A Quantitative Model for Understanding Multiple Vendor IT Outsourcing

Abstract

In this research, we analyse information technology (IT) outsourcing decisions involving multiple vendors and apply modelling techniques to systematically evaluate such outsourcing decisions. We take costs of in-house production, outsourcing, and coordination into consideration simultaneously. Further we also consider the performance of vendors. To make our work more adaptable, we make different assumptions on the interaction of different jobs. For a case considering the interaction of a pair of jobs at a time, a linear model is formulated. An example problem is solved using a practical spreadsheet based optimiser and the managerial use of this model in decision support is emphasised. For a case considering multiple-way interactions among jobs, we formulate a non-linear model. We discuss how to reformulate and solve an equivalent linearised model. An example problem is also presented for illustrative purposes.