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“COST AND BENEFIT ANALYSIS
OF OUTSOURCING FROM
THE PERSPECTIVE OF DATAPATH LTD.”
Internship Report
(Submitted in partial fulfillment of the
requirements of BBA program)
Submitted By:
Md. Ariful Islam
ID# 040341
Supervised By:
Tarun Kanti Bose
Lecturer
Submitted To:
Coordinator
Internship & Placement Committee
KHULNA UNIVERSITY
Business Administration Discipline
BBA Program
Date of Submission: January 28, 2009

Cost and benefit analysis
of outsourcing from
The perspective of Datapath Ltd.
Cost and benefit analysis
of outsourcing from
The perspective of Datapath Ltd.
MD. ARIFUL ISLAM
BUSINESS ADMINISTRATION DISCIPLINE

KHULNA UNIVERSITY, KHULNA
BANGLADESH
January 2009
January 28, 2009
Coordinator
Internship and Placement Committee
Khulna University
Dear Sir,
Subject: An authorization letter for submission of internship report.
With utmost respect, I am like to aware you the fact that, I am really delighted to
submit you the internship report on Datapath Limited, which you have asked me to
prepare. After getting your instructions, I have given my utmost effort to make the
study successful. After sending me to the organization, you gave me some vital advice
and instructions. I am really grateful to you for that generous act & those instructions
really helped me to make this study completed.
You know Sir that my study topic is “Cost and Benefit analysis of Outsourcing
from the perspective of Datapath Ltd”. The immense knowledge & idea that I have
gained with the study conduction will be really helpful for me for facing some
challenges in the future time of my life & career.
Any backwards, shortcomings or fault of this study is my fault or may be because of

some misrepresentation of information from the sources from where I have collected
all information. I am apologizing for any kind of mistake. I will be available for
facilitating any point or part of this report any time when you asked me to do so.
I am therefore like to request to accept my report & approved it & oblige thereby.
Thanking you-
Sincerely yours’
Md. Ariful Islam

ID# 040341
Approved by:
Tarun Kanti Bose

Lecturer
Khulna University
II ACKNOWLEDGEMENT
It's my immense pleasure to complete this study in due time by the grace of almighty
Allah. I am grateful to those people who helped me a lot during the preparation of this
report.
First of all, I wish to express my profound sense of gratitude to my honorable advisor,

Tarun Kanti Bose, Lecturer, BA Discipline, Khulna University, for his inspiration,
guide, valuable suggestions, sympathetic advice and enthusiastic encouragement
made throughout my study work.
It is very complicated to accomplish such a study without cooperative endeavor. From

the very outset of preparing this report I had to observe the total outsourcing process
and taking interview from the General Manager and International Manager of
Datapath Ltd. They helped me in different events. If I did not get their help and
cordial behavior, I could not be able to prepare this report.
Moreover, I like to avail the opportunity to express my deep gratitude and regards to
Asfakur Rahman, General Manager, Datapath Ltd and Adam Barker,
International Relationship Manager, July Business Services for their valuable time
to talk with me and giving the information.
I also want to express my deep & cordial respect to, Mr. Mehedi Hasan Md. Hefzur
Rahman, Coordinator, Internship & Placement Committee and Assistant
Professor, Business Administration Discipline, Khulna University; for allowing
me to complete this internship program.
Finally, we would like to thank all of my friends. Whenever I faced any problem they
were really helpful to give their valuable suggestion to solve my problems.
III EXECUTIVE SUMMARY
Outsourcing involves the transfer of the management and/or day-to-day execution of

an entire business function to an external service provider. The client organization and
the supplier enter into a contractual agreement that defines the transferred services.
Now-a-days outsourcing is very common to all. Developed countries try to outsource
lots of their business for cost saving, increased efficiency, reduced risk, controlled
cost, increased reach and increasing problem-solving.
This report has been conducted on Datapath Ltd. Here data has been collected by
observing total outsourcing process, taking personal interviews and searching through
internet. Management of July Business Services form an outsourcing company in
Bangladesh named Datapath Ltd to outsource their core business. Their main
objective was to minimize cost and increase efficiency from the time variation.
When July Business Services formed an outsourcing company in Bangladesh named

Datapath Ltd and started its operation, the company is starting to get benefits from
five aspects which are human resource, commercial real estate leasing, internet, power
and maintenance. Each and every month July Business Services can save
approximately $275880 by outsourcing their business in Bangladesh.
On the other hand, by these types of outsourcing business Bangladesh is also getting
lots of benefits. From these types of business Bangladesh is getting foreign
remittance and outsourcing business creates lots of employment opportunities and it
helps to built up confidence of Bangladeshi labor force.
So the findings of this report are that outsourcing is not only helpful for outsourcer
but also helpful for outsourcing company. It increases the efficiency of the company
which is outsource its business in the competitive market and also contributes in the
economic development of the country where outsource happens.
TABLE OF CONTENT
Authorization Letter I
Acknowledgement II
Executive Summary III
CHAPTER 1: Introduction
1.1 Origin 01
1.2 Problem Statement 01
1.3 Scope 02
1.4 Limitations 02
1.5 Methodology 02
1.6 Objectives 04
CHAPTER 2: Organization
2.1 Overview 05
2.2 Structure 11
CHAPTER 3: Literature Review 12

CHAPTER 4: Managing the outsourcing
4.1 Planning Strategy 24
4.2 Analysis 26
4.3 Design 28
4.4 Implementation 31
4.5 Operations 32
CHAPTER 5: Cost and Benefit Analysis

5.1 What benefits July Business Services gets from outsourcing 35
5.2 What benefits Bangladesh gets from July Business Services 39
CHAPTER 6: Concluding Section
6.1 Concluding Statement 40
6.2 Recommendations 40
6.3 Bibliography and References 41
CHAPTER 1
THE INTRODUCTION PART

CHAPTER: 01 INTRODUCTION PART
1.1 ORIGIN OF THE STUDY
For business school student only theoretical knowledge is not enough for handling the
real business situation, therefore it is an opportunity for the students to know about the
field of business through the internship program. As internship program is a perfect blend
of the theoretical and practical knowledge.
When my honorable advisor assigned this study, I was delighted. I have planned that I
will conduct my study as perfectly as possible. My advisor assigned me to conduct the
study on “Datapath Ltd.”. According to the instruction of my honorable advisor I have
conducted my study on “Datapath Ltd.” and made my report as informative as possible.
This report is originated to fulfill the requirement of the assign project internship report
on “Cost and Benefit analysis of Outsourcing from the perspective of Datapath Ltd.”
In this regard an organization attachment in the Data path Ltd. has been given to me a
period of three months commencing from 1st September, 2008 to 15th December, 2008.
During this period I learned the important issues about how the reporting rules and
regulations about the American Retirement Benefit plan.
1.2 PROBLEM STATEMENT OF THE STUDY
Outsourcing business is not that much popular in Bangladesh. In world outsourcing

business, China takes the lead, followed by India, Brazil, Russia, and Philippines. In the
future, China will most likely become the largest and most competitive outsourcing
destination, assuming China makes significant progress in geopolitical and legal arenas.
In Bangladesh, cost of running business is very low, it has expert human resources with
cheap cost, risk of running business is also low and infrastructure cost is also low. In spite
of having these opportunities, Bangladesh is not be able to avail this business opportunity
like China and India.
Cost and Benefit analysis of Outsourcing from the perspective of Datapath Ltd. Page No-1
1.3 SCOPE OF THE STUDY
My study is mainly based on cost and benefit analysis of outsourcing from the
perspective of Datapath Ltd. Here I also tried to describe the total outsourcing process,
how to manage the outsourcing and what are the ways for successful outsourcing. For
conducting this study it is very much required that I have posses some idea about the
conduction of study. With the help of my advisor I have tried to eliminate any types of
shortcomings from our part.
My study mainly posses cost and benefit of outsourcing. For getting the knowledge of
cost and benefit I work with some variables. Those are Human Resource, Commercial
Real Estate Leasing, Internet, power and maintenance etc.
That will be helpful for the reader to know not just about overall outsourcing process and
how Bangladesh can earn lots of currency form this new window outsourcing.
1.4 LIMITATIONS OF THE STUDY
We all know that every study posses some limitations. In conducting this study I have
faced some odds. I can conclude few of those:
 Due to confidentiality exact cost related data is not given because it can hamper
the smooth flow of business of Datapath Ltd.
 Due to the lack of publication relating to Retirement benefit plan the information
which is collected is not representative.
 Due to lack of trusted publication present statistics of outsourcing business in
Bangladesh is not given.
1.5 METHODOLOGY OF THE STUDY
For this paper, I conducted qualitative research work. For this, I collected the necessary
data by took structured and unstructured interviews. I performed the following things in
group (focus group) discussion:
 Observe/ask questions with open-ended answers
 Take notes on what is said and/or done
 Return to observe/ask more questions
 Theorizing
 Draw conclusions
Exploratory Research: This type of research was used to identify and define the
problems related to the objective more precisely, to gain insights for developing
approaches to problems.
Diary Method: I kept a personal account of daily trainings, feelings, discussions,

interactions when doing the classification, recognizing policies and guidelines.
Type of collected Data:
Primary Data:
 Personal Observation (Both disguised and undisguised)
 Content Analysis
 Personal Interviews
Secondary Data:
 Internal Data:
- Data-Path Database
 External Data:
- Printed Publications
- Internet
Tools:
 Microsoft Word
 Microsoft Excel
1.6 OBJECTIVES OF THE STUDY
According to the vital & key information of my honorable advisor, I have conducted this
study for the following important objectives:
The broad objective of this report is to get an idea about the American retirement benefit
plan and gather knowledge about why US companies come to third world countries like
Bangladesh for outsourcing its core services.
The specific objective of this research is:

 To know preliminary concept and process of outsourcing.
 To know the cost and benefits of outsourcing companies.
CHAPTER 2
THE ORGANIZATION PART

C HAPTER: 02 THE ORGANIZATIONAL PART
2.1 ORGANIZATIONAL OVERVIEW
Data path is a registered outsourcing company owned by Jim Hudson and John
Humphrey. July Business Services is the mother company of Datapath Ltd. July Business
Services is professional services firm committed to delivering focused retirement plan
and other administrative services to business clients. We work closely with employers
and financial partners to build customized services to meet their unique goals. Our
consultants provide hands-on solutions for plan implementation and ongoing plan
operation. We have many years of industry experience with clients ranging from small,
closely-held businesses to large corporations competing in the global economy. July
Business Services is one of the leading names in retirement plan industry in U.S.A. July
Business Services is providing the following services to its US business client.
1. Plan design
2. Plan setup
3. Plan administration
4. Participant services
1. Tailored Plan Design
We build retirement plans to meet the unique goals of each employer. Whether the
objective is employee recruitment and retention or maximizing benefits for key
employees, we have the expertise to design the best plan for you.
Recruitment & Retention
Retirement plans are a great tool for improving employee recruitment and retention.
Good choices include 401(k) Plans, Safe Harbor 401(k) Plans, and Profit Sharing
Plans. With the right mix of features, these plans can be designed to provide a great
employee benefit while keeping employee funding costs to a minimum.
Maximizing Contributions for Key Employees
Plans can also be designed to maximize contributions for key employees. Options for this
objective include Safe Harbor 401(k) Plans, New Comparability Plans, and Defined
Benefit Plans.
Safe Harbor 401(k) Plans
These plans allow highly compensated employees to contribute the maximum salary
deferrals ($15,000 for 2006) without the risk of corrective refunds due to the plan failing
the ADP Test or ACP Test. Safe Harbor 401(k) Plans automatically satisfy these tests.
New Comparability Plans
New Comparability Plans are a good alternative for companies wishing to retain some
discretion in funding contributions while maximizing contributions for owners or highly
compensated employees (up to $49,000 during 2006).
Defined Benefit Plans
These plans allow companies to provide employees with a stated benefit at retirement age
(up to $175,000 for 2006) and require annual company contributions based on actuarial
factors. Contributions do not have a statutory limit, but are limited only by the use of
sound actuarial principals and factors. Defined Benefit Plans can be a great plan design
for small businesses seeking to fund more than the $49,000 maximum under defined
contribution plans.
2. Plan Setup
We provide all of the services to efficiently setup your retirement plan or to convert your
existing plan from your current provider. Our dedicated setup team guides you every step
of the way.
Plan Documents
We offer comprehensive plan documents prepared by experienced ERISA consultants.

Our capabilities include:
 Prototype Plan Documents

 Volume Submitter Documents
 Summary Plan Descriptions
 Loan Policies
 QDRO Procedure
 Other Required Forms
Our ERISA consultants understand plan design and have the experience to help you avoid
costly mistakes.
Plan Setup & Conversion
Your dedicated setup team provides hands-on services to coordinate all aspects of plan
setup or conversion. Our services include:
 Prepare Enrollment Materials

 Coordinate Enrollment Meetings
 Prepare Setup Paperwork
 Contribution Submission Procedures
 Coordinate Transfer of Assets
 Prepare Letter to Previous Provider
 Coordinate Information Needed for Takeover
3. Plan Administration
Our consultants have over 25 years of plan administration experience and are experts in
this highly technical field. A dedicated account representative will serve your plan,
supported by a team of experienced professionals.
Plan Operation Support
We provide everything you need to maximize the value of your plan, including telephone
and e-mail access to our consultants. Our services include the following:
 Eligibility Calculations
 Contribution Allocations
 Vesting Calculations
 Distribution & Loan Processing
Compliance Testing
Your account representative provides complete compliance testing services to maintain

the integrity of your plan. Our testing services include the following:
 Top Heavy Testing

 ADP & ACP Testing
 Minimum Coverage Testing
 General Nondiscrimination Testing
Tax Compliance
Our consultants deliver signature-ready tax returns to fulfill all tax filing requirements.
Our services include the following:
 Form 5500
 Form 1099-R & Form 945
 Form 5330 (when needed)
 Form 5310 (for plan termination)
Recordkeeping
We provide automated recordkeeping services through our alliance partners and through
our daily valuation recordkeeping platform:
 24 Hour Internet Access

 Daily Valuation of Accounts
 Plan Sponsor Account Access
 Quarterly Participant Statements
4. Participant Services
Through our alliance partnerships with financial providers, we make available high
quality tools for your participants to plan for and achieve a secure financial future.
Onsite Enrollment
Many of our recordkeeping and mutual fund partners conduct on-site enrollment meetings
for your participants. These meetings include professional presentations, complete with
power point slide shows, handouts and enrollment materials. The services offered by
providers enhance the enrollment services offered by your independent financial advisor.
Enrollment Materials
All providers include professional enrollment materials to guide participants in making

enrollment and investment decisions. These materials generally include the following:
 Enrollment Workbooks
 Investment Education
 Risk Profile Worksheet
 Investment Fact Sheets
 Enrollment Forms
Investment Advice
Many of the retirement products also include participant access to on-line investment
advice and guidance. The ability for participants to receive online investment advice
increases their chances of achieving a secure financial future, and as a result, can help to
reduce plan sponsor fiduciary liability. For more information on which products provide
investment advice, please contact our sales consultants or see information on featured
products above.
Here in Bangladesh, Datapath provides all the administrative work for July Business
Services and submitted the softcopy of all of its work through its own trusted network.
Founding Partners
Jim Hudson began his retirement plan specialization in the early 1980s while pursuing
his career as a Certified Public Accountant. During this time, Jim became known as a
specialist in this highly technical field. He was directly responsible for developing and
managing a large retirement plan practice before founding July in 1994.
John Humphrey also began his career as a Certified Public Accountant, providing tax
consulting services with a large accounting firm before specializing in retirement plan
administration. John co-founded July in 1994.
Getting Started:
Data-Path began operations in 1995, with no clients and a small professional office suite.
During the early years, management worked to develop strategic business partnerships,
hire key employees, and create business processes and procedures. The firm's marketing
efforts resulted in important referral relationships, including investment advisors, mutual
fund companies, banks, and brokerage firms. These relationships helped to create modest
growth over the first several years. By the end of 1996, Data-Path had more than 250
retirement plan clients and 5 employees.
Building Team
From 1996 through 2000, Data Path experienced an increased growth rate and added a
number of key employees and partnerships. During this time, company management
accomplished the following key objectives:
 Developed Foundation for Employee Culture

 Improved Efficiency of Service Delivery
 Implemented New Business Team
 Created Client Consulting Teams
 Created ERISA Consulting Team
 Created Dedicated Distribution Team
 Promoted Blake Willis to Partner & CAO
 Added and Developed Key Employees
 Improved Marketing & Sales Presence
Building Strategic Partnerships
Relationships were formed with several key financial partners, including American
Funds, MFS, First Mercantile, Hartford, ING, Manulife, and others. These relationships
continue to benefit Data-Path clients by providing them with diversified investment
options and automated plan recordkeeping services. By the end of 2000, Data-Path served
more than 600 retirement plan clients and had approximately 15 employees.
Recent History: Expanding Services
In 2000, Data Path has continued to experience an increased rate of growth and has
maintained good client retention statistics resulting from our efficient service, depth of
technical knowledge, and friendly service team. The employee-friendly culture has
created low turnover and high employee satisfaction. Other significant accomplishments
since 2000, include the following:
 Expanded Office Facilities

 Expanded Employee Training Program
 Improved Technology with Added IT Staff
 Added Dedicated Sales Department
 Started Daily Recordkeeping Services
 Opened Dallas & Houston Offices
 Started Payroll Outsourcing Services
 Started Cafeteria Plan Administration Services
2.2 ORGANIZATIONAL STRUCTURE
Chapter 3
LITERATURE REVIEW
.
CHAPTER: 03 LITERATURE REVIEW
Outsourcing involves the transfer of the management and/or day-to-day execution of an

entire business function to an external service provider. The client organization and the
supplier enter into a contractual agreement that defines the transferred services. Under the
agreement the supplier acquires the means of production in the form of a transfer of
people, assets and other resources from the client. The client agrees to procure the
services from the supplier for the term of the contract. Business segments typically
outsourced include information technology, human resources, facilities, real estate
management, and accounting. Many companies also outsource customer support and call
center functions like telemarketing, CAD drafting, customer service, market research,
manufacturing, designing, web development, content writing, ghostwriting and
engineering. (Hawes, J, et all 2001)
Outsourcing and off shoring are used interchangeably in public discourse despite
important technical differences. Outsourcing involves contracting with a supplier, which
may or may not involve some degree of off shoring. Off shoring is the transfer of an
organizational function to another country, regardless of whether the work is outsourced
or stays within the same corporation/company. (Homburg, C et all 2001)
With increasing globalization of outsourcing companies, the distinction between

outsourcing and off shoring will become less clear over time. This is evident in the
increasing presence of Indian outsourcing companies in the US and UK. The
globalization of outsourcing operating models has resulted in new terms such as near
shoring, no shoring, and right shoring that reflect the changing mix of locations. This is
seen in the opening of offices and operations centers by Indian companies in the U.S. and
UK. A major job that is being outsourced is accounting. They are able to complete tax
returns across seas for people in America. (Hess, Jon A. 2000).
Outsourcing refers to large (predominantly IT) outsourcing agreements. Outsourcing is a

framework to enable different parts of the client business to be sourced from different
suppliers. This requires a governance model that communicates strategy, clearly defines
responsibility and has end-to-end integration. (Hawes, J, et all 2001)
Strategic outsourcing is the organizing arrangement that emerges when firms rely on
intermediate markets to provide specialized capabilities that supplement existing
capabilities deployed along a firm’s value chain. Such an arrangement produces value
within firms’ supply chains beyond those benefits achieved through cost economies.
Intermediate markets that provide specialized capabilities emerge as different industry
conditions intensify the partitioning of production. As a result of greater information
standardization and simplified coordination, clear administrative demarcations emerge
along a value chain. Partitioning of intermediate markets occurs as the coordination of
production across a value chain is simplified and as information becomes standardized,
making it easier to transfer activities across boundaries. (Homburg, C et all 2001).
There is growing apprehension among business leaders, economists, and ordinary

American; that we are witnessing what may well be the largest out-migration of no
manufacturing jobs in the history of the US economy. This concern has been fueled
by newspaper reports and economic news highlighting the layoffs of thousands of
people in high-tech, software and service sector companies in the US, and the
practically simultaneous, seemingly coordinated establishment of offices and devel-
opment centers, most often in India resulting in hiring of thousands of new
employees in that country. For example, tabulation by the authors of reports in Indian
newspapers and business journals for the month of July 2003 alone gave an estimate
of 25,000 to 30,000 new outsourcing related jobs announced by US firms. In the
same month, there were 2,087 mass layoff actions carried out by US employers
resulting in a loss of 226,435 jobs.' The jobs being created in India and elsewhere are
in a wide range of services sectors such as geographic information systems services
for insurance companies, stock market research for financial firms medical
transcription services, legal online database research, and data analysis for consulting
firms, in addition to customer service call centers, payroll and other back-office
related activities. (Hummon, P. & Patrick, D (2003).
In this short overview we address the following questions: Have jobs been
transplanted from the US? How significant is this phenomenon and how sustainable
is it? What is the potential impact on future job creation and wage inequality in the
US? How is it likely to impact the real estate sector? (Adler & Seymour 1980).
Between 1987 and 1997, the share of imports in inputs used in US manufacturing
increased from 10.5% to 16.2% and in high-tech manufacturing, such as computers
and electronics, from 26 to 38% (See Figure 1). These data continue a long history of
foreign outsourcing in US manufacturing and the associated loss of blue-collar jobs
in many industrial sectors. Indeed, one of the attributes of the modem stage of
globalization for advanced industrialized countries is the offshore production of
intermediate inputs, usually in low-cost developing countries. The motivation, on the
part of US firms, has been driven by the low costs of manufacturing abroad, primarily
in the East Asian countries, such as Taiwan, China, South Korea, Malaysia and
others, as well as the availability of skilled labor, the promotion of a business-
friendly environment and the existence of production and supply networks in those
countries. At the same time, the higher value-added, better paying jobs in management,
finance, marketing, research and development have been retained in the home country.
(Hummon, P. & Patrick, 2003).
Considerable research has been carried out on the phenomenon of outsourcing in
manufacturing and many of the economic insights and conclusions are applicable to
Business Process/Services Outsourcing (BPOIBSO) as well. As pointed out by Bardhan,
Jaffee and Kroll in their forthcoming book, Globalization and a High- Tech Economy, the
outsourcing of parts of the supply chain of manufacturing has resulted in a shift of
demand, and hence jobs, from blue-collar to white-collar and from manufacturing to ser-
vices, increased wage inequality between blue-collar and white-collar jobs, and increased
profitability of US firms, They also note that recessionary downturns seem to prod firms
into making major restructuring moves, and that a recession might be the mother of
innovation and dynamism.' (Jackson, W et all 200)
The software sector was the first service sector to transfer significant activity to foreign
locations, leading to the creation of a critical mass of expertise and resources in
concentrated locales, such as the city of Bangalore in India. The rapid dissemination of
the Internet, the transnational networks set up by immigrants in the US, and liberalization
of emerging market economies created the conditions for a major burst of outsourcing in
the 1990s, in hitherto primarily domestic segments of non-manufacturing sectors, such as
telecommunications, retail trade, and finance (including banking and insurance).
(Hummon, P. & Patrick, D2003).
India’s information technology enabled services (ITES) sector, the primary destination of
business services outsourcing from Western countries, now directly employs over
200,000 people with around $2.3 billion in exports, of which over 70% are to the US.
While the sector is still small it is growing at a rate of 60% per annum. The software
services sector overall has exports of approximately $9.5 billion, of which over $7 billion
are to the US3. India’s National Association of Software and Service Companies
(NASSCOM), the primary trade organization of all IT related firms, forecasts that exports
would hit the $50 billion mark in the next five years. By that time, the business process/
business services outsourcing segment would employ over 2 million people, and the total
exports of the IT industry would support over 8 million jobs. (Jackson, W et all 2000)
The growth of the IT sector in general and the BPO segment in particular is not confined
to India. Firms involved with software services outsourcing and BPO are rapidly gaining
ground in the Philippines and Malaysia (call centers and other back-office BPO), China
(embedded software, financial firm back-office BPO, some application development),
Russia and Israel (high-end customized software and expert systems), and Ireland
(packaged software and product development). While it is difficult to estimate the exact
number of jobs created in these countries in these sectors, let alone those transplanted and
created by US firms, tentative evidence collected by the authors suggests that business
process outsourcing and software outsourcing have together generated, at the very least,
over a million jobs in the 1990s and hundreds of thousands more since the turn of the
century. (Jackson, W et all 2000)
The second half of the 1990s was a time of high employment and robust growth for the
software-related sectors, as well as the services sector at large. The job creation from
outsourcing in countries around the world during this period can be seen as spin-offs from
the US because of tight labor markets, rather than job transfers out of the US in search of
lower labor costs. However, the recent downturn and the continuing jobless recovery have
legitimately given rise to the question whether services outsourcing involves the transfer
of US jobs and occupations to other countries. Table 1 shows employment data for those
sectors of the economy that felt a disproportionate impact of outsourcing. These include
the computers and electronic products manufacturing sector (including its sub-sector,
semiconductors and electronic components); professional and business services sectors
such as business support services, which include call centers, and computer systems
design services; and information industries such as telecommunications, software
publishing, and Internet services providers. Between first quarters 2001 and second
quarter 2003, i.e. in the course of just over 2 years, the employment in these sectors has
plummeted by 15.5% in the US as a whole, and 21% in the state of California,
corresponding to a job loss of over 1 million and 200,000 respectively in these sectors
alone. (Jackson, W et all 2000)
The occupational mix of a sector may determine its vulnerability. In BPO/BSO circles it
is said half-seriously that any job that involves mostly “…sitting at a desk, talking on the
phone and working on a computer…” is a job under potential threat. Figure 2 summarizes
the essential attributes and features of jobs and occupations that might find themselves in
jeopardy. (Jackson, W et all 200)
While institutional and cultural compatibility and proliferation of the English language
are key components of comparative advantage for countries that are destinations for BPO
investment and activity, it is the cost differential, along with the availability of well-
educated graduates, that provides the critical competitive edge. As Table 2 shows, the
salaries of computer programmers in the emerging market countries of Asia and Eastern
Europe are a factor of ten less than corresponding salaries in the US. The cost-differentia l
in BSO is more difficult to pin down, since the range of occupations is so wide. Table 3
shows hourly wages for some sample occupations from the July 2002 National
Compensation Survey of the Bureau of Labor Statistics matched with comparable
occupations in India. The wage differential varies widely by occupation, with differences
particularly high for lower wage, nonprofessional occupations and less extreme, although
still quite significant, at the upper end of the wage spectrum. (Johnston, J. & Thomas V.
1981).
A lower wage scale is even more attractive if it comes with a well educated labor force.
The three major emerging market economies—China, India, and Russia—have a sizeable
higher education sector. While Russian expertise in many basic sciences and engineering
subjects has been justly famous for decades, both the annual output and quality of science
and engineering graduates from India and China have been increasing rapidly and are
now comparable to the advanced countries. (Kildiff, M & David, K 1994)
These countries face some constraints in exploiting this ongoing opportunity. India’s
inability to provide education at the basic school level could stifle further growth in
highly trained graduates. Russia faces growth constraints from a combination of
institutional underdevelopment, erratic reforms and the gradual deterioration of the higher
education system. The overpowering Chinese success in manufacturing may well be
replicated later in the services sectors, but as yet business services outsourcing faces
heavy language, institutional and cultural barriers. Rising wages and costs in these
countries may spur secondary outsourcing to still less developed countries, but from the
point of view of the US labor markets that are no consolation. (Krueger, Dale 1998)
Despite these barriers, the phenomenon of services outsourcing is sustainable for the
foreseeable future, unless there is a major disruption of the international economy or a
severe backlash in the developed countries leading to establishment of regulatory hurdles.
The benefits to US firms are the increased value addition and profitability resulting from
savings due to low-cost outsourcing. (Lau, Geok-Theng et all 1999)
With increasing globalization and the scope of companies becoming larger and more
expansive, the concept of outsourcing has gained much more meaning than before.
Outsourcing means the delegation of work to external firms or individuals either through
a contract or not. The work can be done by brick and mortar firms or by freelancers
operating from their homes or on the field. The basic essence is that some specific
portions of the work are offloaded to people or firms who are not permanently related
with the party providing the work. (Leary, M.R. & Maddux, J.E. 1987).
Outsourcing means giving out work to someone else. That is the basic definition. You get
the deliverables of the work within a stipulated deadline, and you make the payment for
the work. After this, you might terminate the professional collaboration, or continue it
with more outsourced work. (Lynne, Gary D. 1999).
Outsourcing is a general term, which refers to any party giving the work to an external
party. However, a lot of work that is outsourced is also offshore. Off shoring refers to
sending the work to a different country. This is where the cost cutting actually comes in.
But there are several other benefits that are considered too. The following is a list of the
benefits that an outsourcer gets when someone else does a portion of the work for them.
(McNally, Regina 2002).
Cost saving is certainly the number one benefit of outsourcing work. It is true that in
Asian countries, work is done at a much lower cost than in the west. That is the reason
why most American and European countries outsource their work to countries such as
India, China, Pakistan, Philippines, Malaysia, etc. At the same time, there are highly
qualified professionals in these eastern countries, but since the living expenses are lower,
they can work at lower rates. Today, the main bulk of outsourced work is the work that is
off shored from countries like America, Canada, United Kingdom, Australia and even
Japan to these Asian countries mentioned above. (McNally, Regina 2002).
Labor cost is very high in developed countries. But the same work can be done in third
world countries through cheap labor. So, organizations of developed countries can come
to third world countries to take this advantage. (Meyrowitz, Joshua 1997).
For most companies, it becomes difficult after a point to handle all the aspects included in
their business. A simple example would be handling their business website. Such singular
jobs can be outsourced so that the company can focus more on the primary tasks such as
production, distribution and promotion. Outsourcing reduces the overall workload of a
Some countries do not have enough local talent to undertake a particular job, and even if
they have, they may not be able to afford it. Consider a home business owner who wants
to design a website. It is wisest for such an entrepreneur to look for outsourcing options
on the Internet. (Doney, M. & . Cannon J 1997).
Risk management has become an important concept in today's times with businesses
becoming more experimental and innovative with their products and services. This is
where outsourcing certain parts of the business can help. Outsourcing is generally done
with a contract. That makes the person taking up the job becomes responsible and
answerable for that part of the business. It is important to note here that if the company
were to get this job done through its in-house staff, there would have been no specific
contract for it, and the company itself would have been answerable if any problem did
come out in the future. (Farnham, D 1999).
When it comes to internationalization, outsourcing becomes necessary. Consider a US

company that's trying to internationalize its business to China. Now, this will be
accomplished in the best way if the work were to be outsourced to China itself. (Forgette,
R & Glenn J. 1999).
Every company, howsoever much big it is in size, works under constraints of resources.
These resources could apply to capital, staff, premises, and several other aspects.
Outsourcing helps these companies to free up their resources. By delegating some of their
work to others, they can use their limited resources for the more necessary tasks. This is
also applicable for individual entrepreneurs who outsource their work. Gray, J & Dafna, E
1998).
Doing jobs in-house for a long period leads to monotonousness. Getting that job
outsourced ads to the freshness. This is more relevant in the creative tasks. Consider a
company that outsource and advertising campaign. It is sure to get some very new ideas,
different from what the company has been using in the past. (Forgette, R & Glenn J.
1999).
When an external firm is handling a specific part of the job, they are definitely in much
better position to accomplish that job carefully. They will know each and every aspect of
the job and that will make troubleshooting easier in future. Instead, if the job were to be
handled in-house along with a lot of other tasks, there is a definite chance that the
problem-solving will become difficult. (Monsour, Michael, Vickie 1997)
In some cases, the overall business might be good, but some aspect might be falling short
of the customers' satisfactions. As an example, the product may be excellent, but the
customer service isn't. This eats into the credibility of the business. But if this portion of
the task is outsourced, it might heighten customer satisfaction with the product. (Morris,
Michael H., et all 1997)
Some of the major potential disadvantages to outsourcing include poor quality control,
decreased company loyalty, a lengthy bid process, and a loss of strategic alignment. All
of these concerns can be addressed and minimized, however, by companies who go about
the outsourcing process in an informed and deliberate fashion. Info World's Maggie Biggs
counsels businesses to define "exactly what business processes and/or functions it makes
sense to maintain via a service relationship. Unless you have a lot of resources to expend,
it may make sense to prioritize outsourcing projects based on the number of benefits you
expect to gain from the arrangement." There may also be inherent advantages of
maintaining certain functions internally. For example, company employees may have a
better understanding of the industry, and their vested interests may mean they are more
likely to make decisions in accordance with the company's goals. Indeed, most analysts
discourage companies from outsourcing core functions that directly affect the products or
services that the business offers. (Morris, Michael H., et all 1997)
To plan, monitor, and oversee the search for and organize a top management Steering
Committee transition to outsourcing. Include members from your information systems
division, key user groups, and executive management including marketing and/or strategy
management. It is best to factor in changing needs, markets, and distribution channels
from the start to help minimize surprises a few years out. Also, I believe that it is just a
matter of a few years before corporate officers and directors will be sued by shareholders
for losing important information resources, losing effectiveness, or leaving the company
vulnerable to competition because of messing up an outsourcing deal. Thus management
needs to know and be part of this process to assure due diligence is being performed and
to provide appropriate stewardship up over these key corporate information assets.
(Dean, Dwane Hal 2002).
To guide you and your organization during the outsourcing Identify and engage an expert
team decision, selection, and contracting processes. The team should include a small
group of independent with specialization in outsourcing, including: an information
technology consulting expert’s professional who understands your needs and the needs of
the outsourcer and who is capable to help you administer the contract over time, assure a
smooth migration to the new systems, and resolve problems that will arise after the
contract is signed; an with specific contracting, business attorney and outsourcing
expertise to develop and help negotiate an outsourcing contract that is fair to all parties
and provides proper incentives for both sides to perform to make the relationship work;
and an to help assure that the transition of organization development/merger and
acquisition professional staff and relationships works well. This team is also warranted
and needed to make tough decisions because perceived or actual weaknesses in your
current IS team may have caused the failure of IS within your company in the first place.
In addition, it is wise to engage independent experts to assist your IS managers in this
process as it is these latter managers themselves that will probably be most directly
affected by the move to outsourcing and the resulting contract(s). (Newcomb, I.M. 1953).
Identify critical internal resources, such as a particularly competent data processing

director or chief information officer, who will stay on your company's staff internally to
help manage and administer the relationship between the outsourcer and your company.
Determine which staff, and software and hardware licenses and resources should/must go
to the outsourcer for the relationship to be successful. (Newcomb, I.M. 1953).
Identify what is good and bad about your current installation in terms of: service;
capability; performance; uptime; costs; user satisfaction; backlog; on-time, on-target
systems delivery; controls; etc. assess each strength and weakness (budget constraints;
changing needs of internal users; top management commitment; resistance to change;
lack of tools and human resources; staff development and ability to attract and retain
quality staff; lack of methodology; hardware technology limitations; platform
limitations, etc.). Quantify and identify which items and service levels are "must haves"
vs. "should haves" vs. "could haves", "now" vs. "later", etc. and which components must
be improved and attained in the outsourcing arrangement. Shoot for "good enough"
systems and targets that are attainable, affordable, and of necessary quality. (Chaudhuri,
Arjun & Morris B. Holbrook 2001).
Update the company's strategic business plan. The outsourcing agreement will
typically cover a period of 7 to 10 years. To the extent possible you must know where
your company is going locally and globally in terms of products, markets,
manufacturing, sources of supply, distribution arrangements, labor sources, etc.,
before developing a systems plan to support those directions and needs. (Newcomb,
I.M. 1953).
Develop a strategic systems plan (7 to I 0 years, if possible) identifying the long-terms

needs of the company that dovetail into the strategic business plan. Determine the new
applications that will be required (for instance, electronic data interchange, integrated
manufacturing and production control using robots and automated "smart" buildings,
international telecommunications networks, "intranets" etc.), which applications will be
updated, which will be discontinued and when, which will be developed from modified
new applications software. (Chaudhuri, Arjun & Morris B. Holbrook 2001).
Identify the alternative hardware and operating systems alternatives and determine the
recommended new architecture(s) needed to develop and support the new systems plan
(for instance: satellite communications, wide area networks, wireless communications,
mainframe and client-server usage and inter-connect, specific operating systems, open-
architecture decisions, database and programming language decisions, special
development and maintenance tools, etc.) (Nicolson, Carolyn Y et all 2001)
Understanding the cost structure and determine/estimate future costs to create and
support the projects outlined in the strategic systems and architecture plans developed in
steps 6 and 7 above, including estimates of manpower and supporting hardware and
software and equipment to build, upgrade, maintain, operate, and control such systems.
Recognize that over the next 5 to 10 years you must also estimate all relevant capital as
well as operating costs; costs of supervising the outsourcer, likely increases in costs for
salaries, benefits, service contracts, etc.; "cost of money"; interest costs; residual value
of equipment and facilities; cost of transition, including personnel; cost of changes in
direction and level of resources; cost of contract modification, etc. (Note: this is a most
difficult task use your expert team for guidance or confirmation here.) (Nicolson,
Carolyn Y et all 2001)
Identifying your current and anticipated usage: normal operations, expanded

operations over time, peak periods, off-site processing, storage, archive, integrations
requirements, back up and disaster recovery requirements, etc. (Okuda, Hidetaku
1995).
Reviewing the strengths and weaknesses of the outsourcing alternative. Determine

whether how the outsourcing alternative will help your company achieve its long term
goals and why that alternative is better than staying in-house or partial outsourcing or
working with multiple outsourcers. Determine which applications and resources should
be outsourced and which should continue with a different approach. Update this
information and re-evaluate the decision throughout this entire decision-making process
as new or better information is gained. (Pau, Jae H., et all 2002)
Using the expert team, identify several outsourcing alternatives. Obtain appropriate
literature in a request for information from the team's preselected short list of
outsourcers. (Petty, Richard E, et all 2003)
Beyond all of the technical and administrative things you will need to know about your
outsourcer, you will also need to know in depth: corporate history and stability; current,
new and lost customers; employee numbers, turnover, and experience levels; financial
stability through a review of audited financials and footnotes; technological status
including methodologies, tools, platforms, expected life of existing hardware; age of
current applications; their own business and systems plan; downtime statistics; results of
operational and security audits; customer surveys and systems demonstrations (both are
critical and must be well planned); conversion commitment success/history (a real
"killer" if done incorrectly); such intangibles as responsiveness, control, competition for
resources, flexibility, etc. (Andreassen, Tor Wallin 2000).
Determining which areas of your company you would like to outsource. Identify a
phased-in approach for outsourcing services if that is the preferred method.Services can
be selected for virtually any part of your Information System areas including:
All activities in a specified area (with only listed exceptions) vs. defined tasks, Provision
of facilities, utilities, etc., Equipment, Applications software, Systems software, tools,
etc., Personnel, Consulting services, Systems integration, Development of new programs
and systems, Data conversion, Live system operation, management, and control,
Communications equipment, software, and interfaces, Daily and periodic processing and
reports (accuracy; timeliness; formats), Responsibility for troubleshooting, Compliance
with applicable laws, Audit trails, Pickup and delivery, Physical security, Data and
program security, Backup procedures for programs, data, etc., Disaster recovery
capabilities, Data entry , Maintenance, PC service, PC installation of hardware, software,
and modifications, Help Desk. (Ammaniti et all 2003)
Developing a rigorous request for proposal (RFP) which has a format that forces the
responding outsourcer to answer questions in a way that will allow you to compare
responses from multiple outsourcers. Ask outsourcers to simplify their answers to pricing
so that you can really understand what services will be included and which will be extra.
Note that pricing can take on many forms, and that different services may be priced
differently or in alternative combinations to your advantage: flat monthly fees;
transaction volume-based fees; fees based upon a customer unit of volume (i.e., number
of customers, accounts, credit cards); fees based upon CPU usage required to execute
your jobs; fees based upon the number of input or output transactions or both; fees based
upon the amount of disk storage or other storage requirements; programming fees - may
be different from enhancements, new developments, special reports, or rush jobs; data
communication line charges; disaster recovery rates; training and seminar fees;
consulting fees; documentation charges; conversion fees; etc. ( Cadinu, Maria Rosaria &
Leyla, De Amicis 1999).
Identify some key clauses that you would like to see in the contract so that you may be
able to win some concessions on these during the bidding phase and so that you can
determine the sticking points early. (Chandy, et all 2001)
Identify Acceptance Criteria for outsourcer bids and for systems and service acceptance
throughout the life of the contract: the accuracy, frequency, and timing of reports and
information; response time for on-line transactions; uptime of the systems or the various
components; emergency procedures in the event of downtime or other disruption of
services; responsiveness of outsourcer personnel in the event of problems or errors; data
archiving; access security; ease of use; unit, string, systems, and acceptance testing
methodologies to be used; systems development methodologies and user participation and
signoff points; usage of data query, parameter-driven, fourth and fifth generation
languages in programs; user of upper- and lower-CASE tools, client-server architecture,
and object oriented approaches; etc. (Boswell, Donald L. & David K. Dodd, 1994). “
Invite bidders to a bidder’s conference at your site and take each bidder on its own tour
of your site. Have top management and the Steering Committee meet with the
outsourcing representatives for at least 45 to 60 minutes during the tour to set the tone
and to demonstrate the importance and visibility of the study and resulting relationship.
This can be very important if your top management must meet with the outsourcer's top
management in the future. (Phan, Phillip H.& John E. Butler 2003).
Evaluate proposals against your pre-established, and fully documented, criteria. Identify
different approaches recommended by the outsourcer and determine how they differ
from your own research and preliminary conclusions. Be open to suggestions but
analyze differences carefully. Follow up with outsourcers to discuss alternatives and to
clarify proposals. (Bangs, David H. Jr. & Linda, Pinson 1999).
Rank proposals so that you have a backup vendor. This is needed in case negotiations
break down with your preferred vendor. It is also required to give you the confidence to
negotiate in a tough but fair manner. (Phillips, Joan M., Ben S. Liu, & Thomas G.
Costello 1998).
Identify absolutely necessary criteria early. No matter how well the outsourcer looks in
other areas, if they don't meet the minimum "must-haves" - they should be contacted for
clarification or dropped from the list. Any weighting or decision scheme that does not
have this preliminary "go or no-go" decision point should be avoided. (Peterson, Robin
1989).
Checking references is a critical part of the evaluation and comparison of outsourcers.

Do it seriously. Visit other customers. If possible, review their contracts and the
status reports on key projects. Establish a long-term communication flow. Don't
underestimate the experiences of others with the outsourcer and/or assume your
experience will be different. (Proudford, Karen L. & Kenwyn K. Smith 2003).
Negotiate the contract using your expert team and using pre-determined target clauses,
criteria, and escalating alternative dispute resolution (ADR) options to keep the
outsourcing agreement and relationship on track. (Proudford, Karen L. & Kenwyn K.
Smith 2003).
CHAPTER 4
MANAGING THE OUTSOURCING
(The Process in Datapath Ltd.)
C HAPTER: 04 MANAGING THE OUTSOURCING
(THE PROCESS IN DATAPATH LTD)
Organizations around the world are increasingly considering outsourcing as a strategic

management tool, which can be leveraged to allow them to focus on their core
competencies. Outsourcing is viewed as a means to reduce costs, improve customer
satisfaction, and provide enhanced efficiency and effectiveness. However, many
organizations never realize the full benefits of an outsourcing relationship.
Outsourcing relationships fail when they are viewed as short-term or tactical solutions,
rather than part of long-term strategic plans. The process of considering and/or
implementing an outsourcing solution must be systematic and fully documented to
achieve the desired results. A multi-step approach, including Planning, Analysis, Design,
Implementation, and Operations phases, along with a contingency exit strategy, is
required to achieve a successful outsourcing implementation.
July Business Services selected Datapath Ltd. for outsourcing its services and managing
the process now. July Business Services is not taking the decision in one day. Managing
outsourcing is not an easy task. It follows some phases.
An ideal managing process of outsourcing is given in the following.
In Part One of this two part presentation, we will look at the first three phases: Planning,
Analysis, and Design.
4.1 PHASE ONE: PLANNING STRATEGY
Traditionally, outsourcing initiatives focused on headcount or cost reductions. Today,

however, outsourcing is a more strategic decision, focusing on core competencies. Thus,
it must have the full support of senior management, and all goals and objectives must be
articulated from the top.
Before outsourcing a business function, a Strategy and Goals document should be drawn
up; detailing the organization’s outsourcing intentions, the strategic rationale for
outsourcing, and describing:
 Processes to be outsourced
 Objectives for outsourcing
 Relationship of outsourcing to the overall corporate strategy
 Links between the outsourced process and the organization’s core competencies
 Strategic forces driving the organization into an outsourcing relationship
 Scope of coverage
 Critical risks involved
 Expected duration of the relationship
The strategy sessions which result in the formulation of this document should focus on
questions of core versus non-core processes. The Strategy and Goals document then
creates a value proposition that outlines the expected benefits customers - both internal
and external - will realize because of the outsourcing arrangement.
Core vs. Non-Core Processes
The definition of a non-core competency is any process that does not generate income or
help your organization increase its market share. Non-core processes should be
outsourced, allowing the organization to realize financial and competitive advantages by
reallocating internal resources to focus on core competencies.
To help identify business functions that are core competencies, ask:
1. Does this process create or defend a unique competitive advantage for the
organization?
2. Is this process contributing directly to business growth or expansion?
3. If the organization was a start-up, would we build this capability internally?
4. Would other companies hire us to do this for them?
Information Technology and Human Resources are non-core business competencies that
have blazed the outsourcing trail. As the outsourcing of IT and HR has matured, other
business competencies have jumped on the outsourcing bandwagon. Forecasts show that
outsourcing the Finance or Accounting function is the fastest growing outsourcing trend.
Expected Benefits of Outsourcing
Typically, organizations can expect to realize the following benefits from a strategic
outsourcing initiative:
1. Improved company focus, leaving operational details to the outside experts.

2. Reduced operating costs.
3. Increased customer satisfaction.
4. Re-allocation of internal resources to core activities.
5. Access to world class capabilities and services, without the need to build from the
bottom up.
6. Reduced risk. Markets, competition, government regulations, financial conditions
and technologies all change extremely quickly. Outsourcing is a vehicle that
enables the organization to share these risks with the outsourcing provider.
7. Improved cost, quality, service and cycle times.
8. Cash Infusion. In some cases, outsourcing involves a transfer or sale of company
assets to the provider.
9. Increased capital funds availability. Resources can be acquired through alternate
methods rather than capital expenditures.
4.2 PHASE TWO: ANALYSIS
Phase Two involves preparing and delivering a request for proposal (RFP), examining
proposals, evaluating outsourcing providers, and determining required service levels.
Request for Proposal (RFP)

Before writing a Request for Proposal (RFP), the organization should prepare a list of
possible outsourcing providers. This list should not include the entire universe of
organizations providing the service, but typically those 10-15 companies that would
appear to have the greatest synergy with your organization.
The Request for Proposal itself should provide a complete picture of every aspect of the
business function to be outsourced. Vagueness in the content of an RFP results in
outsourcing providers submitting proposals based on assumptions about deliverables,
which could quite possibly result in increased costs over the life of the outsourcing
agreement.
A well written RFP contains twelve basic elements:
1. Statement of Purpose. The nature and extent of the services to be outsourced and
the overall objectives of the contract.
2. Background Information. An overview of the process as it is performed now,

including relevant statistics, relationships with other outsourcing providers,
facilities, and automated systems, along with an honest accounting of current
problems and strengths.
3. Scope of Work. Specific duties to be performed by the outsourcing provider

versus those to be performed by the contracting organization and/or other parties.
4. Term of Contract. Length and options for renewal.
5. Deliverables. A list and schedule of all products, reports, and plans to be

delivered to the contracting organization.
6. Outcome and Performance Standards. Outcome targets and minimum

performance standards expected of the outsourcing provider, as well as methods
for monitoring performance and the process for implementing corrective actions.
7. Payments, Incentives, and Penalties. Terms of payment for adequate

performance, the basis for incentives for superior performance, and penalties for
inadequate performance or lack of compliance.
8. General Contractual Conditions. Standard government contracting forms,

certifications, and assurances.
9. Special Contractual Conditions. Requirements unique to this contract.
10. Requirements for Proposal Preparation. Required format and content of the
response to the RFP, including information to be submitted on outsourcing
provider's personnel, technical and corporate qualifications.
11. Agency Contacts and RFP Schedule. Persons to contact with questions
regarding the RFP, along with any contact restrictions, dates for submitting
questions, pre-proposal conferences, submission of proposal, etc.
12. Evaluation and Award Process. Procedures and criteria for evaluating the
technical proposals and bids, and for making the contract award.
Finding the "Right" Outsourcing Partner
In the ideal relationship, both the organization and outsourcing provider share a similar
vision and contribute equally to the success of the project. The right partner can help the
outsourcer define realistic expectations and articulate benefits of moving the process
outside.
Finding an outsourcing partner that can share your vision and merge seamlessly into your
organization’s culture requires significant up-front effort. Several formal and informal
meetings will be required get to know one another, to achieve a complete understanding
of the scope of the project, and to fully discuss the specifics of the processes and
procedures.
During the selection process, tough questions need to be asked, like:
 Is there strategic synergy between the two organizations? Can they work together
to achieve a high level of benefits?
 Is there opportunity for growth? Can the relationship - and its benefits - be
expanded?
 Does the relationship reduce the level of risk for your organization? Is the vendor
financially viable?
 Is there good "chemistry" between your organization and the provider? Are your
corporate cultures compatible?
 Is there clarity of purpose? Are the goals and benefits explicit and clear?
 Does each party benefit fairly from the relationship? Is this a "win-win" situation?
 Does the outsourcing provider have in place a management team capable of
delivering best in class services?
 Does the outsourcing provider have the technology environment needed to support
world class service? Is there a strategy in place for maintaining state-of-the-art
technology and the updated skills to operate it?
 Can the outsourcing provider leverage industry experience to devise improved
solutions?
Determining Financial Benefits of Outsourcing
In evaluating the financial ramifications of outsourcing a business process, organizations

often employ a simple Straight Dollar methodology, comparing the bid of one
outsourcing provider to the bid of another. Then comparing the winning bid to the straight
costs of performing the process internally.
This method fails to consider the true impact of outsourcing. Instead, more sophisticated
methods of evaluation, like the impact on cash flow, or on efficiency (Return on Equity
and Return on Assets) and value creation (Total Business Return and Economic Value),
will provide a complete picture of the potential benefits the provider and/or the
outsourcing strategy can bring.
4.3 PHASE THREE: DESIGN

A sound agreement is critical to the success or failure of an outsourcing engagement. It
allows the organization to maximize the rewards of outsourcing, while minimizing the
risk. Each party must understand the reasons for the outsourcing decision and approach
the contracting process with a give and take philosophy.
It is essential that the outsourcing contract reflect all the critical issues, specifically the
scope, performance, and pricing. Important contractual considerations include:
 Terms of agreement. Today’s trend is toward a shorter-term, renewable option

(2-5 years).
 Scope of project. The contract should specify the services to be provided in as

much detail as possible. If this description is absent, disputes may arise as to
whether particular requests are inside or outside of the scope of the project. It is in
the best interests of both parties to have a complete listing of all services to be
performed, service levels, and deliverables detailed in the agreement.
 Confidentiality. The agreement must specify that the organization owns the
information it submits to the outsourcing provider and that the information is to be
kept strictly confidential.
 Service level agreements. A contract should include service level agreements

(see more on SLAs below). Without them, there are no objective criteria for
managing the outsourcing relationship. Performance measures should be easy to
understand, relatively few in number, and reasonable/possible.
 Warranty. The vendor warrants that it will provide the services as defined in the
agreement and will accommodate a specified increase in requirements.
 Change management. The contract should spell out the cost/fee implications of
changes to the original agreement, and the personnel authorized to request and
accept changes. Planning for change is critical to the success of any outsourcing
agreement.
 Pricing. Pricing is an area where flexibility can be used to reward both the
organization and the outsourcing provider. A new trend involves spreading
business risk by adding a quality or performance bonus tied to service level
agreements. This is meant to guarantee that the outsourcing provider has a
significant interest in the organization’s business performance.
 Termination plan. How the decision to terminate the relationship will be

executed in a fair and equitable manner, without resulting in disruption in
services.
Service Level Agreements (SLAs)
Properly structured performance incentives and penalties enable the outsourcing provider
to work with your organization as a partner, be accountable for their performance, and
tangibly demonstrate the value they bring to your organization. The most successful
outsourcing relationships involve the outsourcing provider and the organization
participating in continuous process improvements.
Performance incentives should focus on:
 Clearly understanding the areas impacted by the outsourcing relationship.

 Identifying the Key Performance Indicators (KPIs).
 Defining the handoff between the internal organization and the outsourcing
provider.
 Putting substance behind the attainment of service levels.
When establishing the performance indicators or SLAs, a defined structure like the one
outlined below will eliminate ambiguity.
SLA Structure
1. Objective: The business reason for measuring the service level

2. Definition: A specific definition of the service level
3. Method: A description of how performance will be measured
4. Period: The time through which the performance will be measured
5. Action: What happens when service levels are and are not met?
If developed in detail, service level agreements will provide you with the information
needed to fully understand the quality of service your outsourcing provider is delivering.
Outsourcing agreements should always be living documents. The organization should

monitor and evaluate the performance of their outsourcing provider in relation to the
agreement on an ongoing basis.
4.4 PHASE FOUR: IMPLEMENTATION
During the implementation phase, the transition from in-house provision of services to
outsourcing is made.
To ensure complete capture of all critical elements of a project, the outsourcing provider
should adhere to a formal project management process, including:
Assignment of a dedicated Project Manager: The center point of contact for the
project’s implementation is the Project Manager. This person manages all phases of
implementation and controls project planning, task assignments, project issues and
resolution, status reporting, along with any direct client contact necessary to manage and
control the project deliverables.
Completion of a Requirements Study: A Requirements Study documents and provides

definitions of and solutions for all of your organization’s requirements. The document
generated by the Study details the organization’s system needs and how these needs will
be implemented in the environment. It also defines any customizations required, and fully
describes the project plan.
Establishment of a project timeline with designated milestones and sign-offs: At key

points throughout the project, your organization should be asked to sign off on the
completion of major milestones in the design and development process. These sign-offs
serve to indicate an agreement between the outsourcing provider and the organization that
the specified deliverable has been completed to the satisfaction of both parties.
Report customization: The outsourcing provider can assist in determining the design
and data content of requisite reports.
System design, development, and configuration: This is where the process of building
the outsourcing solution actually begins. Custom rules, identified as part of the definition
of project requirements, are detailed and defined to include analysis, design, and
specifications. Recommendations of test scenarios and test guidelines are created. All
necessary code is developed and integrated into the system. At this stage, all
documentation is finally completed.
System testing: A plan is established to ensure that the solution developed by the
outsourcing provider works correctly, is complete, and meets the organization’s
specifications as previously outlined in the definition of project requirements.
Transition to "Go Live": This is the final stage of project implementation. Once the
project has been designed, developed, configured, and tested, it is ready to be activated or
"go live".
4.5 PHASE FIVE: OPERATIONS

Signing an outsourcing agreement should not and cannot mean the abdication of the
organization’s responsibility for the business activity. Effective management of the
relationship between the organization and the outsourcing provider is key to the success
of the project. Strong working associations must be developed on multiple levels to gain
the trust and understanding needed for a successful, long-term partnership.
The outsourcing provider should appoint a dedicated account manager, who will be
resident at their location, but travel widely throughout the customer organization. The
organization should assign a project manager or single point of contact, who is
knowledgeable in terms of the outsourced infrastructure and its cost drivers. This
management team then becomes responsible for establishing and maintaining open
communication channels and ensuring the success of the project.
Additionally, the outsourcing provider’s personnel should be trained to understand the

organization’s business environment, culture and goals. This will help them develop
sensitivity to the key issues that drive the organization. It is also a good idea to include
provider staff in internal meetings and improvement programs, and to encourage joint
participation and sponsorship of quality teams and/or recognition events.
On average, organizations report that 4% of the outsourcing contract’s value is spent on

managing the relationship.
Measuring Success
Ultimately, successful outsourcing relationships must focus on results. To be meaningful,

these results have to be objective, measurable, quantifiable, and comparable with pre-
established criteria.
Interestingly, according to a survey of executives by Price Waterhouse Coopers, the

financial benefit realized from outsourcing non-core business processes is not the main
reason for satisfaction with the decision. Most of the executives surveyed saw the practice
of outsourcing as a means of transforming their business strategies around core
competencies. Their goal was to realize improvements in process efficiency,
effectiveness, and customer and/or end user satisfaction, more than to achieve a given
cost benefit.
A powerful technique for managing the outsourcing relationship and measuring its
success is the use of balanced scorecards. Balanced scorecards include categories
representing the most general level of expectations -- usually built around cost, service,
and quality. Within each category, specific attributes are defined through a joint buyer-
provider process, with the exact composition and number depending on the goals of the
relationship and the service in question. Choices are made about an appropriate measure
for each attribute.
Terminating an Outsourcing Relationship
In most cases, following the steps outlined above will result in an outsourcing solution
that is viable over the long term. However, sometimes even the most carefully considered
and well-structured plan can break down, requiring termination of the outsourcing
relationship. This may be the result of cause or convenience, but in either case, a pre-
defined exit strategy and termination plan is essential.
Issues to consider in formulating a termination policy, include:
 How services will wind down if the vendor is terminated for cause; how long the
process will take; and any penalties that may accrue.
 How much notice is required to terminate the vendor without cause, for
convenience? Typically, sixty to ninety days is considered sufficient notice.
 If termination is for convenience, will the organization pay a termination fee to the
vendor and how will this be structured?
Ultimately, the goal of the exit strategy is to guarantee no gaps in the performance of the
business process, along with a seamless transition to either another outsourcing provider
or back into the organization.
A properly planned, well-structured and carefully managed approach to outsourcing non-

core business functions can prove of tremendous benefit to your organization. But, the
decision to outsource cannot be made lightly. To be successful, outsourcing must result
from a long-term strategic plan, not from short-term perceived benefits.
July Business Services does not follow all the above steps thoroughly. When the
management body thought that it was the time to go for outsourcing for being
competitive, it is going through planning phase. First, it decided which services it was
going to outsource, what is the objectives for outsourcing, is there any Relationship of
outsourcing to the overall corporate strategy, is the company going to outsource its core
service. As a result of outsourcing, it can reduce its operating cost, increased customer
satisfaction, can be able to reduce its risk and finally it can improve cost, quality, service
and cycle time.
Then it has gone for analysis the proposal. First, it has decided from where it will
outsource and from which company.
After analyzing the proposal and selected Bangladesh as location, then it has gone to
establish the company and design the contract. After that management body, appointed
one general manager as project manager and one international manger for implementing
the outsourcing project.
As the owner of Datapath Ltd. and July Business Services is same, the operation of the
outsourcing project here in Datapath Ltd. is easy than the other outsourcing business.
CHAPTER 5
COST AND BENEFIT ANALYSIS

CHAPTER: 05 COST AND BENEFIT
4. ANALYSIS
Data path is a registered outsourcing company owned by Jim Hudson and John
Humphrey. The name of its mother company is July Business Services which is operating
in the U.S.A. Now the world is very competitive. Competition is everywhere. July
Business Services is also facing competition in its home country. To be cost effective it
has started its operation in Bangladesh as a form of outsourcing company and given its
name as Datapath. In Bangladesh, these types of companies are helpful for generating
revenue and employment. Bangladesh has cheap human resources, cheap infrastructure
cost and some other facilities with low cost and where foreign companies get opportunity
to reduce its cost by getting the same services and be able to become more competitive.
As a result, this organization can be able to provide better services than it competitors.
Here for clarifying the total scenario, I will discuss in which perspective, July Business
Services, gets its cost advantages. This will be discussed in the tabular and in the
narrative form. As a result it will be clear that in how many areas July Business Services
get its benefits and what is its value. Simultaneously, I will depict in how many areas
Bangladesh government gets benefits and it will be discussed in the narrative form. Here,
for business purposes exact data is not given. 5% error should be considerable.
5.1 WHAT BENEFITS JULY BUSINESS

SERVICES GETS FROM OUTSOURCING
July Business Services gets benefits from the following perspectives.
1. Human Resource
2. Commercial Real Estate Leasing
3. Internet
4. Power
5. Maintenance
1. Outsourcing Advantage Evaluation: Human Resource Perspective
In U.S.A July Business Services is operating its in Waco, Texas. In that office, 60 people
are working. But for making comparison logical, we assume the number of employee is
50. On an average, every employee gets $5000 per month as remuneration and working
from 9 am from 6 pm where as in Bangladesh, Datapath has 50 employees. On an
average, each of them is getting $358 per month as remuneration.
Table: 1 Human Resource Perspective
U.S.A (a) Bangladesh (b)

Unit Salary $5000 $358
Employee 50 50
Total Remuneration $250000 $17900
Cost Savings (a-b) $232100
From the above table it can be found that July Business Services is getting $232100 cost
advantages when it started its full phase operation in Bangladesh. As a result it can reduce
its services charges accordingly and get competitive advantage in the retirement industry.
2. Outsourcing Advantage Evaluation: Commercial Real Estate Leasing

perspective
For operating any organization, office space is important. In case of service organization
it is very important. For, operating business in U.S.A. July Business Services lease 7000
square feet space and cost of per square feet space is $ 7.40. On the other hand, in
Bangladesh Datapath lease 6000 square feet space for its operation at the rate of $1.72 per
Unit. For comparison, we assume July Business Services lease 6000 square feet space.
Table: 2 Commercial Real Estate Leasing perspectives

Unit Price (per Square feet) $7.40 $1.72
Space (In Square feet) 6000 6000
Total Cost $44400 $10320
Above table shows that July Business Services can save $34080 from leasing commercial
real estate.
3. Outsourcing Advantage Evaluation: Internet perspective
In case of any outsourcing, information system is very important. Here in Bangladesh,

Datapath is doing all its activities through the original server of July Business Services by
using internet. Internet speed is very slow in Bangladesh because we are not still getting
the full advantage of optical fiber. That why, to minimize this problem Datapath is taking
dedicated internet line which speed is 1.44 mbps and the cost of this service $8600 per
month. But in U.S.A internet speed is very fast and the cost of this service $10000 per
month. All the computer of July Business Services and Datapath is connected by one
network. If anyone wants to do anything he/she must enter in that network and then
he/she can do his/her work.
Table: 3 Internet perspective

Total Cost $10000 $8600
From the above table it can be found that July Business Services can also save $1400. But
here the main thing is that internet service is far better in U.S.A than in Bangladesh. For
doing any work in U.S.A. if it takes 5 minutes then in Bangladesh it takes 7 or 8 minutes.
4. Outsourcing Advantage Evaluation: Power perspective
For operating any business, power is one of the key things. In U.S.A, there is no shortage
of power. For that reason business firm does not consider alternative power source in case
of shortage. Every month firm provides service charge and feel free that there will be no
problem in power. But in Bangladesh, one of the biggest problems is power. Here there is
no guarantee that power will be available all time. For that reason, most of the business
firms arrange alternative power source. Like this Datapath has its own alternative power
source in case of shortage. In U.S.A July Business Services provide $6500 service charge
per month for power supply and in Bangladesh, Datapath provides $5000 service charge
per month.
Table: 4 Power perspective

Total Cost $6500 $5000
So, from the above table it can be found that July Business Services can save $1500 per
month from power expense.
5. Outsourcing Advantage Evaluation: Maintenance perspective
July Business Services buys office stationary, provide lunch and some other food during
office time and buys other office maintenance things. For this purpose it spends $10000
per month. In Bangladesh Datapath does the same thing but cost of food and other things
is very cheap here. That’s why it takes only $3200 per month for this purpose.
Table: 5 Maintenance perspective

Total Cost $10000 $3200
In case of maintenance, July Business Services can save $6800 and increase its strength
in competitive market.
 Overall Cost Savings

Table: 6 Overall Cost Savings
Savings
Human Resource $232100
Commercial Real Estate Leasing $34080
Internet $1400
Power $1500
Maintenance $6800
After combining all segments, July Business Services is saving total $275880 per month
when it started its full phase operation in Bangladesh through Datapath.
Except the above main factor there are some other factors which are not negligible. In
U.S.A, companies paid federal tax and state tax but in Bangladesh, companies paid tax for
only one time. It can be said that in Bangladesh, companies are paying less tax than the
companies in U.S.A. So, July Business Services is also saving tax by outsourcing its
business in Bangladesh. Simultaneously, Bangladesh government is also getting some
extra tax from Datapath Ltd. This is the extra earning of the government of Bangladesh.
In Bangladesh labor union rules and regulation is not that much stringent like in U.S.A.
As a result, Datapath Ltd. is getting comparative advantage in this sector.
Here in Bangladesh, Datapath Ltd. does not conduct any CSR (Corporate Social
Responsibility). And most of the outsourcing firms do not conduct any CSR activities. As
a result CSR expenditure is zero. But in U.S.A, not only July Business Services but also
most of the companies conduct CSR activities. So, it adds considerable cost for those
companies. It is also an important cost saving benefit to conduct an outsourcing business
in Bangladesh.
5.2 WHAT BENEFITS BANGLADESH GETS

FROM JULY BUSINESS SERVICES
Bangladesh is also getting some advantages from July Business Services. Those
advantages are in the following.
1. Foreign Remittance
2. Employment Opportunity
3. Confidence Built up
1. Foreign Remittance
For operating business in Bangladesh, July Business Services has to spend lots of money
in the form of salary, lease payment, energy bill payment and other expenses. Each and
every month, this organization is sending money in the account of Datapath through
banking system. As a result Bangladesh is getting lots of foreign currency. This money
contributes in the economic development of Bangladesh.
2. Employment Opportunity
Datapath is creating lots of employment opportunity for the people of Bangladesh. At

present, 50 people are working there. As it is a growing company, in future it will recruit
lots of new people.
3. Confidence Built up
In Datapath, employees are doing exactly what the employees of July Business Services
are doing in U.S.A. So, it proves that Bangladesh people can do exactly as its counterpart
is doing in U.S.A. As a result, Bangladesh people will be more confident.
CHAPTER 6
THE CONCLUDING PART

C HAPTER: 06 THE CONCLUDING PART
6.1 CONCLUDING STATEMENT

After conducting internship program, collecting and evaluating data on outsourcing and
Datapath Ltd. I have made my report as informative as possible. After evaluating all the
things I have found that outsourcing is beneficial for both outsourcing and outsourcer
company. I have also evaluated prospect of Bangladesh in outsourcing business.
Bangladesh has most of the characteristic of outsourcing business. As a result, by
utilizing this sector Bangladesh can earn lots of foreign currency.
6.2 RECOMMENDATIONS
When the world outsourcing comes, also comes the name of India, China, Philippines and
Vietnam because they are the giant in outsourcing business. Now outsourcing plays an
important role in the economy of third world countries. Each and every year they are
earning billions of dollars. This sector also creates lots of employment opportunities for
the unemployed people. Bangladesh is in evolving stage. If the government nurtures this
business and ensure supporting facilities for growing this business then it can be the
sector from where Bangladesh can earn lots of foreign currency. But the support from the
government is not up to the mark. Still government is not focusing on this sector. The
following activities can be helpful for strengthening the outsourcing business in
Bangladesh.
 Process should be easy for getting outsourcing business license;

 Government should promote this business to the people of Bangladesh;
 Special tax treatment should be given to the outsourcing business;
 Adequate power should be available;
 Adequate and speedy internet service should be available;
 Establish an information centre from where people or interested business man can
get necessary information about outsourcing.
6.3 BIBLIOGRAPHY AND REFERENCES
BIBLIOGRAPHY
1. Sources of Articles:
A. www.julyservices.com
B. www.workshift.com
C. www.rmstrategicmarketing.com
D. www.capgemini.com
E. Global Outsourcing Report –by Mark Minevich, Going Global Ventures
Inc.
F. Outsourcing: The 20 Steps to Success- By-Warren S. Reid
G. www.visionrelocation.com
H. Reaping the benefits of business-process outsourcing-by Michael Bloch
and Stefan Spang
2. Book: Retirement Plan Fundamentals (Part-1 & Part-2)
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“COST AND BENEFIT ANALYSIS

Date of Submission: January 28, 2009

MD. ARIFUL ISLAM

BUSINESS ADMINISTRATION DISCIPLINE

Subject: An authorization letter for submission of internship report.

Any backwards, shortcomings or fault of this study is my fault or may be because of

Md. Ariful Islam

Tarun Kanti Bose

First of all, I wish to express my profound sense of gratitude to my honorable advisor,

It is very complicated to accomplish such a study without cooperative endeavor. From

Outsourcing involves the transfer of the management and/or day-to-day execution of

When July Business Services formed an outsourcing company in Bangladesh named

CHAPTER 3: Literature Review 12

CHAPTER 5: Cost and Benefit Analysis

THE INTRODUCTION PART

1.1 ORIGIN OF THE STUDY

1.2 PROBLEM STATEMENT OF THE STUDY

Outsourcing business is not that much popular in Bangladesh. In world outsourcing

1.4 LIMITATIONS OF THE STUDY

1.5 METHODOLOGY OF THE STUDY

Diary Method: I kept a personal account of daily trainings, feelings, discussions,

Type of collected Data:

The specific objective of this research is:

THE ORGANIZATION PART

2.1 ORGANIZATIONAL OVERVIEW

1. Tailored Plan Design

Recruitment & Retention

Maximizing Contributions for Key Employees

New Comparability Plans

Defined Benefit Plans

We offer comprehensive plan documents prepared by experienced ERISA consultants.

 Prototype Plan Documents

 Prepare Enrollment Materials

Your account representative provides complete compliance testing services to maintain

 Top Heavy Testing

 24 Hour Internet Access

All providers include professional enrollment materials to guide participants in making

 Developed Foundation for Employee Culture

Recent History: Expanding Services

 Expanded Office Facilities

Outsourcing involves the transfer of the management and/or day-to-day execution of an

With increasing globalization of outsourcing companies, the distinction between

Outsourcing refers to large (predominantly IT) outsourcing agreements. Outsourcing is a

There is growing apprehension among business leaders, economists, and ordinary

When it comes to internationalization, outsourcing becomes necessary. Consider a US

Identify critical internal resources, such as a particularly competent data processing

Develop a strategic systems plan (7 to I 0 years, if possible) identifying the long-terms

Identifying your current and anticipated usage: normal operations, expanded

Reviewing the strengths and weaknesses of the outsourcing alternative. Determine

Checking references is a critical part of the evaluation and comparison of outsourcers.

Organizations around the world are increasingly considering outsourcing as a strategic

An ideal managing process of outsourcing is given in the following.

4.1 PHASE ONE: PLANNING STRATEGY

Traditionally, outsourcing initiatives focused on headcount or cost reductions. Today,

Core vs. Non-Core Processes

To help identify business functions that are core competencies, ask:

Expected Benefits of Outsourcing

1. Improved company focus, leaving operational details to the outside experts.

4.2 PHASE TWO: ANALYSIS

Request for Proposal (RFP)

A well written RFP contains twelve basic elements:

2. Background Information. An overview of the process as it is performed now,