Conclusion 01

Conclusion 01: Budgets & Contracts

Some might think that tough times would lead to a shift toward outsourcing. But with outsourcing budgets slightly lower and contracts on hold or scaled back, it's clear CIOs don't consider it a cost-cutting panacea; outsourcing contracts seem as vulnerable to cuts as other expenses. And the increased use of service-level agreements indicates firms are better at managing outsourcers.

IT outsourcing budgets have remained stable, dropping very slightly from a mean of 24% of IT budgets in 2001 to a projected 23% for 2002.

In the past six months, 59% of IT execs have delayed, canceled or scaled back outsourcing projects. Eighty percent say those projects are still on hold or resumed at a reduced activity level. Still, 84% say they're starting new outsourcing projects.

When outsourcing contracts expire in 2002, a mean of 38% of those contracts will be renewed, while just 25% will be renegotiated for a better deal, seemingly leaving money on the table at a time when the recession should give buyers greater leverage with sellers.

The use of service-level agreements rose from 66% in 2001 to 81% in 2002, with 86% saying they intend to use SLAs in the future. Uptime level guarantees also rose, from 49% to 65%.

Outsourcing's hidden costs still go unmeasured. Only 27% consistently watch the financial impact of activities like vendor searches, contracting management and post-outsourcing reintegration. Forty percent do so inconsistently, and 32% say they don't do it at all.

This article was originally published on 05-15-2002
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