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Banks failing to perform due diligence on IT outsourcing deals

11 July 2006  |  6211 views  |  0 keyboard

Only 43% of financial institutions have undertaken any form of due diligence before outsourcing IT operations, according to research conducted by PA Consulting Group.

A survey of 38 financial institutions found that almost half recognise IT outsourcing as a way to achieve business transformation, but banks are not treating IT outsourcing deals like other areas of the business, such as mergers and acquisitions, and are failing to perform adequate due diligence.

The majority - 72% - of clients wished they had increased focus on ability to deliver on promises at the outset.

PA Consulting says a piecemeal approach and a lack of responsibility taken for deliverables means results are below what could be expected. The consultant calls for banks to apply accepted rules from elsewhere in the business to IT outsourcing projects. Effective groundwork must be carried out at initial stages to ensure both the contract and relationship are right.

Commenting on the research, Fons Kuijpers, head of IT sourcing, PA Consulting Group, says: "There is no excuse for IT outsourcing deals to go wrong in a mature market. Yet, even now, many IT outsourcing deals are doomed before they start because of poor business cases where key items such as costs for the retained organisation have been omitted.

"Equally worrying, suppliers and clients have different expectations of the desired outcome. This is largely due to the clients’ inability to articulate clearly what they seek to achieve from the deal, and partly due to suppliers pursuing their own agenda."

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