Cost Management in IT Outsourcing contracts: The path to standardization

IT Outsourcing contract are a specific and complex set of IT services that require providers to give special attention to manage a long relationship at optimal cost. The challenge is to identify the best cost structure, cost methodology and identify IT services variance, in order to manage a services with the highest level of standardization. Due to the specificity of our work, the research methodology chosen is case study research, applied to seven contracts. Our research showed that IT Outsourcing providers suffer from several sources of variance in services, increasing contract costs. However, due to economic downturn and competition, organizations are pursuing cost reductions, and providers should take this opportunity to trade-off customization (a characteristic of IT Outsourcing contracts) for standardization (a quality of cloud offering). The conclusions of our research show that providers need to have a well developed cost management system, and mechanisms to control services variance in order to gain useful information about how their performance in a contract might affect a different one, because some contracts are silos, but others can use a common structure.