software outsourcing

A blog related to software development company and offshore software outsourcing

Wednesday, March 01, 2006

IT Outsourcing and Unseen Risks of the Process

Overseas service for IT is the process that involves lots of risks which are never seen or noticed by the clients. The buzz is that it is a win-win situation for both, the clients and the vendors but for that IT Outsourcing and unseen risks of the process must be taken under care very well. Big companies place the burden of maintaining, managing, servicing and upgrading Information Technology operations onto a third party, which in turn helps them in making nice profits through economies of scale. But the recent disaster at WorldCom for Offshore Outsourcing has brought to light questionable accounting exercise at its Information Technology service provider, EDS, and casts uncertainty on the financial planning that have made such overseas agreements viable.

The fact is most such overseas business deals demand high upfront costs for many services like latest equipments, network connectivity and manpower, the preliminary years of an appointment can mean huge losses for the IT service providers. To reduce this problem in Offshore Outsourcing, EDS chose, in the case of its almost $6.5 billion and 11-year contract with a private company, to employ percentage-of-completion accounting system. That let EDS rise rapidly by booking some revenue before it was even billed for the transactions. It also helps it in spreading over many years some of the expenses to set up the IT infrastructure and overall facilities.

Offshore Outsourcing Company

But the recent accounting disgraces bring into question if this method of IT Outsourcing is a perfect way to examine a company's financial performance or some improvements are required? Besides making it complicated to figure out if a particular contract or deal would fetch profit to the company, it places a huge amount of threat at the door of the Offshore Outsourcing Company. And still the question would remain same that can you depend on your overseas service provider?

Another question that arises is how longer it can last? EDS examination pulled out of the bidding on an IT Outsourcing deal for a private company worth almost $1 billion per year, quoting too much challenges in taking over a majority of the clients products service providers back-office operations. Is this any type of warning shot for an appraisal of IT Outsourcing relationships? Offshore Software Development services have been touted as an efficient way for organizations to concentrate on what they do perfect while palming off the IT hard working to someone else. But we're learning that the hard work comes with some extra and high costs and may not be that much gainful for third parties without some financial exercises.

At the end, the humiliation should change the debate on whether Offshore Software Development expertise should to be an actual cost, built into the routine of running a business process, and if you can be inoculate from the dangers of maintaining an IT infrastructure just by signing an overseas project or deal. With doubt surrounding the accuracy of financial reporting, it's vital that you know the every aspects of the process of potential IT Outsourcing.