Enhancing and Restoring Safety & Quality Cultures - Dave Litwiller - May 2024...
Reducing BPO Costs
1. SAP White Paper
Business process outsourcing
THE IMPACT OF TECHNOLOGY ON COST
IN BUSINESS PROCESS OUTSOURCING
The CompleTe Business proCess
ouTsourCing CosT piCTure
2.
3. CONTENT
4 Executive Summary
5 Technology in Business
Process Outsourcing
6 managing Costs Through
Technology
7 Cost Control: shared
responsibility of Bpo
Customer and provider
8 BPO Cost Structure
8 The usual Costs – Costs
normally Considered by Bpo
Customers
8 Transition of people, processes,
and iT systems
9 process operations
10 information Technology
11 outsourcing governance
11 The surprise Costs – less
obvious, easily overlooked
11 integration Costs
11 impact of potential exit
scenarios
12 The sneaky Costs – over-
looked Costs with potentially
significant impact
12 effects on the retained
organization
13 scope Creep and gliding
Cost paths
15 Conclusion and Outlook
4. ExECUTIvE SUMMARY
TeChnology: The underesTimATed ForCe
in reduCing Bpo CosT
This white paper, the first in a series
from sAp, examines the cost structure
With the right software, organizations can balance associated with Bpo and shows that a
their needs for personalization and standardization diligent assessment needs to address
several cost components that are not
of outsourced processes by creating the capacity to included in the provider’s total contract
design process and iT implementation jointly. value (TCV), and are often overlooked
by buyers. subsequent white papers
examine how technology impacts all
Bpo cost components in detail and
many different factors contribute to the With the right software, organizations compare the cost of different Bpo
cost of a business process outsourcing can balance their needs for personal- delivery methods based on comprehen-
(Bpo) engagement. Among them, iT, ization and standardization of out- sive modeling.
especially software, is a key cost deter- sourced processes by creating the
minant that is often underestimated. capacity to design process and iT
While software licenses and mainte- implementation jointly. in addition, soft-
nance typically represent no more than ware is the key enabler for integration
3% to 5% of a Bpo provider’s total between buyer and service provider,
cost, they directly drive process auto- both on process and iT levels. Finally,
mation that immediately impacts the the software choice has a substantial
cost of operations. long-term impact on cost as it influenc-
es the organization’s flexibility to
Technology drives the Bpo cost struc- accommodate changes in scope includ-
ture in three ways: it enables econo- ing process coverage and regional
mies of scale, supports sustainable scope, or scale; allow for organizational
process optimization, and makes labor developments, such as reorganization
arbitrage possible by connecting and or merger and acquisition activities;
controlling remote location workflows. and cater for potential changes in
sourcing strategy.
4 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
5. TECHNOLOGY IN BUSINESS PROCESS
OUTSOURCING
Why you should CAre
What is the impact of technology on since Bpo buyers invest significant For example, if the size of the organiza-
the cost of a business process out- time, money, and other resources in tion triples, the cost of payroll as well
sourcing (Bpo) relationship, and why the Bpo project, it helps both buyers as time and attendance per employee
should Bpo buyers care about technol- and providers to understand the Bpo will decrease by approximately 30%.
ogy in the context of Bpo? cost structure, and the impact of tech-
nology on it, as clearly as possible. Figure 1 illustrates that in order to
until not long ago, the buyers’ commu- here are some guidelines to under- reduce costs through technology,
nity was often uninterested in the tech- standing the Bpo cost structure. minimizing the software license expen-
nology portion of Bpo because it was • software licenses typically represent diture alone is not sufficient. The imple-
viewed as a consideration the provider 3% of the cost of a complete Bpo mentation- and upgrade-related costs,
is paid to figure out. not paying atten- process in regard to hr outsourcing. plus hardware and operations costs,
tion to this detail typically would mani- • other technology costs relate to should also be considered, as well
fest significant conflicts later when the about 15% of Bpo process costs as the impact of standardization and
buyer would end up paying more for with the majority spent on consulting automation on labor costs that benefit
the outsourced processes than antici- services and internal resources for from economies of scale.
pated or not receive the expected implementations and upgrades.
service quality. For those buyers who Another sizable chunk is the cost of
cared, Bpo vendors would simply point the hardware and connectivity.
to the high cost of software licenses • manpower and related administrative
and enterprise resource planning costs such as equipment, utilities,
(erp) software. and buildings make up about 80%
of the Bpo cost total. This cost is
very sensitive to economies of scale.
Selected IT solution impacts all cost components.
Effects include:
• staffing levels required for process execution lowered by
process automation
• economy of scale benefits enabled by process standardization
~ 65% • more efficient service-level agreement monitoring and governance
Typical • reduction of infrastructure and software complexity
BPO • efficient implementation and maintenance
provider
cost
base
~ 15%
~ 10% ~ 3%
~ 7%
Total Staff/Processes General & Hardware & Software License Software Maintenance &
Administrative Operations Implementation
Figure 1: Breakdown of a Typical Business Process Outsourcing Provider’s Cost Structure
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 5
6. especially when it comes to software substantial. These scenarios are highly Another significant focus of concern is
implementation, today’s Bpo custom- common especially in large technology when adjacent technology and process-
ers can learn from the experiences of implementations where stakeholders in es are not properly improved, or at
some earlier erp implementations that specific countries or business units least adjusted, to accommodate Bpo.
were not successful and led to spiraling have the power to force blueprint even if the cutoff point between
iT costs and unsatisfied users. By fragmentation. retained and outsourced processes is
following established implementation clear and well defined, interdependen-
best practices, or at least setting Managing Costs Through cies exist. even worse, the retained
and respecting some ground rules, Technology processes must now accommodate
technology-related risks (especially what the outsourced processes
financial ones) can be minimized. At Through optimizing the part of the cus- require. in the case of hr processes,
the same time, typical danger points lie tomer’s iT that is included in the scope for example, conventional wisdom
in the crude, one-to-one translation of of the Bpo agreement and related cap- maintains that core hr components,
preexisting business rules into software ital expenditures, the Bpo provider can such as payroll and master data, can be
code and the buildup of related inter- often reduce the complexity of the iT decoupled seamlessly from the rest of
faces without taking stock of the trade- landscape and thereby cut costs – if it the hr applications. however, for
offs between customization and cost. is given the mandate and if it has deep those hr organizations that want to
knowledge of the technology platform. become strategic, they should use
With modern, well-designed software, Authority and competency are key top- components such as a skills inventory
these pitfalls can be navigated. Based ics that merit discussion between both and leverage organizational data that
on built-in functionality such as configu- buyers and providers during the Bpo spans across the enterprise and bridge
ration switches or predetermined blue- sales cycle with the help, if appropriate, the (artificial) process boundary between
prints called configuration sets, it is of an outsourcing advisor. the Bpo customer and provider to
possible today to accommodate a obtain better resource allocation and a
range of personalization while substan- however, even when the Bpo provider global view of company performance.
tially lowering the cost of implementa- is able to compress and manage the
tion and upgrades. implementations technology cost structure of Bpo, Both the impact of technology on the
that bypass this functionality and resort other, even taller orders may lurk ahead. sustainability of savings and the neces-
to custom code may be initially easier most important, to sustain savings over sary alignment of outsourced and
and faster for inexperienced solution time, the Bpo provider must address retained processes and technology
architects or programmers but can be labor costs since they represent the have profound implications for the Bpo
more expensive (and sometimes unpre- largest expense. Technology savings industry. Bpo providers must be able
dictably so) in the future. likewise, rely- are typically not enough to justify a mul- to articulate the value of standardized
ing solely on business considerations tiyear outsourcing agreement’s busi- processes to the buyers, so they can
and neglecting the iT impact can lead ness plan, so the Bpo provider must make decisions based on the entire
to situations where best-of-breed or standardize processes and automate cost structure – not just on the Bpo
proprietary solutions are considered. them. This will help reap the economies contract value. in addition, the cost for
This often results in creating additional of scale that generate savings, enable the rest of the buyer organization
interfaces whose cost in the short term investment to keep the processes effi- should also be taken into account. The
(initial build out) and long term (rebuild cient in the future, and stay ahead of hackett group reports that world-class
when adjacent systems change) can be the future savings requirements. hr organizations spend 26% less on
transactional costs.1
1. The hackett group, hr executive Advisory program, 2009.
6 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
7. These companies typically have
erp-based, standardized processes. Bpo customers should consider and factor into their
in addition to these challenges, Bpo
customers need to consider the cost of budget some wiggle room for nonfixed costs such
a potential exit scenario. While most as expenses for time and materials, governance,
Bpo partnerships are entered in good
faith, strategy changes. merger and one-off projects, and other incidentals that may add
acquisition activities, or a changing substantial costs.
project scope, may precipitate a provid-
er change or even re-insourcing. The
respective additional cost can easily
mount up to the same cost level as the client, they generate a strain on the
initial migration project, or even exceed Bpo provider that ultimately puts
it. With the right technology, process pressure on the quality of delivery.
configurations, and end-user settings, service-level agreements (slAs)
all underlying data can get transferred cannot typically cover all areas
much more easily and quickly, and the (countries, business units, processes)
exit achieved at dramatically lower where quality performance may
costs. decrease. ultimately, Bpo providers
operating under duress might ask to
Cost Control: Shared Responsibil- renegotiate the contract elements such
ity of BPO Customer and Provider as price and slAs.
instinctively, the option to just pass on
responsibility for the cost structure to
the Bpo provider and work out any
conflicts based on the Bpo gover-
nance structure is tempting for a Bpo
buyer. however, overall cost structures
are not easy to control and can exceed
the planned levels. Also, part of the
process cost is generated by the
retained organization and not controlled
by the Bpo contract. Bpo customers
should thus consider and factor into
their budget some wiggle room for non-
fixed costs such as expenses for time
and materials, governance, one-off
projects, and other incidentals that may
add substantial costs. even if costs do
not get explicitly transferred to the
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 7
8. BPO COST STRUCTURE
The CompleTe piCTure
Cost reduction is still the main driver customer and cause them to incur sig- Transition of people, processes,
behind most Bpo decisions. Closely nificantly higher than expected costs. and iT systems
examining the cost structure of a Bpo The following section provides a closer A cost-efficient transition toward a
engagement first will help better assess look at these cost aspects, grouping steady state of operations can account
the achievable cost savings and under- them into three categories: the usual for a substantial portion (up to 20%)
stand how technology drives that sav- costs, the surprising costs, and the of the Bpo deployment. related costs
ings. initially, the easiest and most obvi- sneaky costs. occur both for the Bpo provider, who
ous approach would be to look at the will normally charge them back as a
total contract value (TCV) of the Bpo The Usual Costs – Costs Normally part of its overall pricing, and the Bpo
services as agreed with the Bpo pro- Considered by BPO Customers customer, who incurs charges for exter-
vider. however, TCV is hardly a com- nal support such as that provided by
prehensive indicator of the overall cost. This group includes the most obvious specialized Bpo advisors and process
and easily identified costs. These are consultants.
Figure 2 illustrates some of the main usually addressed within the scope
cost components that contribute to the of the TCV or acknowledged by Bpo
true full cost of Bpo and need to be customers during their decision-making
considered by Bpo customers in their process. Typical cost components in
business case building and decision this group include process transition,
making as well. Bpo costs manifest process operation, iT, and governance
themselves in several different ways. costs. While these cost items are
While some costs are expected and well known and understood, dealing
consistently occur, others are less with them still requires care and
obvious, and some can even surprise a well-planned process and iT design.
Scope creep Complete
and so forth cost
of BPO
Shadow
cost (often ~20%
Exit up to 50%
(option price) more than
normally
TCO of considered)
retained IT
Integration
Normally
considered:
total
contract
value plus
governance
Figure 2: Additional Cost Elements Contributing to the Full Cost of Business Process Outsourcing (Illustrative)
8 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
9. Cost items typically considered include today is mostly applied to labor- offshore resources. This situation is
the following: intensive, back-office processes such becoming increasingly relevant to near-
• Process implementation – This as finance and accounting, hr, and shore operators as well. As a result, it
includes process mapping and iT procurement, the largest cost block to is becoming more important to automate
blueprinting and required solution the provider is clearly personnel relat- processes that reduce staffing levels.
development (custom code) or ed. Cost items typically considered
personalization (in case of an erp include the following: For the Bpo provider, one main optimi-
implementation). • labor to run the outsourced process- zation approach is to leverage econo-
• Migration of process and staff – es; many Bpo contracts today con- mies of scale by aggregating opera-
Costs include physical relocation of tain a clause that provides for a tions, since smaller locations usually
assets, such as furniture, computers, reduction of this cost item over the operate on comparably higher cost per
and files, as well as those staff duration of the contract transaction. if processes from a num-
brought on board by the Bpo provider. • expense to monitor business perfor- ber of these smaller locations can be
mance, as well as quality and effi- consolidated into one location, and at
other related costs include severance ciency of the employee interaction least a part of the process is both
to all other affected staff, training both • Cost for associated general and centralized and standardized, then the
process-operations staff and end administration overhead value of that leveraging is greater.
users, an often staged solution rollout
to the locations or parts of the organi-
zation in scope, and providing first-level process operations account for up to 80% of the Bpo
support for the duration of the transition.
• Migration of IT – Costs include up- provider’s total cost base. Accordingly, these costs are
front software fees, hardware and mainly driven by the provider’s cost of labor and the
infrastructure outlay (where neces-
sary), physical or technical migration, staffing levels needed to run the processes. As a result,
data migration, and solution it is becoming more important to automate processes
deployment.
• Governance – Costs include expens- that reduce staffing levels.
es related to any organization estab-
lished to manage both the transition
project and more permanent, ongoing including respective general and admin-
relationship both on the Bpo custom- istrative charges, process operations
er’s and provider’s side. account for up to 80% of the provider’s
total cost base (see Figure 1). Accord-
process operations ingly, these costs are mainly driven
once operations have been transferred by the provider’s cost of labor and the
to the Bpo provider, the company staffing levels needed to run the pro-
takes over complete execution and cesses. providers operating mainly
managerial responsibilities of the onshore will see proportionately
respective processes. since Bpo higher labor costs than those who use
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 9
10. Figure 3 illustrates these scale effects customer. in fact, customers also tute up to 40% of the provider’s cost
for two typical Bpo processes and frequently say an expected benefit of base in cases where an erp implemen-
indicates how centralization of opera- Bpo is the fact that providers have tation went wrong. By establishing and
tions will enable a significant reduction better access to and benefit more from enforcing some ground rules ahead of
in staff required, especially if the pro- investments in new technology. time, technology-related financial risks
cesses are also standardized. it should are absolutely manageable. one dan-
be noted, however, that complete stan- iT costs typically comprise software gerous practice to be avoided is the
dardization may often be impossible license or usage fees, maintenance and crude and direct translation of preexist-
due to local regulations such as those upgrade expenses, labor costs relating ing business rules into solution require-
imposed on payroll by country-specific to application management, mainte- ments, resulting in the buildup of
legal, tax, and social security regulations. nance and upgrades, integration with numerous interfaces and unmanage-
the Bpo customer’s systems, the oper- able custom code. To have a success-
information Technology ation of data center and physical equip- ful Bpo engagement, it is essential to
in many Bpo deals, a large part of ment (hardware, infrastructure), and all ensure that trade-offs between custom-
the iT needed to provide the out- business-critical system performance ization and long-term cost impacts are
sourced processes is handled by the monitoring. overall, iT typically repre- well understood up front and factored
Bpo provider. since the Bpo provider sents a share of 15% to 20% of the into the overall Bpo decision making.
can potentially leverage significant Bpo provider’s cost base. implement-
economies of scale, its cost base is ing erp is not a banal exercise, and
often much better than that of the Bpo iT costs have been observed to consti-
8
payroll, Time and Attendance
7
employee information management
HR Staff Needed per 1,000 Employees
Country 3
6
5
Countries 1, 4 Total cost of running all Some cost advantages of centralized processes
countries separately can be realized; parts of the processes still
4
have to be run in country-specific mode, without
Country 2 scale effects
3
Centralized and standardized
2 Full effect of shared services can be realized
1
integrated service for all countries
0
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
number of employees in a Country
Figure 3: Economies of Scale for Selected HR Processes²
2. source: sAp analysis of data from Asug, The hackett group, confidential case example (global 500/us$5 billion manufacturing company)
10 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
11. outsourcing governance case and decision making. At first impact of potential exit scenarios
Both on the Bpo customer’s and pro- glance, integration costs appear fully All Bpo contracts are initiated with the
vider’s side, a group needs to be estab- covered, but what about the costs intent of establishing a long-lasting
lished that manages the ongoing rela- incurred by the Bpo customer itself? partnership between the customer and
tionship between the two parties. Also, After all, both the customer and provid- provider. With the sophistication of
the agreed performance measures er need to maintain their respective both sides growing, most partnerships
have to be tracked, reported, analyzed, sides of any interface, and most chang- today are initially designed with long-
and, where necessary, acted upon. es to one end of an interface implicate term perspectives in mind. nonethe-
While the Bpo provider’s governance some rework at the other end as well. less, circumstances can change and a
cost will typically be priced into the maintaining an interface can be an contract might not get renewed even if
overall TCV, a customer’s governance elaborate affair, and the task gets more the partnership is healthy. For example:
cost, which will be in the range of difficult as the number of interfaces • Bpo customer may want to bring
3% to 5% of TCV over the life of increases. sAp research suggests outsourced processes back in-house
the contract, must be accounted for that annual maintenance of an average for strategic reasons
separately. interface in a high-complexity environ- • scale or scope of the outsourcing
ment is three times more expensive arrangement changes over time and
The Surprise Costs – Less than in a low-complexity environment moves out of the provider’s sweet
Obvious, Easily Overlooked (see Figure 4). spot – for example, if the Bpo
arrangement is expanded to coun-
While costs in this group are not secret The sheer number of interfaces can tries not covered by the provider
and should theoretically be included quickly add up and become mind- • partnership could be impacted by
during a diligent Bpo evaluation, they boggling. For example, the sAp® erp a merger or acquisition on either
tend to be less visible than the “usual human Capital management solution the provider or customer side, as
costs” and often overlooked. alone has more than 100 implemented happens when one company merges
and predefined integration points, with another and shifts its Bpo
These cost items include integration including intra–human capital manage- activities to another vendor
expenditures and the capital outlay ment interfaces as well as interfaces
of potential exit scenarios. for cross-hr applications, other erp in any such exit scenario, significant
functions, and external systems. if costs will arise, regardless of whether
integration Costs half of these interfaces, for example, the customer decides to discontinue
most Bpo providers will offer both ini- have to be manually implemented outsourcing the processes or move
tial iT integration and ongoing interface and maintained, an extra cost item of them to another provider. several
maintenance activities as part of their approximately 9% of TCV can be the factors contribute to this situation:
service package. The respective costs result. For more details, please refer
will be priced into overall TCV and to the subsequent parts of this sAp
become part of the customer’s business white paper series.
Integration Complexity Low Moderate High
Number of interfaces designed 20 30 45
Total labor hours 7,340 14,790 46,440
Total labor per interface 367 493 1,032
Figure 4: Interface Implementation Effort as a Function of Integration Complexity in HR3
3. sAp white paper, sAp human resources: Tight integration with multiple solutions, 2003.
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 11
12. • Loss of process know-how – during respective data have to be trans- with processes in the rest of the orga-
the outsourcing process, the Bpo ferred from one provider to another, nization, which is actually one reason
customer can lose most of its as now three constituencies (rather why they are prime outsourcing targets
process-specific knowledge. Conse- than two in the initial setup) are in the first place. Bpo customers
quently, the customer or the new involved. usually assume, if only implicitly, that
Bpo provider will have to build up • New request-for-proposal (RFP) the decision to outsource such pro-
the respective skills and potentially process – potentially a complete cesses has minimal, if any, impact
rehire new staff. With just minor rFp cycle has to be executed, which on the retained organization. A typical
assistance most likely from the for- involves selecting and negotiating example is payroll, which can easily
mer provider, serious costs will be with a new provider. be decoupled from other business pro-
incurred – potentially even more than cesses, including the rest of hr to
the initial transition. According to While many Bpo contracts will get some extent. The integration points can
sAp’s Bpo cost model, these costs extended, Bpo customers are well be handled relatively well through inter-
can add another 10% to the overall advised to include the potential cost of faces between the respective iT
cost of the Bpo engagement. such an exit early in their Bpo assess- systems.
• Redesigned processes – out- ment and to consider risk-mitigation
sourced processes are redesigned strategies. however, even payroll is not completely
and will be well documented during without interdependencies that may
the transition phase of a Bpo proj- The Sneaky Costs – Overlooked impact the cost base of the retained
ect. however, processes change Costs with Potentially Significant organization. For more integrated busi-
over time, especially as the Bpo pro- Impact ness processes, outsourcing will have
vider applies optimization efforts on an even greater impact on the quality
top of the natural evolution most This group includes cost factors that and speed of retained interdependent
business processes undergo. The are difficult to see or predict, but if processes. Consider management of
documentation of such changes, noticed too late, they can easily erode overtime (depicted in Figure 5), which
however, often does not meet the the expected value of the Bpo engage- is part of the frequently outsourced hr
standards set initially. hence a signifi- ment. These “sneaky costs” tend to function of time and attendance man-
cant portion (if not all) of the process have a ripple effect if the outsourcing agement, as another specific example.
blueprinting and design might have to affects the retained organization’s other
be repeated. processes. When determining the ulti- This process has numerous integration
• Technology transition – Transitioning mate cost of the Bpo engagement points with the retained organization,
the Bpo implementation from the for- deployment, Bpo customers should including other hr processes (compli-
mer Bpo provider’s iT systems to also budget in anticipated costs from ance with legal constraints and union
the new environment will have to be scope creep or gliding cost paths, which agreements), finance and accounting
managed, which can open up a cus- occur when certain cost positions processes (accounts payable for sub-
tomer to potentially even more work change over time according to actual contractor payments), and operational
and cost than in the original transi- requirements. processes (production planning).
tion. This can all be exacerbated if
some of the functionality has been effects on the retained organization Cost of errors
deployed through custom code imple- many of the processes that are the every error made during an outsourced
mentation. Complexity also increases traditional focus of outsourcing engage- process has implications not only for
significantly when processes and the ments have limited interdependencies the Bpo provider, who needs to redo
12 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
13. every error made during an outsourced process has incidental expenses may add substantial
costs. Also, not all savings are guaran-
implications not only for the Bpo provider, who needs to teed. negotiated gliding cost paths
redo the task, but also for the retained organization. if the may be difficult to achieve if the Bpo
relationship is not functioning well.
number of errors can be reduced through the technology Finally, you need to recognize and
on which Bpo is based, both the provider and the retained understand the financial dangers of
when cost and complexity start creep-
organization can benefit significantly. ing back into the Bpo engagement
over time in the form of additional inter-
faces, handoffs, and general “shadow
the task, but also for the retained orga- employee satisfaction costs,” as mentioned previously. This is
nization. usually, the detection, assess- in a perfect setup, the outsourcing of especially true in Bpo engagements
ment, and reporting is handled by an processes will go unnoticed by the where initial process design was mostly
employee during his or her normal retained organization. unfortunately, left at its pre-Bpo stage because of
working hours. especially for occasion- this is often not the case. people are reasons such as reduction of blueprinting
al users, the individual impact of errors often resistant to change, and some- cost or having to overcome customer-
will be small; however, overall it times the perception of change in pro- internal resistance to Bpo.
becomes substantial. Consequently, cesses and the people executing them
if the number of errors can be reduced can drive down employee satisfaction
through the technology on which even if there has been a seamless tran-
Bpo is based, both the provider and sition. This is especially true throughout
the retained organization can benefit the transition phase when errors are
significantly. bound to occur more frequently. Those
errors can also receive higher visibility
ripple effects in areas such as payroll. The exact
Commercial Bpo providers have a nat- magnitude of these costs, such as lost
ural incentive to optimize their opera- organizational efficiency due to employ-
tions over time, and as part of many ee dissatisfaction, is difficult to quanti-
Bpo deals they are explicitly required fy. however, well-executed Bpo can
to do so. A provider will make constant tangibly help increase employee
changes to the outsourced processes satisfaction.
and do so independently from the
customer’s setup. however, any scope Creep and gliding Cost paths
change in the outsourced processes it is a common misperception that once
will have an impact on interdependent a Bpo contract is signed, costs are set
processes – and thus potentially on the in stone. instead, several dangers loom
Bpo customer’s cost base. For example, that might drive the price of the Bpo
changes to the previously mentioned services up over time. For one, not all
overtime management process will the outsourced costs are fixed: time
affect diverse retained processes, such and materials expenses, governance
as the ones provided above. costs, one-off projects, and other
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 13
14. Management of Overtime Process (Outsourced) Examples of Required Integration Other Processes (Retained)
• Alignment with production
schedule
Manage time • Checking need for overtime production planning
recording • Feeding approved overtime
into production plan
View time Employee
sheet
Need for No need for
overtime overtime
hr policies
Request
employee
overtime work
• Checking for regulatory
Approve constraints
request for manager • Alignment with union
overtime agreements
• overtime rates
Overtime Overtime Finance & Accounting
approved not approved
Create
Time & leave Inform
absence • management of “time
administrator employee
quota accounts”
• Accounts payable (for
Overtime example, subcontractors)
No overtime • Controlling (activity-based
managed
costing)
Figure 5: Potential Interfaces of Management of Overtime into the Retained Organization4
4. source: sAp Business Consulting hr process repository
14 SAP White Paper – The impact of Technology on Cost in Business process outsourcing
15. CONCLUSION ANd OUTLOOk
Consider All releVAnT CosTs
As previously discussed, companies
considering Bpo as a strategic option Technology has a deciding role in reducing and
should carefully consider the complete
cost picture before embarking on the controlling these Bpo costs, and any respective
journey. As part of the Bpo evaluation, choices made by the Bpo provider have an impact
several cost components need to be
considered that are often forgotten but far beyond the parameters of the agreed total
can have a significant impact on the contract value.
overall profitability of the endeavor.
such items include integration costs,
costs of a potential exit, several possi-
ble types of shadow costs, and costs related sAp white papers address the
that occur during the lifetime due to following aspects:
scope creep or gliding cost paths. • how technology impacts all
Bpo cost components in detail
Technology has a deciding role in • how the costs of different
reducing and controlling these Bpo Bpo delivery models compare
costs, and any respective choices • how technology impacts the quality
made by the Bpo provider have an both of the services delivered by
impact far beyond the parameters of the Bpo provider and of retained
the agreed TCV. in fact, Bpo customers processes
should closely monitor all technology- • how technology can help mitigate
related decisions, as these directly the risks associated with Bpo
impact their own cost base. in addition
to these cost aspects, the impact of For more information about how
technology choices on the quality of, sAp supports Bpo customers
and risk associated with, the Bpo and service providers, visit
engagement must also be taken into www.sap.com/services/bpo.
consideration.
SAP White Paper – The impact of Technology on Cost in Business process outsourcing 15
