Student Version

CHAPTER TWELVE

Outsourcing:
Managing
Interorganizational
Relations

McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All
rights reserved.
Where
Where We
WeAre
Are Now
Now

12–2
 Introduction
Introduction to
to Project
Project Partnering
Partnering
• Partnering
– A process of transforming contractual arrangements
into a cohesive, collaborative team that deals with
issues and problems encountered to meet a
customer’s needs.
• Assumes that the traditional adversarial relationship between
the owner and contractor is ineffective and self-defeating.
• Assumes that both parties share common goals and mutually
benefit from the successful completion of projects.
– Factors favoring partnering:
• Existence of common goals
• High costs of the adversarial approach
• Shared benefits of the collaborative approach

12–3
Project
Project Partnering
Partnering Charter
Charter

FIGURE 12.2
Outsourcing:
Outsourcing: Reclining
Reclining Chair
Chair
Project
Project
Key
Key Practices
Practices in
in Partnering
Partnering Relationships
Relationships
versus
versus Traditional
Traditional Practices
Practices
Partnering Relationships Traditional Practices

Mutual trust forms the basis
for strong working
relationships.
Shared goals and objectives
ensure common direction.
Joint project team exists with
high level of interaction.
Open communications avoid
misdirection and bolster
effective working relationships.
Long-term commitment
provides the opportunity to
attain continuous
improvement.
Suspicion and distrust; each party
is wary of the other.
Each party’s goals and objectives,
while similar, are geared to what is
best for them.
Independent project teams; teams
are spatially separated with
managed interactions.
Communications are structured
and guarded.
Single project contracting is
normal.
TABLE 12.1
 Key
Key Practices
Practices in
in Partnering
Partnering Relationships
Relationships
versus
versus Traditional
Traditional Practices
Practices (cont’d)
(cont’d)
Partnering Relationships Traditional Practices
Objective critique is geared to Objectivity is limited due to fear of
candid assessment of reprisal and lack of continuous
performance. improvement opportunity.
Access to each other’s Access is limited with structured
organization resources is procedures and self-preservation
available. taking priority over total
Total company involvement optimization.
requires commitment from CEO Involvement is normally limited to
to team members. project-level personnel.
Integration of administrative Duplication and/or translation takes
systems equipment takes place. place with attendant costs and
Risk is shared jointly among the delays.
partners, encouraging innovation Risk is transferred to the other party.
and continuous improvement. TABLE 12.1 (cont’d)
 Outsourcing
Outsourcing Project
Project Work
Work
• Advantages • Disadvantages
– Cost reduction – Coordination
breakdowns
– Faster project
completion – Loss of control
– High level of expertise – Interpersonal conflict
– Flexibility – Security issues

12–8
 Best
Best Practices
Practices in
in Outsourcing
Outsourcing
Project
Project Work
Work

Treat Outsourcers as Partners!

Strategies
Strategies for
for Communicating
Communicating
with
with Outsourcers
Outsourcers

STRATEGY
STRATEGY1:
1:Recognize
Recognizecultural
culturaldifferences
differences

STRATEGY
STRATEGY2:
2:Choose
Choosethe
theright
rightwords
words

STRATEGY
STRATEGY3:
3:Confirm
Confirmyour
yourrequirements
requirements

STRATEGY
STRATEGY4:
4:Set
Setdeadlines
deadlines

12–10
 Preproject
Preproject Activities
Activities—Setting
—Setting the
the Stage
Stage
for
for Successful
Successful Partnering
Partnering
• Selecting a Partner(s)
– Voluntary, experienced, willing,
with committed top management.
• Team Building: The Project Managers
– Build a collaborative relationship among
the project managers.
• Team Building: The Stakeholders
– Expand the partnership commitment to
include other key managers and specialists.

12–11
 Project
Project Implementation
Implementation—Sustaining
—Sustaining
Collaborative
Collaborative Relationships
Relationships
• Establish a “we” as opposed to “us vs. them”
attitude toward the project.
– Co-location: employees from different organizations
work together at the same location.
• Establish mechanisms that will ensure the
relationship withstands problems and setbacks.
– Problem resolution
– Continuous improvement
– Joint evaluation
– Persistent leadership

12–12
 Project
Project Completion—Celebrating
Completion—Celebrating Success
Success
• Conduct a joint review of accomplishments
and disappointments.
• Hold a celebration for all project participants.
• Recognize special contributions.

12–13
 Why
Why Project
Project Partnering
Partnering Efforts
Efforts Fail
Fail
• Causes of Partnering Failures
– Senior management fails to address problems or does
not empower team members to solve problems.
– Cultural differences are not adequately dealt with
such that a common team culture develops.
– No formal evaluation process is in place to identify
problems and opportunities at the operating level or to
assess the current state of the partnering relationship.
– A lack of incentive for continuous improvement by
contractors participating in the partnering relationship.

12–14
 Advantages
Advantages of
of Long-term
Long-term Partnerships
Partnerships

• Reduced administrative costs

• More efficient utilization of resources
• Improved communication
• Improved innovation
• Improved performance

12–15
 The
The Art
Art of
of Negotiating
Negotiating
• Project management is NOT a contest.
– Everyone is on the same side—OURS.
– Everyone is bound by the success of the project.
– Everyone has to continue to work together.
• Principled Negotiations
– Separate the people from the problem
– Focus on interests (what to achieve), not positions
– Invent options for mutual gain
– When possible, use objective criteria

TABLE 12.2

12–16
 The
The Art
Art of
of Negotiating
Negotiating (cont’d)
(cont’d)
• Dealing with Unreasonable People
– If pushed, don’t push back.
– Ask questions instead of making statements.
– Use silence as a response to unreasonable demands.
– Ask for advice and encourage others to criticize your
ideas and positions.
– Use Fisher and Ury’s best alternative to a negotiated
agreement (BATNA) concept to work toward a win/win
scenario.

12–17
 Managing
Managing Customer
Customer Relations
Relations
• Customer Satisfaction
– The negative effect of dissatisfied customers on a
firm’s reputation is far greater than the positive effect
of satisfied customers.
– Every customer has a unique set of performance
expectations and met-performance perceptions.
– Satisfaction is a perceptual relationship:
Perceived performance
Expected performance
– Project managers must be skilled at managing both
customer expectations and perceptions.

12–18
 Managing
Managing Customer
Customer Relations
Relations (cont’d)
(cont’d)
• Managing Customer Expectations
– Don’t oversell the project; better to undersell.
– Develop a well-defined project scope statement.
– Share significant problems and risks.
– Keep everyone informed about the project’s progress.
– Involve customers early in decisions about project
development changes.
– Handle customer relationships and problems in an
expeditious, competent, and professional manner.
– Speak with one voice.
– Speak the language of the customer.
12–19
 Key
Key Terms
Terms

Best alternative to a negotiated agreement (BATNA)

Co-location
Escalation
Met-expectations model
Outsourcing
Partnering charter
Principled negotiation

12–20
 Chapter 12.1 Appendix

Contract
Contract
Management
Management

McGraw­Hill/Irwin Copyright  © 2008 by The McGraw­Hill Companies, Inc.  All Rights 
 Types
Types of
of Contracts
Contracts
• Fixed-price (FP) Contract or Lump-Sum Agreement
–The contractor with the lowest bid agrees to perform all
work specified in the contract at a fixed price.
–The disadvantage for owners is that it is more difficult
and more costly to prepare.
–The primary disadvantage for contractors is the risk of
underestimating project costs.
–Contract adjustments
• Redetermination provisions
• Performance incentives
 Types
Types of
of Contracts
Contracts (cont’d)
(cont’d)
• Cost-Plus Contracts
–The contractor is reimbursed for all direct
allowable costs (materials, labor, travel) plus an
additional prior-negotiated fee (set as a
percentage of the total costs) to cover overhead
and profit.
–Risk to client is in relying on the contractor’s best
efforts to contain costs.
–Controls on contractors
• Performance and schedule incentives
• Costs-sharing clauses
Contract
Contract Type
Type versus
versus Risk
Risk
 Contract
Contract Changes
Changes
• Contract Change Control System
–Defines the process by which a contract’s
authorized scope (costs and activities) may be
modified:
• Paperwork
• Tracking systems
• Dispute resolution procedures
• Approval levels necessary for authorizing changes

–Best practice is the inclusion of change control

system provisions in the original contract.