Identification and Prioritization of Outsourcing Risks of Information Technology Projects (Case Study: Iran Technical and Vocational University)

Transcription

1 Intl. j. Basic. Sci. Appl. Res. Vol., (), 85-89, 0 International Journal of Basic Sciences & Applied Research. Vol., (), 85-89, 0 Available online at ISSN Identification and Prioritization of Outsourcing Risks of Information Technology Projects (Case Study: Iran Technical and Vocational University) Javad Tajari *, Changiz Valmohammadi, Mohsen Mohammadi Department of Management, Naragh Branch, Islamic Azad University, Naragh, Iran Department of Industrial Management Faculty of Management and Accounting South Tehran Branch- Islamic Azad University, Tehran, Iran Department of Industrial Management, Faculty of Management and Accounting, Islamic Azad University, Shahr-e-Rey Branch * Corresponding Author javadtajari@yahoo.com Abstract Outsourcing of information technology projects has certain advantages such as decreased costs, improved service quality and competitive advantage, to name but a few. However, the expected outsourcing benefits of information technology projects may not be met once the outsourcing risks are not addressed before the projects are transferred to a service provider. Considering the growing trend toward outsourcing information technology projects in Iran, the present study aims to identify and prioritize the risks associated with outsourcing information technology projects by drawing upon the opinions of information systems experts. To this end, a review of the relevant literature was conducted, and a number of eleven risk factors were identified. Subsequently, Analytical Hierarchy Process was used to prioritize risk factors. A questionnaire was administered to ten experts to seek their opinions on the subject. The results revealed that the variable outsourcer and the subscale lack of outsourcer skills in outsourcing operations are the major priorities in the success or failure of outsourcing information technology projects as voiced by the designer experts of information systems. Finally, some applied and research recommendations will be made toward the end of the article. Keywords: Information technology projects outsourcing, Risk factors, Prioritization, Analytical hierarchy process. Introduction Outsourcing refers to the transfer of some organizational activities to an outsider supplier and devolving decision-making rights to the third-party provider based on a contract. In outsourcing, not only are activities transferred but factors of production (e.g. employees, facilities, equipment, technology and other assets) and decision-making authority are often delegated to the supplier (Belcourt, 006). Outsourcing is defined as the delegation of internal activities of an institution or company to another service provider. Information system outsourcing can be defined as the transfer of part or all of information system activities of an organization, employees and/or information system resources to one or more external suppliers (Adeleye et al., 00). There is a plethora of discussions centered on outsourcing. Companies have increasingly tended to outsource their information technology (IT) operations over the last years. Research has shown that outsourcing business has grown from 80.5 billion dollars in 00 to 5. billion dollars in 008, with an increase rate of 7.% per year (Bertrand & Francois, 00). However, increased outsourcing does not mean that it is completely flawless. Although outsourcing helps organizations reap benefits such as reduction in costs, it has brought about unsuccessful experiences to companies such as failure to provide the expected services. Despite such problems, organizations continue to seek profits through IT outsourcing (Boardman et al., 008). Recently, attentions have been directed toward risk elements in decision-making process of outsourcing (Bhattacharya et al., 00). Half of the failures in outsourcing contracts result from inappropriate risk analysis by companies. The rate of international outsourcing failures is 50 percent because companies do not pay heed to the nature of risks in their international business decisions. Having suffered failures, some organizations have given up their outsourcing decisions. Of the potential reasons accounting for outsourcing failures, insufficient analysis about outsourcing decision seems to be a logical one (Cong & Chau, 0). Nowadays, 85

2 Intl. j. Basic. Sci. Appl. Res. Vol., (), 85-89, 0 companies are increasingly looking for outsourcing their activities in order to increase their competitive potentials, gain benefits and concentrate on their competitive advantage. Achieving competitive advantage through increasing differentiation strategy is a big challenge with which companies have to deal and to achieve which they have to increase their efficiency, use new technologies and gain managerial skills. Thus, in order to achieve more advantages, many organizations have started outsourcing their activities to improve the quality of their products and services (Kakabadse & Kakabadse, 000). IT is one of the most distinguished demonstrations of technology that has dramatically changed and created a new conflict in how people, organizations and governments interact with one another. Specifically, technology has become prevalent such that most organizations and institutions have relied on IT infrastructure. In fact, IT is considered as a cost-effective approach to solve the problems faced by contemporary society. What increases the zeal for IT projects outsourcing is continuous changes and growing demands of users for IT services (Akomode et al., 998). IT projects outsourcing can bring about potential benefits such as decreased costs, improved service and technical experience (Bahli & Rivard, 005). One may contend that outsourcing is a strategic issue but not an option even for the local organizations (Khavandkar & Rahnavard, 0). Lack of attention to management delicacies in IT projects risks not only impedes the fulfillment of predicted profits but also results in the failure of projects. Accordingly, identification of most important IT risks and measurement of their relationships play a crucial role in management decisions (Jamali & Hashemi, 0). Companies make their outsourcing contracts so as to decrease their costs and improve their services to the customers: however, they may fail to achieve such goals. Research has shown that the risks associated with IT projects outsourcing can result in greater adverse effects that are against the expected profits in IT projects (Bahli & Rivard, 005). Besides, it should be noted that IT projects outsourcing has failed in many cases. For example, a research has shown that IT managers expressed a satisfaction of only % with IT services outsourcing as compared with a satisfaction of 70-80% with other outsourcing cases (Chou et al., 006). JI-Ye et al (008) reported that previous studies on the effect of IT projects have not determined the effects of IT outsourcing clearly. This deficiency is particularly important in India that has a flourished industry of IT outsourcing, where the applied technological plans across the globe are provided for the domestic customers. They also cited economic evidence that showed the positive, strong effect of IT outsourcing on production and productivity in India. They also showed that IT outsourcing contributed to economic growth considerably. Since lack of prediction and risk management are two major causes of project failures, organizations need to apply risk management in their projects in order to achieve the desirable levels of success. Risk analysis pursue two goals: first, it shows the relative importance of identified risks and makes it possible to prioritize them based on the effect they exert upon the financial and operational structure of the project: and second, it provides the information necessary to determine the proper methods to deal with risks. Research has only enumerated the risks so far although some studies have analyzed them. A need is felt, though, to have a comprehensive list of risks facing IT outsourcing. Besides, there has not been a study to determine the importance of every single risk factor. It is evident that a comprehensive inventory of risks and their associated importance would help project managers decrease the adverse effects of risks and increase the potential of success. Considering the above discussions, the present study aims to determine the risk factors of IT projects outsourcing as well as their assessment and prioritization. The study also aims to address the question what are the risks of IT projects outsourcing in Iran technical and vocational university? Methodology The present study adopted a descriptive method and a survey design as it aimed to describe the conditions and variables affecting a phenomenon. The study is an applied research that is based on the concepts of operation research models. The ranking (prioritization) of risk factors of IT projects outsourcing was done using analytical hierarchy process (AHP) in Iran technical and vocational university. The population of the study consisted of decision makers and experts including all IT managers, deputies and experts in Iran technical and vocational university (N=0). The data was collected through both library research and field study. The field data was collected through two questionnaires with AHP format (9-point scale and paired comparison), interview and several meetings with IT experts in Iran technical and vocational university. Two questionnaires were used in the present study. Questionnaire was redesigned and administered to the members of decision team. The questionnaire included a list of risk factors of IT projects outsourcing. The team members were asked to give their opinions about the elimination, integration or addition of the factors. This helped the researcher come up with a polished list of risk factors of IT projects outsourcing. Questionnaire was developed for the purposes of weighting as well as computation of the degree of importance and weights of risk factors of IT projects outsourcing. The questionnaire was also developed to complete paired comparison matrices and obtain the local weights of criteria and sub-criteria of the main factors. Questionnaire was also administered to the research team. The questionnaire was developed based on a 9-point scale. One of the advantages of AHP method or a paired comparison questionnaire is that it provides inconsistency index of pairwise comparison as an index of questionnaire reliability. The obtained value of inconsistency index revealed that Questionnaire had an appropriate reliability index. The data was analyzed using Multiple Criteria Decision Making that is based on mathematical inferences. The factors addressed in the AHP questionnaire (Questionnaire ) are computed in pairwise decision matrices by integrating the opinions of team members using geometric mean, and the weights of factors are compared with one another. Subsequently, the obtained matrix is multiplied by factor weights in terms of different factors to determine the priority of every factor hierarchically. Statistical analysis was conducted using team expert choice and excels software. 86

3 Intl. j. Basic. Sci. Appl. Res. Vol., (), 85-89, 0 Results Table illustrates the weights of subsidiary factors contributing to the identification and prioritization of risk factors of IT projects outsourcing in every subgroup. Table. Integrated (geometric) matrix of level- group paired comparisons (subsidiary contract factors-a). Subsidiary contract factors A A A A Weight A A A A IR=0.00<0. The results illustrated in table show that uncertainty ranks first with the relative weight of 0.5 followed by dependence, limited number of suppliers and asset allocation as the second to fourth factors in rank with relative weights of 0.86, 0.05 and 0.75, respectively. Figure. Weights of subsidiary factors- contract A. Table. Integrated (geometric) matrix of level- group paired comparisons (outsourcer subsidiary factors-b). Outsourcer subsidiary factors B B B B B B Weight IR=0.00<0. As shown in table, lack of outsourcer skills in outsourcing operations ranks first with the relative weight of 0.6 followed by lack of outsourcer skills in IT operations and lack of outsourcer full engagement as the second and third factors in rank with relative weights of 0.90 and 0.9, respectively. Figure. Weights of subsidiary factors- outsourcer B. 87

4 Intl. j. Basic. Sci. Appl. Res. Vol., (), 85-89, 0 Table. Integrated (geometric) matrix of level- group paired comparisons (supplier subsidiary factors-c). Supplier subsidiary factors C C C C C C C C Weight IR=0.0<0. As shown in table, lack of supplier ability in performing IT operations ranks first with the relative weight of 0. followed by lack of supplier skills in outsourcing practices, supplier s violation of the contract and supplier viability as the second to fourth factors in rank with relative weights of 0.8, 0.9 and 0.5, respectively. Figure. Weights of subsidiary factors- supplier C. The final weight of the factors in every group is obtained by multiplying the local weight of a factor in the main factor in the group. This way, the ranks of every risk factor of IT projects outsourcing are determined. The results are illustrated in table. Table. ing risk factors of IT projects outsourcing based on AHP method. Main factors Weights of main factors Subsidiary factors Weights of subsidiary factors Final weight (priority) A Contract 0.07 A A A B Outsourcer B B C Supplier 0.87 C C C The results of data analysis shown in table reveals that lack of outsourcer skills in outsourcing operations ranks first with the relative weight of The second to eleventh ranks are numbered in ordinal successively with their relative weights as follows: (nd) lack of outsourcer skills in IT operations (0.75): (rd) lack of outsourcer full engagement (0.50): (th) uncertainty (0.069): (5th) lack of supplier ability in performing IT operations (0.06): (6th) asset allocation (0.059): (7th) lack of supplier skills in outsourcing practices (0.05): (8th) supplier s violation of the contract (0.06): (9th) dependence (0.0): (0th) limited number of suppliers (0.06) and (th) supplier viability (0.0). Discussion and Conclusion The present study aimed to identify and prioritize the risks associated with IT projects outsourcing in Iran Technical and Vocational University. The study was conducted using AHP method. The results revealed that lack of outsourcer skills in outsourcing operations ranked first with the relative weight of Lack of outsourcer skills in IT operations (0.75), lack of outsourcer full engagement (0.50), uncertainty (0.069), lack of supplier ability in performing IT operations (0.06), asset allocation (0.059), lack of supplier skills in outsourcing practices (.5), supplier s violation of the contract (.6), dependence (.), limited number of suppliers (0.06), and supplier viability ranked second to eleventh, respectively, as the risks associated with IT projects outsourcing in Iran Technical and Vocational University. The present findings as to the third rank are consistent with the findings of Bahrami (009) and Bryson and Ngwenyama (006). Considering the second, third and eighth ranks (i.e. lack of outsourcer skills in IT operations, lack of outsourcer full engagement and supplier s violation of the contract), the present findings correspond to the findings of Cong and Chau (0). 88

5 Intl. j. Basic. Sci. Appl. Res. Vol., (), 85-89, 0 Based on the obtained results, the following recommendations are made: () increasing technical knowledge of the discussed issue in the personnel by providing them with internal or external training or using qualified national or international consultant companies to cooperate in IT projects, () a requirement for the supplier to provide the outsourcer with certificate of good conduct, issued by the contract supervisor, when receiving monthly commission, and () a requirement for the supplier to provide the outsourcer with a letter of guarantee in order to obtain a certificate of good conduct approved by the contract supervisor at the end of contract term. In order to allocate the assets, the outsourcer can require the supplier to provide manpower or persuade the supplier to use and hire the current full-time, experienced employees. Accordingly, while the suppliers may change from year to year, the personnel doing the tasks are preserved. The advantage of this procedure lies in that it reduces the risk of replacing inexperienced with experienced employees when a new supplier takes over the services because suppliers tend to make investments to improve the employees skills and experience over the contract term. The present study was conducted in Iran technical and vocational university. It is recommended that researchers conduct further studies on other universities or organizations and compare their findings with the present results. References Adeleye BC, Annansingh F, Nunes MB, 00. Risk management practices in IS outsourcing: an investigation into commercial banks in Nigeria. International Journal of Information Management. (): Akomode OJ, Lee B, Irgens C, 998. Constructing customized models and providing information to support IT outsourcing decisions. Logistics Information Management. (): -7. Bahli B, Rivard S, 005. Validating measures of information technology outsourcing risk factors. Omega Journal. (): Bahrami B, 009. A look at outsourcing offshore. International Business Journal of Competiveness Review. 9(): -. Belcourt M, 006. Outsourcing the benefits and the risks. Human Resource Management Review. 6(): Bertrand Q, Francois D, 00. Bringing together strategic outsourcing and corporate strategy: outsourcing motives and risks. European Management Journal. (5): Bhattacharya S, Behara RS, Gundersen DE, 00. Business risk perspectives on information systems outsourcing. International Journal of Accounting Information Systems. (): Boardman L, Berger P, Zeng A, Gerstenfeld A, 008. Applying the analytical hierarchy process to the offshore outsourcing location decision. Journal of Supply Chain Management. (6): 5-9. Bryson KM, Ngwenyama OK, 006. Managing risks in information systems outsourcing: an approach to analyzing outsourcing risks and structuring incentive contracts. European Journal of Operational Research. 7(): 5-6. Chou TC, Chen JR, Pan SL, 006. The impacts of social capital on information technology outsourcing decisions: a case study of a Taiwanese high-tech firm. International Journal of Information Management. 6(): Cong Q, Chau PYK, 0. Decision Support Systems. 5(): Jamali Gh, Hashemi A, 0. Investigating the relationships among the factors affecting IT projects risks in Mellat Bank of Bushehr province using fuzzy DEMATEL technique. Information Technology Management. 9(): -0. JI-Ye M, Jae-Nam L, Chun-Ping D, 008. Vendors' perspectives on trust and control in offshore information systems outsourcing, Information and outsourcing decisions using a group decision making: Engineering Applications paradigm shift. The Journal of Management Development. 7(): 5-6. Kakabadse N, Kakabadse A, 000. Critical review-outsourcing: a paradigm shift. The Journal of Management Development. 9(8): Khavandkar J, Rahnavard F, 0. Effect of knowledge sharing on successful IT service outsourcing. Information Technology Management. ():