described in Appendix A. This phase concludes with modules for building the case for change and determining whether change is feasible.
Phase II: Decide sourcing strategy
Agencies that establish a case for change should use strategic, qualitative and quantitative analysis to arrive at the most appropriate sourcing strategy for their needs. Agencies may also wish to investigate the market for ICT goods and services in order to obtain a real picture of potential costs and the benefits of alternative solutions.
Phase II includes three modules, beginning with determination of the best sourcing strategy. This is a complex module that again involves detailed cost and real value analysis – this time, of potential sourcing arrangements. If the most appropriate strategy is external sourcing, agencies should develop a ‘target’ contract along with a detailed procurement plan. These activities make up the other two modules in this phase – renegotiating the contract and developing a procurement plan. Agencies considering self-managing their ICT should begin working out a transition plan (if applicable), and should proceed to Phase IV after this phase.
Phase III: Undertake procurement
If agencies have decided on an external sourcing arrangement, they should proceed with the procurement plan defined in the previous phase, which may include launching a tender process, screening and selecting vendors, performing due diligence, and negotiating a contract with their chosen vendor. Some agencies may choose to undertake several procurement processes in parallel to select multiple vendors. An agency that has decided to self-manage ICT will still need to have a procurement plan – for example, for software, hardware and other components of ICT. This type of procurement, which generally does not involve vendor relationships that are as complex as those undertaken in single or multi-sourcing, may not require the strategies detailed in this guide.
Phase III includes three modules: implement the plan, select vendors, and develop contracts. Procurement must be conducted in accordance with the Commonwealth Procurement Guidelines.
Phase IV: Transition and manage
This phase describes the steps needed for transitioning to and managing ongoing ICT sourcing arrangements. Here, agencies should focus on ensuring the expected value from their chosen sourcing strategy is delivered.
Transition can be a significant process and requires both skill and extensive agency resources to implement. The difficulty of managing the relationship between an outgoing provider and a new provider should not be underestimated. Agencies should be fully aware of the costs, disruption and complexity of transition.
Phase IV includes four modules. The Guide provides less detail on this phase, primarily because there are already Australian Government publications that address these issues, particularly management of contracts. A comprehensive list of relevant publications can be found in Appendix B. It is also assumed that agencies are already familiar with many of these issues, such as change management, internal communications, and risk management, as these would apply to a host of activities, not just ICT sourcing.
Where does your Agency Sit in the Lifecycle?
The lifecycle, on its own, cannot ensure the success of an agency’s approach to ICT sourcing. It needs to be supported by several prerequisites.
For example, it is assumed that agencies entering Phase I of the lifecycle already have a project team for ICT sourcing. The size of the team will, of course, vary according to each agency’s needs – some agencies will have more complex ICT needs than others, and will therefore need larger teams and greater expertise.
At a minimum, a project team should have a good understanding of an agency’s ICT needs. It should also be familiar with the basics of successfully managing a relationship with an external vendor, such as contract negotiation and management, and risk management (the Australian Standard for Risk Management – AS/NZS 4360:2004 is referenced in Appendix B). Agencies that have little or no experience in managing external vendors should consult other agencies about the best way to build these skills, and should also refer to other government publications that address these issues. Knowledge of Australian Government procurement policies and good practice is also essential within the project team.
Timing for Agencies that have External Sourcing Agreements
Phase I should begin long enough before the end of existing sourcing arrangements to allow sufficient time to analyse these arrangements, develop a new sourcing strategy, assess a range of vendor offers, select the most appropriate vendor, and transition to this new vendor while maintaining services from the incumbent and minimising disruption to agency business.
Figure 5 provides an indicative timeline that would typically apply to large agencies that have one major arrangement in place and are switching to one or several other vendors.
Figure 5: Transition timeline for large agencies
Agencies establishing their own timeline will need to consider numerous factors including:
- Commonwealth Procurement Guidelines and Chief Executive Instructions
- external influences and contextual circumstances, such as next foreseeable change in Machinery of Government, contract end date, etc.
- scope of the exercise and whether it applies to vital business functions
- level of internal expertise – first-generation agencies, that is, those that are outsourcing for the first time, might take longer than second-generation agencies on some aspects (such as thinking and preparing termination), and less time on others (such as transferring knowledge)
- availability of resources and information (especially for costing analysis)
- potential to run tasks in parallel
- internal decision-making processes
- level of risk (including security) the agency is willing to take
- if the market approach is to go straight to AusTender with a Request for Tender (RFT), or will be in two phases, beginning with a Request for an Expression of Interest (REOI), or if direct sourcing is being used and if it includes a prime contractor, one contract or multiple contracts
- whether it involves alliances with other agencies.
Contact for information on this page: ICT Procurement