Project management outsourcing: what the Customer should know and be able the Supplier

Relatively recently the concept of outsourcing quite densely entered business life. Many companies for themselves already made the decision on transition to outsourcing schemes of work, for example, at the organization of protection, accounting service, support of IT infrastructure and many other support functions. The outsourcing scheme of ensuring separate functions was quite convenient in every respect. The customer gets the qualified support, gets rid of the headache connected with building/debugging of non-core processes has a concentration opportunity on the main business direction that finally increases its competitiveness.

Functions and management processes, should be smoothly running during the work of any organization, They are quite various, require existence of subject and managerial examination. Therefore it is no wonder that at the increasing requirements to business performance many companies make the choice for benefit of outsourcing, directing the managerial potential to the key directions of business. And it as it seems to me, is natural process. Similar processes happen also in other spheres of activity of the person. Let's remember, for example, noticeable scientific last centuries – practically all of them were specialists not in one field of science, and had knowledge of the whole set of disciplines. That we see now: scientists - our contemporaries, as a rule, specialize only in one of areas – to physics, chemistry, biology, etc., at the same time are really specialists in the narrow section of the discipline, for example, in nuclear physics, radiation physics of condensed mediums. Why so occurred? Probably not because the famous scientists of the past were more ingenious than our contemporaries. In my opinion, a basic reason that the volume of knowledge which needs to be had to be so grew by a science edge that possession of such knowledge in several areas is often just impossible. Of course, such scientists are too, but their units.

The similar situation happens also to functions of the organizations. The head understands that if functions of security or accounting in his company are built insufficiently qualitatively, then it can become threat for its business. And as because of potential external negative impacts and because he should give less time to the main activity, being distracted by debugging of the accompanying processes.

There is a natural question – where outsourcing border what can be given on outsourcing and what is not present? For the answer to this question it is necessary to remember that when we speak about outsourcing, we speak not about an exception of any business function of the organization. It is only about application of a certain scheme of implementation of separate function for the purpose of quality improvement and, perhaps, decrease in the related costs. At such approach the answer to the question posed is unambiguous – outsourcing has no borders, a question only in ensuring its efficiency.

In this article we will try to deal with how to provide efficiency of outsourcing of control functions with projects. Transfer by projects is yet not so extended to outsourcing of control functions. This investigation of the fact that these functions often are directly connected with the solution of the main business challenges of the companies and therefore the head making the decision on transition to the outsourcing scheme is forced to be very cautious. And, really, often such head has no enough tools allowing to keep the key function transferred on outsourcing under control. Besides, the risks of business integrated to it are more powerful in comparison with transfer on outsourcing of other functions. For example, losses from bad operation of the printer, most likely, will not be visible against the background of possible losses from the failed project.

Who is a Customer of outsourcing of control functions by projects?

There is an opinion that outsourcing of control functions by projects is necessary only to the large companies for which project management is not profile function. Probably, for such companies outsourcing – it is valid the solution of a question.

But let's understand: unless other companies for which project management – one of the key tasks providing their development are not interested in outsourcing? It can be not the so large companies (a single question – in what to measure the size) for which project management is the instrument of core business. I consider that any company from any industry implementing any projects (internal development, investment and construction and others) can be interested in outsourcing on condition of ensuring its efficiency.

Our experience shows that the greatest interest in outsourcing of control functions by projects is shown by the following companies:

1. Международные the companies for which outsourcing of control functions by projects is not something unusual. Such companies are most ready to it. As a rule, the international companies resort to outsourcing in case of need of reorganization project implementation (change of procedures of management, large-scale moving and other) or implementation projects of information systems. And it should be noted that quite widespread practice is parallel use of own and involved on outsourcing specialists for project management.
2. Крупные the companies implementing investment projects. In this case a Customer is the top management performing as the initiator of formation of project offices with functions of administration and information support of project participants. Such project offices can form on initial stage from among outsourcing specialists who are gradually brought from Project office over time, being replaced with the Customer's specialists.
3. Компании, the project managements and implementations of this System resorting to outsourcing of separate functions at a stage implementing at themselves the Corporate system. Outsourcing specialists are attracted for roles of administrators of the projects or experts giving consulting and methodological support of the Customer.
4. Государственные the authorities implementing large-scale target programs. When implementing state programs the main difficulties consist in need of operational adjustment of questions of planning and structurization of actions of the program, ensuring coordination and joint work of a large number of participants of the program. For overcoming the mentioned difficulties and ensuring quality of the performed works, to the solution of such tasks external project management specialists and programs even more often are attracted.
5. Компании which already faced certain problems when implementing projects by own efforts. It is special category of the customers interested in outsourcing - the companies needing urgent involvement of third-party specialists for an output of the project from a crisis situation. Attracting in such situations of external specialists, the Customer not only increases the probability of successful project implementation, but also purchases a possibility of receiving external independent assessment of a problem field, including identification of system mistakes in the organization of a company performance or certain project participants.

How to the Customer and Service provider of outsourcing to derive mutual pleasure?

Earlier we came to a conclusion that outsourcing of control functions by projects can be interesting to many companies, however not everyone knows how "treat" it. What to demand from Service provider how to estimate economic attractiveness of the outsourcing offer how to provide quality of the provided services? The competent Supplier of outsourcing services knows answers to these questions. It is absolutely clear that by what the offer is more attractive to the Customer, great efforts it is required to those from Service provider. Therefore the Supplier quite often at execution of contractual relations insures himself against potential "costs" in the future which are in practice connected not with bad work of the Customer, and with his desire to receive a qualitative product. And when the Supplier lays down absolutely unacceptable working conditions, the Customer often does not pay attention to it, relying on a brand of the Supplier or considering exclusively price factor of a question.

Let's try to understand the following questions:

• what the Supplier of high-quality outsourcing services in the field of project management can and has to provide;
• what results the Customer of services has the right to expect and demand.

1. Гарантия result. The classical requirement of the Customer to the Supplier to guarantee quality of result. However not everything is so simple. Not it is possible to transfer logic of EPCM contracts to all projects (Engineering Procurement Construction Management is design management, supplies of equipment and construction). Of course, the Service provider is obliged to provide quality of results of rendering services. Only the result of services is often perceived by the Customer and the Supplier differently. The customer often wishes to see result of services executed in time, within the budget and with proper quality the project, for example, the constructed plant. The supplier of services quite naturally will not want to bear such responsibility if transfer of all project to him for management is not supposed, as in case of EPCM. Usually the Supplier "closes" only a part of control functions, for example, is responsible for support of work of Project office if he is not authorized to make decisions on the project if he does not participate in profit on the project and is not awarded as a result of successfully implemented project. In this case the Supplier can be responsible only for timeliness and the actual accomplishment of the actions defined by the agreement. At the same time for the benefit of the Supplier so to perform these operations (to prepare the report, to develop the plan of a risk response, to create the job schedule, to carry out the assessment and the choice of the contractor, to hold a meeting, etc.) that the Customer was satisfied and benefited from these actions. Otherwise the Customer will refuse services of the outsourcer.
2. Выбор specific personnel. Often the Customer at a stage of the choice of the Supplier, wishing to make sure of qualification of specialists, the outsourcing services provided for rendering, wants to carry out interviewing. A choice will be made for benefit of that Supplier who will provide specialists with competences most corresponding to tasks. And, if the Supplier provides specialists with the qualification significantly above required, then it is rather a risk factor for the Customer, than a positive event. It can say about insufficient understanding by the Supplier of tasks of the Customer and about possible insufficiency of motivation of the specialists rendering services. So, the Customer can calculate, and the Supplier should provide providing specialists with the competences which are most corresponding to the standing tasks. Competences at the same time can be confirmed not only during the interview, but the provided responses about earlier performed works, with certificates in the field of project management.
3. Замена specialists. The customer, involving the Supplier of outsourcing services, expects that he will be able to reduce the risk connected with a human factor: an error at an interview stage in determination of competence, a holiday or a disease of the specialist and other risks. The customer wants to be sure that if necessary the Supplier will be able to replace the provided outsourcing specialist on another having similar competences. The possible conflict of the Customer and Supplier can be shown in the unreasonable requirement of the Customer about similar replacement. Such situation can arise in case of unjustified expectations – for example if the Customer, attracting on outsourcing of the project manager, confers on it responsibility for achievement of goals of the project without having delegated it at the same time enough powers. For an exception of such problems it is necessary to define accurately at a stage of signing of the contract functions and powers of outsourcing specialists. Anyway the Customer has the right to expect replacement with the Supplier of the specialist in the presence of objective shortcomings of his work.
4. Методологическая support and examination. There are different approaches to rendering outsourcing services. One of such approaches – transfer of the specialist for the accomplishment of the functions determined by the Customer isolated from the Supplier. So the quality of the rendered services entirely depends on competences of the specialist. Such approach is often called outstaffing and it differs from approach of recruitment agency a little. However in most cases, having made a choice towards an autsoring of specialists, the Customer expects not only experience of the certain person, and it is rather on experience of the Supplier, on competence not only of the outsourcer, but also experts of the Supplier. Therefore the Supplier should build so work of the representative that he had an opportunity periodically to address for methodological support or for examination of solutions the colleagues. Besides, the Supplier should select the curator in return who would perform control functions, providing thereby quality of the rendered services. It is natural that similar service should be supported with experience of the Supplier in project management. Main idea: The customer attracts on outsourcing of the specialist and also expert capacity of the experienced company.
5. Предоставление additional services. A main objective which is pursued by the Customer, making the choice for benefit of outsourcing of control functions by projects, - ensuring effective management of the projects that in turn should influence positively and achievement of goals of projects. One of factors of increase in management efficiency is the possibility of providing additional services by the Supplier as a result of which the managerial space of the Customer becomes more "efficient". Can be such services: training of key experts of the Customer in the field of project management, development of the project portal, if necessary fast building of number of the specialists provided on outsourcing. Separate important services are: performing diagnostics of the current project management system and development of recommendations about its development, consulting and methodological support of a project startup – development by forces of specialists of the Supplier of the main working managerial documents on the project (The charter, the Schedule, the Budget, the Risk register and others) and also the main procedures of management (planning, the reporting, change management and others). Similar services can be very useful to the Customer, play a key role implementations of his projects. For example, work even of very experienced specialist outsourcer at a low-quality project startup can be inefficient. Thus, the Customer who made a choice for benefit of project management outsourcing has an opportunity to increase efficiency of the managerial environment due to additional services of Service provider: training, project portal, fast building of number of specialists, effective project startup and others. Involving specialists on the terms of outstaffing or recruiting specialists from labor market, to achieve such effect much more difficult.
6. Гибкое pricing. Usually attraction cost on the terms of outsourcing of managers or administrators of projects is calculated, proceeding from the value of an hour rate of their work. Quite often, carrying out the choice of the Supplier of outsourcing services, the Customer is interested only in a passive rate of the specialist and makes at the same time a mistake. The matter is that the passive rate of the outsourcing specialist can change over a wide range. If for Service provider such form of work is not unique, then for him pricing relies not only on understanding of average on the company or on the market of profitability of the specialist. Also so-called "coefficient of utilization" showing how specific specialist is engaged in the contract project during a certain interval of time is important. At long term of involvement of outsourcing specialists (long term – a noticeable part of financial year, usually more than 3 months) the Supplier can or do a direct discount (it is usually considered when calculating for the last period of attraction), or to reduce a passive rate of the specialist. The customer should understand and be able to do dispose competently it of it of "the hidden asset". Main idea: The customer can expect change of a passive rate of specialists at attraction scope change, and the experienced Service provider should offer the transparent scheme of receiving by the Customer of the specified benefit.
7. Подтвержденный experience of the Supplier. Earlier it was already said that the Customer when choosing the Supplier can conduct interviews with the candidates provided by the Supplier. The purpose of such interviews – to be convinced available sufficient competences for accomplishment of the control functions by projects transferred on outsourcing. As we already found out, good outsourcing services are the services received by the Customer not only from the involved specialist but also from the attracted company in general. Therefore, the fact that the Customer should be convinced available at the Supplier of relevant experience as of providing outsourcing services, and other experience in the field of project management is quite natural. As a rule, confirmation of such experience are certificates of the company and its specialists, responses from clients, qualitatively made marketing materials and the detailed, answering the Customer all any questions, commercial offer. Thus, the Customer should pay attention to existence of certificates, responses and to how the Supplier represents service emusvo. If the potential supplier shows you several certificates or responses, but will not be able to tell clear about how he will render service, it means that he simply has not enough similar experience or not at all, and the Customer, most likely, will not be able to expect all those pleasures which are described above.

How to make the decision on transfer of project management on outsourcing?

Let's imagine that in the company the decision on a project startup of the new project is made. The project is important for the company, the efficiency of processes, key for business, depends on its implementation, tightening of the project can lead to undesirable losses, penalties. Specialists of the company who could undertake management of this project are overloaded – nobody will keep just like that in the state and not to give full-time job highly qualified specialists. In a word, there is a question: what to do? From where to take people?

There is not a lot of options. First, it is possible to load in addition available specialists, maybe, having postponed other projects executed by them. Secondly, it is possible to try to find quickly the required specialist in labor market. Thirdly, there is an opportunity to transfer a number of control functions by the project on outsourcing. What of options to select? Naturally, that which will allow to receive the most qualitative or satisfactory result at smaller costs. The factors influencing the solution always is and much importance of the current projects from which it would be possible "remove" specialists, and requirements to the new started project, existence in the state or in the market of specialists with required competences, urgency of a solvable task, etc. We will leave all these factors beyond the scope of this article, but we will address often most concerning factor – a value driver.

When we buy the hi-tech equipment, we ask the price from a position of calculations for payback of the equipment, receiving an additional profit. If we order work which is performed by the person, then we often estimate a possibility of its independent execution and we try on this work to ourselves. As for value assessment of involvement of outsourcing specialists in project management, the Customer carries often out comparison of cost of involvement of the outsourcer and the salary of the person who can potentially be admitted to staff of the company. Whether such approach is correct? If the HR service does nothing, specialists of required qualification in the market a dime a dozen, the resolved issue is not urgent, the project planned to implementation is not difficult and its implementation is connected with minimum risks, and influence of the project on business of the company is not obvious at all, to address for outsourcing there is no sense. If the project is important for the company, is difficult in implementation, is risky, infringes on the interests of a large number of participants, then, perhaps, outsourcing – the reasonable solution. Why? Everything is simple: if the implemented project is integrated to any difficulties, then the value of the parameters of austsoringovy services described in the previous section sharply increases.

For determination of the cost of involvement of outsourcing specialists, acceptable for the Customer, in the field of project management it is possible to use the amount of the following values which absolute values the Customer should define:

1. Предполагаемая the salary of the required specialist increased by coefficient ~ 1.5 for the cost accounting, holidays connected with payment, sick leave notes and bonus payments in the amount of 30% of the wage fund (WF).
2. Налоги, tied to the salary and the profit of the company – 20% of FOT are normal ~.
3. Накладные the expenses connected with internal providing the specialist (accounting, administration, the equipped workplace and other).
4. Социальный packet.
5. Затраты the companies on training of the specialist.
6. Затраты the companies on search and selection of the specialist (costs of HR service and time of the heads involved to interviews). Similar costs can arise in need of replacement of the specialist, at the same time the speed of work of HR service will be important.
7. Затраты on the project, the involvement of external experts / consultants connected with need.
8. Затраты, connected with implementation of the additional services for project management described in the previous section.
9. Наконец the value of a lost profit at the deviations/problems/risks implemented within the project and other possible costs.

For the Supplier the first five points have the same logic of assessment. Other points which increase outsourcing value for the Customer are connected with work of specialists of the Supplier, and with work of the most qualified his representatives.

Relying on our experience, it is possible to conclude that the Customer then can expect service quality on project management outsourcing when the cost of the involved specialists corresponds 2.5÷5 of FOT of specialists of the company of the Customer. It is natural that the Supplier can correct this ratio at the considerable purchasing amounts and/or taking into account features of work on projects of the specific Customer.

Conclusion

In conclusion there is a wish to note once again that on still emerging market of outsourcing of control functions by projects the Customer should approaching the choice of the Supplier more attentively. He needs to understand what he pays the money for and as it is fully possible to use the autsoringovy mechanism for the benefit of the business. At the same time the Supplier applying for fight in the conditions of competitive market and aiming at long-term cooperation with the customers should be ready to rendering complex services which usefulness is much higher in comparison with option of involvement of the specialist by the Customer from labor market.

• Kozodayev Mikhail
• managing partner, director of consulting of Proyektnaya Praktika Group
• PhD in Physics and Mathematics, MBA, PMP