Chapter 10

Question 0

What is a botnet?

Answer 0

botnet is a collection of infected computers or ‘bots’ that have been taken over by hackers (also known as ‘bot herders’) and are used to perform malicious tasks or functions.

Question 1

Name some of the concerns surrounding the use of cloud computing from the financial industry

Answer 1

1. Uncertainty as to whether and how the supplier is complying with the client’s data security policies
2. Uncertainty about the suppliers’ skills training and auditing policies
3. Data proximity – the customer will never know whether its data is held in the same
   databases as that of its competitors, or what dangers this presents
4. Because the customers have no knowledge of where the data actually is, they may be
   unable to answer regulator’s questions

Question 2

What is the most a appropriate offshoring strategy for innovation outsourcing?

Answer 2

Classic offshoring - large number if man hours at low cost.

Question 3

What is considered to be the best offshoring strategy for research and development and investment analysis?

Answer 3

Classic offshoring

Question 4

What are the seven stages of vendor assessment?

Answer 4

1. Form the project team
2. Specify requirements
3. Determine the evaluation criteria
4. Identify companies and packages
5. Send requirements to potential vendors
6. Evaluate vendors (and packages, when appropriate)
7. Negotiate and place orders

Question 5

What consideration do user requirements need to include when selecting a vendor?

Answer 5

1. Functional requirements of the application or service – ‘what does it do?’
2. Volume/performance/availability requirements – ‘How fast does it do it?’
3. Technical constraints – such as permitted or prohibited operating systems, databases, data security requirements, etc.
4. Support requirements – ‘How do we get help and when can we get it?’
5. Budgetary constraints – ‘How much will it cost?’
6. Delivery date constraints – ‘When can we get it?’

Question 6

What is an RFP?

Answer 6

An RFP is a statement of intent to purchase followed by a list of questions covering all of the issues that can be sent to potential vendors for them to reply to in writing. Vendors will need to know the timeline and how the company will make its decision in order to match their capabilities to its needs in the best way. The RFP usually also contains an overview of the current systems infrastructure and a description of the applications that are to be replaced.

Question 7

What types of cost questions should be prompted by an RFP?

Answer 7

1. One-off capital expenditure for the right to use the package or service for a predetermined period
2. One-off capital expenditure for consultancy concerned with essential system enhancements and implementation project activity
3. Annual maintenance and support
4. Whether the amounts quoted include Value Added Tax (VAT) or other local taxes, or
   whether these amounts are excluded from the quotation
5. Whether the amounts quoted include reimbursement of the vendor’s travel subsistence,
   or whether these amounts are excluded from the quotation

Question 8

What is the abbreviated form of an RFP called?

Answer 8

A Request for Information

Question 9

How many references should be supplied by vendors?

Answer 9

At least three. A suitable reference site is an organisation that is using the same package product or outsourced service in the same industry and geographic region as the one being addressed. If selecting a vendor for a bespoke development, then a suitable reference site is a company in the same geographical region for whom the vendor has recently worked in a similar project.

Question 10

As well as a response to the RFP and 3 suitable references. What else should a vendor supply?

Answer 10

The vendor should also be asked to supply a copy of its latest audited accounts, and a draft contract for the service or product to be provided

Question 11

What should vendors be assessed on when possible vendors have responded to RFPs?

Answer 11

Quality of the Answers to the RFP Questions
1. Have all the functional, volume/performance and technical questions been answered in an appropriate amount of depth, or are the answers woolly and vague? Did the vendor seek clarification about any of the questions? Are the answers satisfactory?
2. Has the vendor confirmed that it is able to deliver on a timely basis?
3. Do we now have a clear idea of the level of investment that is needed to purchase this
service or package?
4. Is the vendor’s quote within budget?

Product demonstrations
When selecting a packaged application, it is essential to have at least one demonstration of the package – preferably more than one, and to ensure that the right project team members and other key personnel are able to attend. It is a good idea to ask the vendor to demonstrate using sample transactions or scenarios that apply to the commissioning organisation.
When selecting a vendor for an outsourced bespoke development, then that vendor should be asked to demonstrate something else that is has developed for another company in a similar business area.
When selecting a vendor for an outsourced service, and part of that service involves supplying the commissioning company with, say, transaction entry software, then make sure that this software is demonstrated.
Evaluate the Vendor’s Key People
By this time the commissioning company will have had several meetings with the vendors’ key personnel. The following questions should be asked:
1. Do they act in a professional manner? Are they punctual in attending meetings and do they return calls promptly?
2. Do they have sufficient domain expertise in the areas that they are working in? Has the commissioning company met functional and technical experts, or just members of the sales force?
Evaluate the Vendors’ Financial Status
A qualified accountant should be asked to evaluation the vendor’s audited accounts and raise any
concerns. If there are any, they should be raised with the vendor directly and tactfully. Review the Contract
The contract should be reviewed to see if the terms of the supply of the service are acceptable. Note that, depending upon what type of product or service is being purchased, the contract may not be a single document, buy many documents.
Take up References from Other Users
It is essential to take up references from the reference sites requested in the RFP. This is especially true when commissioning bespoke development or outsourced services, where there is a limit to what can be learned from product demonstrations: but it is still necessary to take up references when purchasing a packaged product.
The commissioning company should be very wary of any vendor who cannot supply at least three references that seem relevant, unless purchasing from a start-up company where it may be the first user of the service or product. If the latter is the case than the principals of the company should be able to supply personal references from previous employers or business associates.
When taking up references, follow these guidelines:
1. Visit the reference site – don’t just take up references by phone or email
2. Ask questions about the following:
a. Functionality - does the product, bespoke development or service that they use do what the vendor said it would do? Does it do what they expected it to do: in what way has it improved the process in their company?
b. System/service performance – does it handle the volumes that they expected it to?
c. Vendor performance – did the vendor deliver on time and within budget? Are help
desk calls usually resolved satisfactorily and promptly?

Question 12

What is a work order?

Answer 12

In the case of a package, a work order may be used instead of a development contract.
In the case of an outsourced development project, work orders are used mainly to vary the scope of the previously agreed development
In the case of an outsourced business process, it is used to request the vendor to carry out work that is outside the scope of the original serve contract.
It obliges the vendor to carry out the specified work in return for the agreed fee

task order -An alternative to a work order

change request - An alternative to a work order

Question 13

What considerations must be made when outsourcing?

Answer 13

1. Selecting a supplier that has the right level of competence in the activity to be outsourced
2. Planning and managing the migration project
3. Drawing up a SLA that states quite clearly the scope of the activity to be outsourced, the
   responsibilities of both the customer and the vendor, the escalation procedures to be adopted when the service falls below the requirements of the SLA, and any financial penalties that the vendor must pay to the customer if the service level falls below the SLA level for an extended period of time

Question 14

What are some benefits of outsourcing?

Answer 14

Specialisation: Enabling a higher quality of service
ABC Investment bank plc. is not a specialist IT company, it would normally delegate the management of some, or all, of its IT functions to a company that is a specialist IT company; this company should be able to improve the quality of the service offered because of the following factors:
1. It is in a better position to recruit highly skilled staff because it can offer them a career path
2. It has a large pool of skilled specialist staff to cover for absences and to share problems
3. It has other customers similar to ABC Investment bank and may be able to leverage the
experience gained by working with those customers

ABC Investment Company’s core competence is in fund management. Because it has outsourced some or all of its non-core operations, its management is now free to manage its core business – it is no longer distracted by these activities, so it is able to concentrate on the following:
1. Improving customer relationships
2. Improving the quality of their core business activity
3. Extending the range of services offered to its customers – innovation
Summary of the Advantages
As result of successful outsourcing, the company should be in a position to deliver new and improved products to customers more quickly and with a lower level of investment
4. It may be in a better position to replace outdated technologies and working methods
Specialisation: Enabling Cost Reduction
The specialist IT Company should be able to reduce ABC’s costs because of the following:
1. It has greater bargaining power when negotiating with its own suppliers
2. It has a larger pool of specialist labour, which means that it can provide cover for absences
without the expense of recruiting temp staff
3. It may be able to carry out some or all of the outsourced functions ‘offshore’ in countries
with lower labour unit costs and/or favourable tax regimes and /or weak currencies
4. It may be able to undertake ‘joint developments’ for more than one customer in the same
industry so that the capital cost of a large software development project is shared by more than one customer
Business Focus: Management is now free to concentrate on its Core Operations

Question 15

Describe possible disadvantages of outsourcing?

Answer 15

Information Security
When an activity is outsourced, sensitive information about customers, staff, investment decisions and position, the firm’s own financial position and its own IP are passed to third parties. The exact nature of the sensitive information that is passed on depends on the type of activity that is being outsourced, such information can be misused and, in an extreme example could be used fraudulently. As a result of a small number of high-profile fraud cases involving US corporations, NASSCOM (the National Association of Software and Services Companies) in India has attempted to address these fraud concerns by creating the National Skills Registry. This database contains personal and work-related information, enabling employers to verify a staff member’s credentials and allowing police to trade the background of workers.
Is the Decision to Outsource Reversible?
When an activity is outsourced, the employees that used to carry out the activity either leave the company or are redeployed within the company. If the company wanted to terminate the outsourcing arrangement at some time in the future, then hiring and entire replacement team might be difficult. If the company is unhappy with the service it receives, it may be easier to change outsourcers than to bring the operation back in-house.
Work, Labour and the Economy
Outsourcing – more specifically offshoring – became a popular political issue during the 2004 US presidential election the political debate centred on outsourcing consequences for the domestic workforce. During his 2004 campaign, Democratic US presidential candidate John Kerry criticised firms that outsourced jobs abroad, or that incorporated in overseas tax havens to avoid paying their fair share of US taxes. In the UK, offshoring decisions that involve the creation of large number of jobs in offshore centres and/or the loss of large numbers of jobs in the domestic economy sometimes generates negative press. It is, however, very doubtful whether such negative sentiment has any serious effect on customers’ willingness to do business with the company concerned.
The Quality of the Service fails to live Up to Customer’s ExpectationsThere are a number reasons why the service that is delivered might fail to live up to the expectations of the management, staff and/or customers of the company that has outsourced its operations. Many of these issues are preventable. They include the following:
1. Poor selection of vendor – the vendor does not have the expertise to carry out the functions.
2. Inadequate SLAs – the SLA either doesn’t cover the real requirements of the service or it defines unrealistically high or low levels of service
3. Communication – the SLA has not been properly explained to staff or customers, therefore their expectations are not the same as those of the service provider. they’re unsure of what to do when something goes wrong
4. Poor project management – managing the transition from in-to outsourcing is a complex project it needs to be managed using an accepted project management methodology such as PRINCE, PMI or one of the other standards described here
5. Inadequately documented systems and working practices
6. Existing systems and working practices are unsuitable for outsourcing
7. Inadequately documented development requirements
Inadequately Documented Systems and Working practices
When an operation is outsourced, the systems that are used to support it may or may not change but the working practices always do. There will need to be different procedures for escalating and resolving problems. It is important that the staff of both companies are provided with comprehensive documentation and training on how to use the systems concerned, how to work with normal and exceptional workflows, and how to escalate and resolve problems.
Existing Systems and Working practices are unsuitable for outsourcing
In an extreme case, it could prove to be the case that a customers’ existing systems and working practices are so company specific and so antiquated that they are basically unsuitable for outsourcing in their current form. In such a case the outsourcing programme should allow for the replacement or some systems and workflows before the operation is outsourced. Both parties should recognise this problem before taking the decision to outsource.
Inadequately Documented development requirements
This is a particular problem for those commissioning software developments that are to be outsourced to an offshore location for the first time. the commissioning company may be had no experience in this method of working before, and the fact that the users can no longer raise or resolve queries by meeting the developers informally and at short notice may come as a culture shock. For a large outsourced development to be successful there needs to be very clear and precise documentation of requirements, and very clear procedures for raising queries and raising change requests. These standards should, of course, be in place for internal developments, as well as outsourced developments, but they become far more critical when development is outsourced, especially if it is outsourced to an offshore location in a remote time zone.

Question 16

What is insourcing?

Answer 16

In this context, insourcing occurs where a company sets up an operation to carry out work that would otherwise have been contracted out. Insourcing often involves the centralisation of activates that have previously been dispersed across a number of business units and geographical territories.

Question 17

Name some advantages of insourcing over outsourcing

Answer 17

1. Centralisation of the activity provides the opportunities to create
   a. Economies of scale
   b. A centre of excellence for the activity
2. Retention of ‘institutional memory’
3. Goals and vision shared with the customer business units
4. Continued employee loyalty/improved career paths

Question 18

Name some disadvantages of insourcing over outsourcing.

Answer 18

Unless insourcing is accompanied by offshoring, there are fewer opportunities for cost-saving due to high employment costs in major financial centres. Outsourcing offers more opportunities for radical change to systems and working practices. With the insourcing model, there is a danger that the firm carries on doing things in the same way that it has always done them.
Senior management may continue to regard the insourced operation as a cost centre, it may have difficulty obtaining budget approval for radical developments.

Question 19

What is offshoring?

Answer 19

Offshoring is defined as the movement of a business process done at a company in one country to the same or another company in another, different country. It is almost always the case that work is moved due to a lower cost of operating in the new location.

Question 20

Why are costs lower when offshoring?

Answer 20

1. Lower salary rates in the offshore location
2. Lower infrastructure costs in the offshore location
3. Lower tax rates in the offshore location
4. The offshore location may have a weak currency compared to the onshore location, and
   the possible availability of government grants and other incentives to set up business in the offshore location.

Question 21

What is near-shoring?

Answer 21

Near-shoring implies relocation of business processes to (typically) lower-cost foreign locations, but in close geographical proximity. Some common examples include:
1. Shifting US based business processes to Canada or Latin America
2. Shifting London based operations either to a lower cost European country, such as Hungary, or to a lower-cost part of the UK such as Northern Ireland
3. Shifting German based operations to countries such as the Czech Republic, Poland or Hungary. These countries have a competitive advantage over their counterparts, the classic outsourcing countries such as India and the Philippines, because German is more widely spoken in these near-shore locations

Question 22

When is near-shoring better than offshoring?

Answer 22

1. There is a shortage of resources in the classic offshoring centres that are able to communicate in the customer’s native language
2. The work involves frequent visits to, or by, the customer – in such a situation the costs of air fares might erode the classic offshore centres’ usual cost advantages
3. The work being undertaken has such a strong customer focus or regulations-driven reporting element, and is tied so intrinsically to the business, that it is harder do draw a solid line between it and the rest of the operation.

Question 23

What is best-shoring?

Answer 23

The idea behind best-shoring is that some services need to be delivered in a location close to the customer, while other services do not. The ‘best shoring’ strategy involves tailoring specific customer care needs to locations that are best suited for these functions. It allows the customer to save on the cost of domestically sourcing the work while at the same time removing the inflexibility of using only one offshore location.

Question 24

In vendor selection process describe the process of determining the evaluation criteria.

Answer 24

In order to make a reasoned selection, the most important (e.g. must-do) requirements must be articulated and the criteria must be prioritised and weighted to allow the suitability of the solutions to be ranked. The financial viability of the vendors and their access to skilled project resources must also be evaluated.

Question 25

How might potential vendors be identified?

Answer 25

1. Internet search engines
2. More specialised online directories – for example, when looking for a vendor who has
   consulting expertise or package products concerned with SWIFT connectivity, then the SWIFT Partner Solutions Directory (at www. Swift.com) lists several hundred vendors under various searchable geographical and functional categories
3. Advertisements and editorial items in trade magazines such as STP Magazine, the Securities & Investment Review and Futures & Options World
4. Attendance at exhibitions and conferences
5. Word of mouth – what vendors have counterparties and competitors used? Have any in-
   house project team members worked at other companies that have recently had to do the same type of evaluation? If looking for a service connected with a particular stock exchange or clearing house, does the exchange concerned have a list of suitable vendors?

Question 26

Name some contract documents necessary to agree on for various types of purchase.

Answer 26

Software licence
Type : Software package

The document grants the customer the right to use the software package for a given period of time, in return for the payment of a licence fee.
Typically, this document may have restrictions about the use of the package for example:
1. The user may only use this product in a given location
2. The licences may expire after a given number of years
3. The licence may restrict the number of transaction to be processed in a given day, week or month.

Software Maintenance Contract
Type : Software package

This document obliges the vendor to provide support for the package in return for payment of a maintenance fee.
Typically, this document may have limitations about the provision of support. For example:
1. Support may be restricted to telephone support and not include site visits which are charged separately
2. Support may either be available 24/7, or it may be restricted to normal business hours/days in the country from where it is provided
3. Support may be restricted to just problem- solving, or it might entitle the user to new releases/upgrades of the package

Development Contract
type : Outsourced Development Projects/Software Package

This document commits the vendor to develop software specified by the customer, in return for payment of development fees
Development fees may be charged on a ‘time and materials’ basis, e.g. $1,000 per day ,or may be on a fixed price basis e.g. $250,000 for the complete development
When development fees are charged on a fixed price basis, the scope for the development needs to be agreed at the start, and the contract will cater for variations. Variations are then dealt with by work orders or task orders

Service Contract
Type: Outsourced Business Process

This document describes that work that is to be outsourced to the vendor in return for payment of a services fee by the customer

Typically, this document may have restrictions about the use of the service. For example:
1. The user may only use this service in a given location
2. The service usually refers to trading volumes, there may be a minimum charge for the first, say 1,000 transactions per day/week/month, and extra transaction will be charged for on a sliding scale.

Service Level Agreement
Type: Outsourced Business Process

A SLA is that part of a service contract in which a certain level of service is agreed upon. The Level of service in this context refers to both the quality of the service and the time deadlines for performing the serviced it may also specify penalties to be paid by either party if the level of service provided fails to reach the minimum standards in the agreement for an extended period of time

Work Order
Type : Outsourced Development Projects/Outsourced Business Process/Software Package

In the case of a package, a work order may be used instead of a development contract.
In the case of an outsourced development project, work orders are used mainly to vary the scope of the previously agreed development
In the case of an outsourced business process, it is used to request the vendor to carry out work that is outside the scope of the original serve contract.
It obliges the vendor to carry out the specified work in return for the agreed fee

Task Order
type : Outsourced Development Projects/Outsourced Business Process/Software Package

An alternative to a work order

Change Request
type : Outsourced Development Projects/Outsourced Business Process/Software Package

An alternative to a work order

Question 27

What are some of the post implementation activities in vendor management?

Answer 27

1. Hand-holding customer staff through the initial ‘live’ period
2. General help-desk support
3. Delivery of new releases of the vendor’s system
4. Specific client-related enhancements
5. Post-implementation review

Question 28

What are some practical steps that a customer can take to pro-actively manage the vendor relationship?

Answer 28

Maintain strong communication links with all vendors. This can be achieved through regular process meetings, user groups, vendor presentations and newsletters.
Endeavour to keep acquainted with new enhancements to software and services, to ensure that they are on the right version and communicate any changes required in order to ensure that the system or service meets their ongoing requirements.
Implement regular systems/service ‘health checks’ to make sure that they are getting the most from the software or service and that they are using and maintaining it correctly.
Monitor service level agreements – many organisations will have agreements in place to ensure that levels of services are appropriate to effectively support their business. These should be reviewed regularly with the supplier, to ensure that they are appropriate and that they are being met.

Question 29

What are song benefits of vendor relationship management software?

Answer 29

These products enable organisations to monitor their spending, terminate contracts at the correct time, monitor and track their costs against benefits gained, and ensure that more informed decisions are made based on quantifiable facts and figures.