IT-BPM Contracts: Client-Service Provider Relationship

IT-BPM Contracts: Client-Service Provider Relationship

• The client company prioritizes a quality transition of processes and the efficient operation of business functions previously managed in-house.
• The service provider focuses on scope of service, performance measures, and benchmarks to maintain quality standards.
• IT BPM contracts are agreements tailored to resemble performance contracts based on attributes of the client and service provider.

IT BPM Contract

• A formal agreement between a client and service provider to manage a "pre-agreed portion" of the client's operations.
• The "pre-agreed portion" is detailed in the contract through the scope of work (SOW).

Master Service Agreement (MSA)

• It serves as the IT-BPM contract with all associated attachments, assumptions, and documents.
• It's a covering agreement condensing terms applicable to each job order completed with the service provider.
• Main elements include service to be provided, performance and change management and country laws.

Scope of Work

• A formal document defining work activities, deliverables, and timelines for specific client tasks.
• Describes specific work, delivery timelines, and costs, similar to a "job order".
• Typically an attachment or addendum to a Master Agreement, referencing the covering terms.

Core Elements of IT BPM Contract

• Service to be rendered or provided, detailed in the Scope of Work, is the primary component outlining tasks for the service provider, such as outbound sales calls, inbound inquiries, or delivering goods.
• Performance standards include Service Level Agreements (SLA) and Key Performance Indicators (KPI) to assess performance, with change management processes for contract modifications, for example "Handle Time",Sales attainment or customer satisfaction rating.
• Timelines specify the contract's duration, including start dates and the transition period, which can be multi-year or on-demand.
• The cost to the client involves payments to the service provider for contractual obligations.
• Other considerations include service provider roles, personnel qualifications, operational locations, reporting procedures, legal provisions like non-competition and legal requirements that both parties must comply with, termed country laws.

Pricing Models

• Fixed Price: A contractual agreement with a predetermined value for services provided, making it easy to plan and predictable.
• Time and Material: A contract where the client pays for time and materials spent, commonly used in construction and product development with undefined scopes and high risks, payment id based on the cost of time and materials used.

IT-BPM Contract Financials

• It encompasses all monetary aspects related to the outsourcing agreement.
• Capital Expenditure (CAPEX): business expense for long-term investments in assets like property and equipment that provide future benefits.
• Operational Expenditure (OPEX): money spent to turn inventory into output, including costs related to day-to-day activities like salaries, utilities, and maintenance.

Components of Process Cost

• Labor Cost: sum of all wages, employee benefits, and payroll taxes. It includes compensation, health and retirement benefits, bonuses and incentives.
• Direct Cost: expenses directly traceable to a product or service.
• Indirect Cost: expenses not directly traceable to a product or service.

Component of Loaded Annual Cost

• Compensation: salary and bonuses.
• Benefits: training, health insurance, profit sharing and pension matching.
• Infrastructure: facilities, venue rental, and IT support.
• Regulatory Requirement: rules imposed by a government entity. Regulations impact how organizations manage their business, employees, and customer interactions.

Adherence to Government Regulations (External)

• Essential for businesses to avoid legal issues, maintain compliance, and protect their reputation.
• Government agencies include the Board of Investment (BOI), Bureau of Internal Revenue (BIR), Bureau of Immigration, Department of Labor and Employment (DOLE), Pag-Ibig Fund, Philippine Economic Zone Authority (PEZA), Securities and Exchange Commission (SEC), Social Security System (SSS), and Data Privacy law.

Industry/Company Regulations

• Regulations imposed by the industry to standardize practices, which includes institutional and operational guidelines and service provider regulations.

Transition Management

• Activities implementing the movement of processes from client to service provider after a BPO contract is signed.
• It focuses on migrating functions from the client's location to the service provider.
• Requires effective communication and a variety of skills and competencies.

Two Strategies

• Lift and Shift: moving a matured process to a service provider, which involves moving the current process without changes and re-engendering to achieve efficiency gains
• Re-engineer and Migrate: radically redesigning the business process for dramatic improvements in cost, service, and speed, which is useful when the process is broken or requires significant change.

Transition Pitfalls and Risks

• Inadequate investment, unclear scope of work, training shortcuts, unclearly defined roles and not retaining the experts are risks.

Measuring Transition Success

• Technology Readiness: readiness of hardware and software.
• Manpower Readiness: readiness of operating staff.
• Transition Effectiveness: measured through financial benefits and team performance.

Document Readiness

• Helps migrate smoothly and efficiently with proper documentation.
• Inputs: resources, information, and materials with sources, methods, timing, and contingency plans.
• Processes: describe workflows with industry standards, handoffs, timelines, and procedural updates.
• Output: final products meeting company standards via quality control checklists, formats, and deadlines.
• Communication: ensuring contact information and update procedures are clear with communication channels.
• Supervision: monitoring, reviewing, and adjusting processes via review checklists and control levels.

Work Shadowing

• Spending time with someone performing a task to learn how to do it, used in the IT-BPM industry as a "learning-by-doing" activity.