Why outsourcing is worth the cost

September 9th, 2010 by Renu Chopra Leave a reply »

Public sector organisations are leading the way in outsourcing software applications and IT infrastructure to third-party providers, but cost savings are not always the biggest draw.

The Nursing and Midwifery Council (NMC) announced last week that it will outsource its core applications and IT infrastructure to Business Systems Group (BSG) in a deal worth £5.2m over five years.

Elsewhere, Bridgend County Borough Council has renegotiated a deal to host its COA Solutions e5 financial accounting system with hosting company 2e2, saving an estimated £488,000 over the course of the five-year agreement. But this was compared with the cost of the previous outsourcing contract, rather than in-house provision.

The NMC had a large outsourcing contract with EDS, which ended in 2002, but has kept applications and services in-house since then. It will move 50 servers from one of its own datacentres into a BSG facility also in London, as well as the storage area network and all the applications those servers host. The NMC will keep a separate datacentre operational for disaster recovery purposes.

Jolyon Ingham, interim head of ICT for NMC, said actual cost savings compared with in-house provision were negligible – it was the attraction of moving responsibility for IT provision and disaster recovery to a third party, leaving the NMC to focus on providing core services, that won the argument.

“Cost savings are pretty cost neutral. We had a small team of four guys that has been transferred to BSG. But we also used consultants and contractors and it had become very expensive to continue to manage the infrastructure ourselves,” he said.

“When we come to refresh the hardware in two to three years’ time, we will look to buy services rather than make a capital [infrastructure] investment. Infrastructure is more of a commodity these days, and we recognise this.”

All NMC’s software apps will be hosted by BSG, including its OpenAccounts fin ancial management system. The deal also covers systems monitoring and technical design services provided by BSG, as well as support for the NMC’s Exchange email system, its Cisco CallManager IP telephony system and, later, Citrix desktops after a scheduled move to thin client PCs as part of the agreement.

“Being a public body, we are subject to the Data Protection Act (DPA) and so data confidentiality forms a large part of the BSG contract,” he added.

Bridgend County Borough Council is also required to store its data in the UK to comply with DPA and privacy regulations, although it is not subject to Financial Services Authority rules. All its accounting and general purchase ledger information will reside on 2e2 servers going forward.

Although it has had a similar outsourcing agreement with 2e2 going back to 2002, it has recently switched platforms.

“We have been using COA Solutions e5 financial accounting system for a long time now, but this is a move to a completely new delivery platform from the old Unix-based one,” said Steve Durbin, Bridgend council’s group manager for applications delivery.

The e5 software is delivered to up to 300 users who regularly log in and download changes to the Java-based application, which is cached on local PCs. Legacy users of other systems will be brought on board over the next 12 months, as well as users of the council’s purchasing system.

While cost savings played their part in the decision to retain 2e2 during the tender process, Durbin revealed it would still have been cheaper to opt for in-house software provision. Rather, it is the flexibility, reduced management overhead and ease of future scalability that swung the argument, with 2e2 going the extra distance to retain the business.

“They [2e2] would have cost a little more than an in-sourcing solution, [but] it saves us all the hard work and means the accounting department is given a fixed cost for IT,” he said.

Research company Gartner has estimated that the value of enterprise software delivered globally via the software-as-a-service model will exceed $8.5bn (£5.5bn) in 2010, a 14.1 per cent increase over 2009, as a broader range of applications and Web 2.0 integration prove more tempting.

Bridgend is currently considering switching other in-house applications and services to a hosted model, most notably security and threat management.

Source:http://www.sourcingfocus.com/index.php/site/newsitem/2603/

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