An Approach for Portfolio Selection in Multi-Vendor IT Outsourcing

Title data

Fridgen, Gilbert ; Müller, Hanna-Vera:
An Approach for Portfolio Selection in Multi-Vendor IT Outsourcing.
2011
Event: 32nd International Conference on Information Systems (ICIS) , December 2011 , Shanghai, China.
(Conference item: Conference , Paper )

Project information

Abstract in another language

Companies increasingly extend their outsourcing strategies from single-sourcing to multisourcing combining best-of-breed vendors. This paper includes an analytical model to evaluate a company’s multisourcing strategy. The model can be applied for decision support to answer the questions, how many and which outsourcing vendors to
integrate in the implementation of an IT project. We identify an optimal vendor portfolio considering monetary benefits and risk diversification as well as transaction costs arising from the integration and coordination of outsourcing vendors. Based upon a simulation, we find that it makes good economic sense to include a risk evaluation into the multisourcing decision process even if it is subject to misestimation. Therewith, companies are able to avoid unnecessary high risk and consequently a possible high damage. Furthermore, we find that it is better to be too cautious in risk assessment than to be too negligent.