Outsourcing and Negotiation in Project Management

Topics: Negotiation, Outsourcing, Contract Pages: 7 (1520 words) Published: November 9, 2012
The prevailing tendency of organizations is to concentrate on core activities and opt to outsource those activities which are considered to be noncore.

1) Discuss the concept of outsourcing, reason behind outsourcing and its challenges.

Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in house employees. Often, the tasks that are outsourced could be performed by the company itself, but in many cases there are financial advantages that come from outsourcing.

Many large companies now outsource jobs such as call centre services, email services and payroll. These jobs are handled by separate companies that specialize in each service.

Outsourcing is therefore, the process of contracting an existing business function or process of an organization to another independent organization and ceasing to perform that function or process internally, instead, purchasing it as a service.

Reasons for Outsourcing

i. Cost reduction/Cost Savings- outsourcing cuts costs such as labour costs, regulatory costs and training costs. Most companies that provide outsourcing services are able to do the work for considerably less money as they don't have to provide benefits to their workers and have fewer overhead expenses to worry about.

ii. Focus on Core Business- companies are able to focus their money and resources more towards improving the core aspects of their business when outsourced. this allows the outsourcing company to build onto its core functions that keep the business running smoothly.

iii. Access to more Knowledge, Talent and Experience- outsourcing means contracting to an organization that is more specialized in a particular area, e.g., payroll services. this means that the process that is outsourced will be performed in a more efficient and effective manner hence improved services.

iv. Increased profits- due to the fact that some services or processes are outsourced at a cheaper cost, it means that the services/products a company offers will also be provided at an affordable price hence higher revenues. Cost savings and reduction also increases the profits.

Challenges of Outsourcing

i. Eliminates direct communication between a company and its clients especially in instances where customer service has been outsourced. This may prevent a company from building solid relationships with their customers which can lead to dissatisfaction.

ii. The danger of not being able to control some aspects of a company which have been outsourced which can lead to delayed communication and project implementation. In turn, this can cause a company to become highly dependent on its outsource providers which can cause problems or complications should the outsource provider back out on the contract for one reason or another.

iii. Any sensitive information is more vulnerable as there is reduced confidentiality and also the risk of leakage. Outsourcing means that some information needs to be shared with the outsource provider hence confidentiality is compromised.

2) Discuss the significance of negotiation and its approaches to achieve procurement objectives, factors influencing buyer negotiations, strengths and weaknesses of negotiation styles.

Negotiation is dialogue between 2 or more people or parties intended to reach an understanding, resolve point of difference or gain advantage in outcome so as to satisfy various interests of the negotiating parties. It is therefore mutual discussion and arrangement of the terms of a transaction or agreement. It is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise.

Approaches to Negotiation

i. Structural Approach

Structural approaches consider negotiated outcomes to be a function of the characteristics or structural features...
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