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Projects and Outsourcing: How to set the crucial course at the beginning?

Many mistakes happen right at the beginning of a project, but only become apparent later: The product or service then proves to be too complex for the users, there is a lack of functionality, seemingly self-evident processes can only be realized with considerable additional effort. Or the customer discovers that communication with the employees of his service provider does not work due to language barriers or different ideas about project management and procedures. Particularly in complex IT and outsourcing projects, there are many different expectations with regard to the scope of functions, operation, cooperation between the parties, and so on. If a client invests too little time and effort in the careful selection of standard software and providers, he often experiences unpleasant surprises during implementation.

The decisive points are set at the beginning. That is why complex projects in particular should be carefully planned and organized. After all, many mistakes can be avoided through good preparation, while during the course of the project it is often only possible to limit the damage, which results in many times the costs.

Correct selection of provider and product and service portfolio
If a project enters a crisis, the client often accuses the selected software product of being unsuitable for its needs from the outset. The contractor was able to recognize this and therefore gave incorrect advice during the selection process. The client may have already overlooked the fact that a supplier was not even worth considering because he lacked industry expertise or experience in projects of a comparable size. If, for example, a contractor cannot name a reference customer from the same industry, this can be an indication that he and/or his product or service portfolio is only conditionally suitable for a client.

Realistic expectations
Standard software products and standardized services have limited flexibility, but they are more cost-effective than individualized solutions. Adaptations and individualizations are technically possible, but should remain within limits so that the advantages of a "standard" are not lost again through extensive individualization. Clients (and their consultants) must keep in mind that there is no system or service portfolio that meets all customer-specific requirements. It is necessary to decide on software or service portfolios that come closest to the existing requirements.

On the one hand, they should consider how business processes can be optimized and modified to compensate for the shortcomings of the software or service portfolio under consideration. The expectations of the outsourcing client and the outsourcing service provider do not always coincide either. A service description should be transparent for both sides, gaps and inconsistencies should be avoided as far as possible.

Advice on selection
IT costs are a sensitive issue for clients. New projects are primarily intended to reduce current costs. For this reason, many clients are reluctant to incur additional costs for consultants, even though this could save them money in the medium term. After all, good consulting can help to avoid implementation costs caused by additional adaptation services that would be superfluous if the right preparation and selection were made. In addition, costs for additional consultants are incurred at the latest in the event of project imbalances, and these costs are usually much higher than they would be if the project preparation had been planned and structured.

Clients who have little experience with IT projects and who lack suitable staff should consult a specialist and/or technical consultant during product selection and project planning. Experienced consultants can help reduce excessive expectations to a realistic level and ensure that the client's users know what to expect in the project. Promises and promises made by the sales department can be better scrutinized, and offers can be analyzed for their weak points. Sometimes it is also worthwhile to bring in a consultant for business process analysis, who can assess where it is worthwhile to question internal processes and adapt them to the functionality of a new system. This is usually easier with a neutral third party than with the company's own employees, who are naturally reluctant to give up familiar processes.

Define measurable selection criteria
Unfortunately, when selecting a product or provider, the price and the go-live date are often in the foreground. When it comes to requirements or the service portfolio, clients are happy to rely on indifferent promises instead of drafting specifications or service specifications for the selection of the future contractor and using them to convince themselves of the suitability of the offered product/service portfolio - see also my article "IT outsourcing. What companies need to look out for in the specifications".

The fact that standard products are being used productively by other customers is no sure indication that the product can also meet the company's own requirements. Of course, the successful use of a product by competitors indicates that it is suitable for a particular industry. However, it is better to make the selection on the basis of a specification sheet that is detailed enough to be able to assess the requirements placed on the supplier and its product. The requirements specification can then also form the basis for the functional specification to be drawn up in the first phase of implementation. If the client needs support in creating the requirements specification, he should also make use of external consultants. Various consulting firms specialize in providing support for requirements elicitation and analysis.

Consider ancillary services and systems
When preparing a project, it is worthwhile to look beyond one's own horizons. Which other systems will be affected and what additional expenses can be expected?

  • Ancillary systems: The introduction of a new system often affects other systems and applications that need to be connected - for example, existing complex individual solutions for specific areas of the company. Such connections can usually be realized via interfaces. However, this also means that data exchange must be designed and implemented. Before submitting the final offer, contractors should ask which peripheral systems are to be integrated so that they can calculate a realistic cost.

  • Infrastructure: Even with modern software systems, hardware and/or other infrastructure components can incur considerable additional costs, which the customer should be aware of at the start of the project and which do not only arise during implementation. The performance of a system can depend on correctly dimensioned hardware, which is of decisive importance for user satisfaction.

  • Migration: Not only during implementation, but already during the preparation of a project, both contractual partners should consider whether legacy data must be transferred, whose responsibility the migration is, and who will ensure the consistency and quality of the legacy data. Resources are required for the migration and additional costs are incurred, which should be taken into account when budgeting for the entire project.

  • Project management and training: Often, little attention is paid to project management and training and it is not clarified whether efforts are adequately described and costed. This is dangerous. When projects go awry, it becomes apparent in most cases that the contractors have not given sufficient importance to management. For example, change management and comprehensible project documentation are lacking. During the project preparation phase, the contractual partners should determine what type of project documentation there should be and who is responsible for creating it and training employees.

Prepare employees and management
Many IT projects fail not because of the technology, but because of the people. Conflicts often ignite because communication between the contractual partners is not right, because the project lacks user acceptance from the start, or because management does not give the project the attention it needs.

It then turns out that many problems have their roots in misunderstandings or in the nature of communication (for example, due to intercultural differences or divergent corporate cultures). During project preparation, the contractual partners should think about communication channels, contact persons, project language and the type of document exchange and draft an appropriate set of rules as part of the contract.

The contractor is dependent on the cooperation of the client's employees; especially during conception, testing and acceptance, the contractor cannot do without the client's employees. The client itself must take the necessary measures to ensure that its employees promote the success of the project and do not boycott it. Employees should be prepared for the tasks that await them and be involved in the planning and development of the objective.

An IT project needs the full attention of management - not only during preparation, but throughout its entire duration. If the contractual partners form project committees such as steering committees, they should ensure that a member from the board or management or, in any case, employees from senior management are represented for both sides. Especially if there is a lack of user acceptance, it is necessary to ensure that management is involved. Contractors should also not be afraid to demand this as involvement.

Plan time and budget realistically
Unfortunately, it is more the rule than the exception that IT projects get out of hand in terms of finances and time. This makes arguments about the consequences of delays and the amount of additional work all the more acrimonious. No contractual partner benefits from unrealistic scheduling. Unfulfillable promises lead to resentment and then to crises, which often end in the failure of an IT project. Therefore, deadlines should be agreed upon with caution, and rash promises of deadlines should be critically questioned.

The same applies to budgets and costs. Both parties to the contract can only be helped by a realistic estimate of costs that takes into account all the factors of a project (including a calculation of the effort required for the client's involvement). In particular, the contract partners should consider the following budget components:

  • Customization and optimization of business processes;

  • Procurement and implementation of required add-ons and tools;

  • Migration services;

  • Care and maintenance (e.g., of infrastructure components);

  • other consultants;

  • Participation services of the client.

Choosing the right form of contract
The correct and careful design of the contract should form an integral part of the preparation of the project. This includes considerations about the appropriate type of contract. A contract for work and services is not always the best solution for the client, and a contract for services can also involve considerable risks for the contractor. The service provider is also liable for delays and poor performance in accordance with Section 280 of the German Civil Code (BGB). Many contractual partners also fear the time and costs involved at this point, but these will in no case be as high as the burden of a later legal dispute.

Both contractual partners should pay particular attention to good preparation. It forms the basis of a successful project. We advise clients and IT service providers on project preparation and help them identify and settle the relevant issues. In addition, we support you with specific questions regarding the implementation of the project.

Michaela Witzel, LL.M. (Fordham University School of Law), Certified Expert for IT Law
witzel@web-partner.de