Course No.

: SMFBPO1 Fundamentals of BPO

NIPSC-SOM-BSBA
First Semester 2020-2021

Module 3: Fundamentals of Outsourcing

Lesson 1: Client-Service Provider Relationship, The IT-BPM Contract: Pricing Models

Introduction

In this module, you will be introduced to different attributes for a secured client-service
provider relationship and different pricing models to consider in the IT-BPM contract.

Read the discussion and answer the questions that follow. Perform the activity and
submit via messenger or email @[email protected] for BSBA students. For BPA students,
submit your output to Professor Grace Barnuevo.

Learning Outcomes: Upon completion of this Module, you shall be able to:

1. To describe the attribute of a Client and Service Provider Relationship;

2. Define IT-BPM Contract, SOW, MSA, SLA and Service Provider;
3. Enumerate the five (5) core elements of a IT-BPM Contract.

Discussion:

Client-Service Provider Relationship

Let us define first who the client company is and who is the service provider company.

Client company is refers to the main operators; the company that decides to have an external
party perform one or more of its business process. Service Provider on the other hand, refers to the
company that executes the business process on behalf of the client also known as vendor. 2

Client Company concerned with the quality transmission of processes and efficient
operation of business functions that were once handled in-house while Service Provider
concerned with the scope of service, performance measures and benchmarks to ensure
objective standards in assessing work quality.

As a result of these relationship attributes, the IT-BPM contract is a unique, “tailor-fit

agreement captured in a document that resembles a performance contract.

The nature of outsourcing is when a client company fully entrusts or turns-over the
successful delivery of a service formerly handled in-house to either a third-party or shared
service center provider or vendor company. What are at stake are business sensitive issues like;
company reputation and profitability. An IT-BPM contract is created for the benefit of both
client or buyer and the vendor or service-provider.

IT-BPM Contract

A business process management (IT-BPM) contract is a formal agreement between a

client and a service provider to take over a “pre-agreed portion” of the client’s business
operation. This “pre-agreed portion” is documented in the contract as the scope of work
(SOW). The IT_BPM contract, with all its attachments, assumptions, and documented
agreements, is referred to as the master services agreement (MSA).

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Master Service Agreement

A Master Service Agreement is defined as the covering agreement that summarizes

terms applicable to every job-or with the service provider. Meaning it is a contract that
contains generic terms regarding requirements and obligations of the contracting parties which
in this topic are the client and the service provider. The main elements that covers MSA are
service to be provided; performance management, issues, change management; and country
laws.

Scope of Work

Scope of Work describes specific work to be delivered, by when, at what cost. Meaning,
it is a formal document that captures and defines the work activities, deliverables, and timeline
a vendor must execute in performance of specified work for a client. The SOW usually includes
detailed requirements and pricing, with standard regulatory and governance terms and
conditions. The following are the to be considered for the SOW: can be similar to a “job order”,
is generally an attachment/addendum to a Master Agreement, points to covering terms and
may state that in case i=of terms inconsistency, the SOW or Master Agreement supersedes. 1

IT-BPM Contract: Core Elements

These core elements empower the relationship between the client and the service
provider.
 Service to be rendered or provided as documented in the Scope of Work
Example:
- Out-bound sales calls
- In-bound inquiries or subscriptions
- Delivering food or flowers or mail
 Performance standards expected from the service provider; Service Level
Agreements (SLA), and, Key Performance Indicators (KPI)
Example:
- “Handle Time” and “Average Handle Time”
- Sales Attainment
- Customer satisfaction rating
Performance standards expected from the service provider we are inferring to
criteria that are critical that service provider is able to consistently attain. A service
provider that calls for another company regarding directory assistance sets the
performance standards at an average of sixty (60) seconds to complete one call. If
the agent hits the average, he/she delivers what is expected from him. If he/she
fails and takes more time to finish a call that makes him/her inefficient and would
incur the company some added cost.
 Timeline of the contract; start date (“go live”), and duration.
It is a detailed schedule of when the transition period starts and when the service
provider assumes control of the contracted processes. In terms of type per duration;
most contracts are typically multi-year contracts, however and when deemed most
effective, on-demand contracts may also be put into effect.
 Cost to the Client
This is refers to the payment made by the client to the service provider for honoring
contractual agreements.
 Other Specific Operation Requirements:
- Who will provide the service
- Qualifications of personnel
- Location of Operations
- Outline of reporting procedures, decision-making, and escalation of problems
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 - Legal provisions (e.g., non-competition, confidentiality)
Other specific operational requirements, we are referring to very specific
contractual details that protect both the client and service from ambiguity. 1
IT-BPM Contract Pricing Model

There are two pricing models that will be discussed here: the fixed pricing model and
the time and material pricing model.

Fixe Price

This pricing models is easy to plan and more predictable than other pricing
models. A fixed, pre-agreed price per unit is negotiated (e.g., a fixed price per call or a
fixed price per transaction). This pricing model is advantageous for service providers
since it is known in advance what will be paid and what will be delivered. For clients, it
provides greater cost certainty. However, fixed price models have disadvantages also
like several risks with capital requirements and lower flexibility. Let’s take this for
example to quickly understand pricing models in every terms; you and your group mates
decide that you will be having your next group meeting at McDonald. There is no way to
predict with one-hundred percent (100%) certainty what you and peers will order when
you arrive at McDonalds. On the off chance that you all decide to order the same
combination value-meal you can predict exactly what the total cost will be. Similarly,
because the pricing model is fixed to begin with, there is absolutely no way that you can
get a price-off if you request that the pickles in your burger be removed and the drink
replaced with one of a lower value. 1

Time and Material

In this pricing model, the price for the service is based on the time and material
that was used. It is used when a service is very flexible and it is not predictable in terms
of how much time and material is needed. In some cases, a maximum price for the
service is negotiated by the client/ customer to build in some control or safety level. The
Time and Material pricing model can be better understood if we take a closer look at
establishments that primarily offer “made to order” products and services. For
example, tailoring shops that specialize in wedding attire or printing shops that makes
invitations for events. In each example, the client’s choice of raw materials and
complexity of design will have a direct impact on cost. 1

Companies utilize both pricing models. This gives them greater control and flexibility in
engaging their own respective clientele.

Summary

The nature of outsourcing is when a client company fully entrusts or turns-over the successful
delivery of a service formerly handled in-house to either a third – party or shared service center service
provider or vendor-company. What are at stake are business sensitive issues like; company reputation
and profitability. An IT-BPM contract is created for the benefit of both client or buyer and the vendor or
service-provider.

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Assessment

Answer the questions below: (Answers must not be less than 100 words)

1. Describe the attributes of a Client-Service Provider Relationship.(15 pts.)

2. Discuss briefly the following: IT-BPM Contract, SOW, MSA, SLA, KPI. (15pts.)

Your answer shall be evaluated using these criteria:

 Content . . . . . . . . . . . . . . . . 5 pts.
 Organization of ideas . . . . . 5 pts.
 Language facility . . . . . . . . . 5 pts.
Total . . . . . . . . . . . . . . . . . . 15 points

TO DO: Define the following terminologies:

1. Non-compete agreement
2. Confidentiality
3. Amortization
4. Bonus
5. Incentives

References:

1. Fundamentals of Business Process Outsourcing 101 Teacher’s Guide. IT & Business Process
Association of the Philippines
2. Daly, C. (2015, Jan. 14). The BPO Client-Vendor Relationship. Retrieved from
https://currandaly.com/client-vendor-relationship/

-END OF MODULE 3, LESSON 1-

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