Risks to consider when negotiating IT outsourcing agreements

Abstract

Outsourcing IT can deliver substantial business benefits. However, it also carries significant risks and costs. Current industry practices in negotiating IT outsourcing agreements are based on ideology, fashion and personal expectations rather than structured techniques. Subsequently, a large proportion of IT outsourcing agreements either fail to deliver expected results or terminate abruptly, with severe consequences to the organisation. An Outsourced IT environment is complex. It is also exposed to many internal and external pressures. The long-term nature of an IT Outsourcing agreement also poses additional challenges, as the agreement needs to withstand numerous changes. These include changes not only affecting the outsourced IT department directly, but changes to client’s or supplier’s business priorities, and economic or global influences. Research shows that poorly crafted agreements factor significantly in the eventual failure of such agreements. The following paper explores the risks that need to be considered when negotiating IT Outsourcing Agreements.