How can the internal scope and cost of services be calculated to ensure that the scope of outsourcing is well defined?
This is one of the most critical part of structuring an outsourcing arrangement. Scope drives Service, Price and Risk. Since scope is defined based on activities, functions and processes, it will not neatly follow the General ledger of most companies but will likely cross department and cost centre lines. A good way to arrive at the internal cost is to conduct a high level Activity Based Cost analysis. The results should be projected for the term of the outsourcing arrangement under consideration (e.g.: 5 years). The advantage of this approach is that it can be easier translated into activities, functions, processes and people that may be affected by the outsourcing arrangement.
