What is the most important aspect of working with your client? The answer is: Its understanding what they need. It’s a common principle. What is the most important aspect of outsourcing? Of course, its making sure your vendor understands your needs. It’s all about effective communication.
So, you’ve decided to outsource part of your basic business package to someone else. You’ve checked them out and performed your analysis of whether it makes sense to you. In some cases, that’s running calculations such as ROI, and in other cases that’s an Executives instinct on what they think is best. However you may have arrived at the decision, the question of this article is how should you manage them.
It’s all about communication and setting yourself up for success. Let’s go through the ABC’s and 1-2-3’s of it.
There are 5 stages of any project according to the Project Management Institute. Using PMI© as a guide we will break the management of the outsourcing into these elements for organization and simplicity’s sake.
Stage #1. Initialization:
Goal – This is the first step. Ask yourself, what is it that you are trying to accomplish? Define your goal with a one or two sentence statement that the entire project is measured by. Make it concise. Use the principle of an “elevator pitch”, which is a concise statement of what your business is that you can describe to a person in the time it takes to travel one floor in an elevator that leaves them understanding what you do. In this case, it’s your concise goal statement.
Example: An Executive has decided to hire out the preliminary steps of considering a new market. He needs to keep it quiet because he knows it will disrupt his team who is working at maximum capacity. The company operates tugboats and the Executive wants to know if it’s worthwhile opening a 10-boat operation in Canada. He has long since felt it might be worthwhile (ROI of 15% or more), but now it’s time to find out once and for all, and if it is worthwhile, can he achieve his goal for less than $10M capital expenditure? His stated goal therefore becomes: “Can I open a 10-boat operation in Canada for under an “all-in” $10M capital expense and maintain a 10% ROI?” achieved within 18 months from start of activities. It can’t be an ambiguous goal like “Is it feasible to open an operation in Canada?” There is nothing definable, no measuring stick. Be concise.
Scope: Define, in writing, your scope of work. Be concise and define needs and expectations. Be sure to give the detail that you need them to have.
Example: Using the example above, what you need to do is define the project. “Can existing tugboats be transferred from California to the West Coast of Canada; be operated there in one, two, or three ports; and gain enough work to keep them at a 60% utilization rate over the next 5 years? Define the above:
What factors are included in the ROI calculation? For instance, is the transit there included, or considered a sunk cost. What about depreciation on the vessel in the United States or costs to enter and operate in Canada?
How does this company calculate utilization rate? Is it measured over a 24-hour day period, or only 8, 12, or 16? Is it calculated only as time away from dock, or only paid time with a ship?
Where are the vessels located in California? There is a big transit time difference between Crescent City and San Diego resulting in a large cost and time differential.
Is the preference to operate from a single port or multiple ports? If it’s multiple ports, what is the maximum number of vessels that you would prefer operating at one port.
What are the keys to seeing if a port is feasible? Perhaps water depth that allows the tugs to operate in. Perhaps commercial traffic. Perhaps whether there is leasable pier space. Known downtime due to weather, or seasonable use of port?
The key is to give enough information that everyone measures the results the same. It does no good to choose 3 ports that are too shallow or have no traffic, so you must define how to measure. An example might be to give a daily operating cost for each vessel. You can’t know if you are profitable until you understand your cost, but don’t complicate it, just use a standard all in figure for now. In our example, let’s just say that each vessel operates at an average of $15K/day whether its sitting at the dock or under power.
Remember, the more “givens” you give, the better your answer will be. You are just doing a high-level assessment at this point and you don’t want your consultant to have to guess at all these things.
Now, you as the Executive, understand what you want and it’s time to go out and start to let your outsourced consultant begin to take over. You have a good defined goal and scope, and you should be able to attract a candidate now. They can see you have put some thought into it and it’s a likely project. It needs to be held confidential from your own team and competition so ask the candidate to sign your standard Non-Disclosure Agreement.
Stage #2. Planning: The next step is planning. The consultant is reviewing your scope and stated goal. They are asking questions and understanding what it is that you need. As they ask questions, they are developing a plan on how they will approach the task. One of the questions they will ask early on is: When does this need to be done by? There could be lots of answers but let’s use our example above. The Executive has just finished his quarterly Board meeting where he was asked about future development/expansion plans. He wants to be able to go to the next Board meeting with some sort of analysis in hand. This defines his timeline. He has 2-1/2 months to complete a high-level analysis. Of course, to be ready for his meeting, he can’t be handed the report the day before so what he wants are………Milestone-Updates. Work together on milestones and how you define those. For example, the milestones might be to determine all possible ports; define all ports with enough commercial traffic; permitting and related regulatory requirements; development of high level schedule of implementation; and financial analysis. Each of these milestones are major elements in the project and having some of that information prior to the end of the project may be important.
Now, armed with this information, you and your consultant can have a discussion of cost. The consultant now has the defined goal, the scope and related definitions, and a timeline with defined milestones. Negotiate your contract and define payment terms (e.g. Time and Materials with travel reimbursement). Also, be sure to define how often to see time chits, what is expected on a time chit, and how often the consultant will invoice. Your consultant is under your NDA and you are ready to go, but be sure to tell them who they can talk to in your organization, if anyone. Be sure to establish regular schedule of communication either by phone, in-person, or by email.
Stage #3. Execution. Now the rubber meets the road. Everyone has a well-defined scope of work and understands how to move forward. Its critical now that all questions be tracked so don’t allow emails to just fire back and forth. Either set up an RFI [Request for Information] system with numbered requests, or set up a shared document (such as Google docs) where a question can be asked and answered in a tracked fashion. The Executive should be able to respond to questions within 24 hours, or if they have no answer that can be the response. The consultant must be careful to ask only relevant questions and be respectful of the Executive’s time.
The Executive in our example must respond to questions in a timely fashion, however for the most part he begins the monitoring process while the consultant executes the work.
Stage #4, Monitoring: The Executive did his homework and worked with the consultant to develop a mutually agreeable schedule with defined milestones. Taking the small amount of time up front to do this will save a tremendous amount of time and angst later. Keep a list of the agreed upon dates handy and as the dates approach, talk to the consultant. Keep the consultant focused on the next milestone, and the big picture. The natural tendency for any project is to move slightly off track as obstacles present themselves, but the Executive must help keep the consultant pointed in the right direction or help establish new rules to accommodate the obstacles.
It’s in this monitoring process that the savvy Executive is looking to hear things, positive or negative, that will make them rethink the project. In our example, the Executive might hear that the permitting process will take 3 years for foreign flagged vessels, and either that changes the entire approach or may the project a non-starter. By staying abreast of developments against his original plan, the Executive can make decisions on the fly. He may cancel the program early and save himself money if it’s not headed where he thought it would go; or he can adjust as the obstacles present.
Stage #5, Closeout. If communication has been regular and fruitful, then closeout is simple. Everyone has agreed to the goal, and how often billing is to happen; so, if everyone adheres to the agreed upon deal, then closeout is simple. If something happened where one of the parties deviated from the plan, then the deviation should be very clear. As soon as you see a deviation during the process, be sure to note it in writing to the consultant. The object should never be to “catch” them; but rather it should be about ensuring you get you wanted.
Managing the outsourcing process need not be scary or daunting, but it should be an opportunity seeking process. It’s all about communication; begin by being effective in giving it, receiving it, and processing it. Its defining things so all understand. Its working together towards a common goal, and treating your consultant as a valued resource. It’s about holding the consultant accountable towards the established milestones and be sure to have him respond specifically to the goal. By working together towards a common goal, you may very well find that the consultant provided you an opportunity that your in-house team could never have provided.
In our example, the Executive is well prepared to enter his next Board meeting with some real data. He can respond intelligently to questions, and make forecasts. The Executive and the Board can work together to determine if it’s a go, or no go. If it’s a go, then it’s all about developing the scope again, redefining the next set of milestones, and determining timeline. It’s a reiterative process, just with a higher level of detail. This next step can be either taken in house, or continued with the outsourced consultant. Often, it’s the outsourced consultant that can take it to the next step, where when the handoff is made; then in-house employees don’t need to create and invent, but rather simply operate, something that is likely to be more successful for them because it’s what they do every day.
David Ashton at Ashtonco LLC™ is a well know subject matter expert in contracting and project development for over 30 years in several related fields. For inquiries, comments, or questions, please contact him at David.Ashton@Ashtonco.com. Please also review the www.Ashtonco.comwebsite for other blogs and useful information. ©2017, Ashtonco LLC™.