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Due to the specificity of this work, the research methodology chosen is case study research applied to seven contracts.

This research shows that IT Outsourcing providers suffer from several sources of variance in services and increasing contract costs.

However, due to economic downturn and competition, organizations are pursuing cost reductions, and providers should take this opportunity to trade-off customization a characteristic of IT Outsourcing contracts for standardization a quality of cloud offering.

The conclusions of the research show that providers need to have a well developed cost management system and mechanisms to control services variance in order to gain useful information about how their performance in a contract might affect a different one, because some contracts are silos, but others can use a common structure.

Markets are shrinking and managers are focused on optimization and cost reduction. In this context, new opportunities arise for Outsourcing providers KPMG, as well as customer organizations that can re negotiate contracts to reflect changing market conditions or move operations to Outsourcing.

In this paper, the researchers analyze how providers build and manage their cost structure, in order to respond to the specificity of an IT Outsourcing contract, given the actual market pressure for flexible demand and cost reduction.

Generally, IT Outsourcing have two cost natures: capital expenditure CAPEX , based on the underlying physical infrastructure necessary for the execution of the services, and operational expenditure OPEX , based on continuous services during a predetermined period of time.

However, since IT services have a high level of variance, cost allocation and financial performance measurements are difficult tasks.

Moreover, providers need to identify adequate metrics and cost drivers in order to make meaningful comparisons between different contracts.

However, existing research on cost structure for IT Outsourcing contract is scarce. Research Question 2 RQ2 : How the management of an IT Outsourcing contract copes with cost reduction in opposition to the need of revenue increase?

The remaining of this paper is structured as follows. In section 2, the authors discuss what IT Outsourcing and cost accounting are. In section 3, the authors present the research methodology; in section 4 the collected data.

Section 5 discusses the results, section 6 provides the conclusion and the last section reviews future research. In the following paragraphs the authors present the literature review related to the research questions.

In the following section, the focus is laid on the three main theories most referred to as to Outsourcing decision: Transaction Cost Theory TCT , Power and Politics and Agency Theory, and their success factors and risks identified.

As indicated by Hancox and Hackney , p. When organizations start the decision process to determine whether to outsource, they can base their decision on one or several theories, the most referenced in literature being: Transaction Cost Theory TCT , Power and Politics and Agency Theory.

An agency relationship is defined as a contract under which one or more people the principal s engage another person the agent to perform some service on their behalf, which involves delegating some decision making authority to the agent.

In this relationship, both parties want to maximize utility, which is a good reason to believe that the agent will not always act in the best interests of the principal, since both can have conflicting interests.

Since then, the decision to use external entities to manage internal information systems and the people that operate them represent an option for many organizations to optimize costs and operations.

During the decision process, managers can consider a wide set of factors that have been identified and studied in the past decades by academic researchers Dibbern et al.

During the decision process, organizations define the degree of outsourcing that best suits their needs. According to the same study, high levels of outsourcing are related to lower levels of success.

Outsourcing Configuration After the main decisions are made, such as the selection of the provider, the degree of outsourcing and contract duration, organizations need to deal with contract configuration.

Outsourcing Cost Management Accounting is the major means of organizing the information about economic activities. All organizations have to comply with accounting standards, national and international, each with a different purpose and involving data gathering at different levels of the organization.

Cost management is used to describe the set of activities in planning and controlling, which incorporates the continuous reduction of costs.

Consequently, these activities are linked with revenue and profit analysis made at the management accounting level. Cost management can be divided into three main areas: first, cost perspective, in which costs are generated in organizational activities, product or project development and setting prices.

Second, cost allocation, when costs are assigned to a specific cost object. The methodologies are: activity-based costing ABC ; Grenzplankostenrechnung GPK ; lean accounting; life-cycle costing; job order costing; Kaizen continuous improvement costing; process costing systems; resource consumption accounting RCA ; standard costing and target costing IFAC, Costs can be classified according to several categories: fixed, variable, direct and indirect.

These categories are not exclusive since they can be combined; for example, a cost may be fixed and indirect, or variable and direct.

Figure1 presents the main functions of an accounting system and relates the management accounting system to cost classifications, which can be influenced by the costing perspective and costing methodologies.

Cost classification can be direct or indirect, and then grouped as type of cost, which can be fixed or variable, with two possible natures of cost: capital expenditure CAPEX , related to investment, hardware and buildings, or operational expenditure OPEX , related to equipment maintenance, materials, labour, etc.

COBIT has two processes directly related with costs. This ensures that costs are recorded, calculated and allocated to the required level of detail by business requirements.

Research Methodology After the first phase of research, based on problem statement and literature review, the authors used a research configuration centred on case study research CSR.

CSR epistemologically focuses on a single or few research objects and is an empirical investigation of phenomena within their global environmental context, in which the unit of measurement of CSR is usually associated with the concept of an entity Yin, Additionally, Yin notes that in CSR data collection possibilities can be limited due to technical, legal, or privacy reasons Yin, , pp.

Although some authors criticize CSR for its lack of external validity, the depth and detail of findings supplants the importance of external validity and the method can deal with a full variety of evidence such as documents, artefacts, interviews and observations.

Thus, it allows a comprehensive analysis of the topic under investigation Yin, , pp. Research Configuration Research configuration was leveraged by previous literature review that allowed the creation of an interview agenda to support and lead discussions with practitioners IT service managers.

The interactivity of the method chosen as opposed to what would happen in a quantitative methodology also afforded enough flexibility to discuss interesting or unexpected topics that emerged during the conversation, allowing richer data to be obtained.

Research configuration was developed to allow the analysis of multiple case studies. One of the reasons that Yin indicates a preference towards multiple case studies is that external validity can be strengthened, depending upon the results.

Replication logic is sought in the selection of the sampled cases. Cases that are seen to be different are iteratively compared and contrasted.

As recommended by Eisenhardt K. Participants and Cases Analysed The authors analysed a set of seven cases developed by a major Portuguese provider of IT Outsourcing services.

All interviews followed the same protocol. Each IT Outsourcing deal was analysed for the occurrence or non-occurrence of the constructs under investigation, contract reports and interview sessions with service managers, which lasted between one hour and half to two hours.

Notes and audio recorded discussions were transcribed for analysis. Data collection by the authors was carried out for seven months, between and However, as they had the unique opportunity to study real cases, the results may be used to identify common patterns with future formal modelling to validate these patterns Lee, Table 2 presents the lines of direct costs identified, in which the type of cost is clearly defined as fixed or variable as well as the nature of cost as CAPEX or OPEX.

A short description of the cost line is provided. The explanation is that costs will be fixed if the provider is able to foresee the governance, SLAs and penalties costs, based on contract configuration.

If not, both costs are variable. However, according to the provider, the variance in effort of governance model meetings, escalation process, reporting , SLAs and penalties costs are not billed to the customer.

However, despite the SLAs limits, customer pressure increases via formal and informal channels and many times we have to augment our response capacity.

Consequently, we have to deliver a higher SLA with no financial retribution, but if we fail on the SLA, the customer demands the penalty.

This could be minimized if the concept of bonus was accepted by customers, but until today none of our contracts has that concept implemented.

Table 5. Environmental Factors with Impact on Costs Developed by Authors Environmental Factors Description Organizational Culture The need to adapt to the customer's organizational culture Geoghraphic distribution The location of customer sites will determine higher or lower variance in costs Country Culture The need to adapt to customer country culture Multilingual Support The need of multilingual support can set higher or lower costs The provider used in this research is nationwide in Portugal, which allows it to have access to different labour costs in different cities, for instance between Lisbon and Oporto.

Additionally, the provider stated that an IT Outsourcing contract configuration is also based on several types of professionals with different labour costs.

This is due mostly to experience, knowledge and time of hiring, since professionals hired before are more expensive than professionals hired after that date.

Table 6 shows the factors inherent to labour. Table 6. Labour Factors with Impact on Costs Developed by Authors Labour Factors Labour Market Factors Labour Time Horizon Description The use of low labour countries or regions, where the services provided will set higher or lower costs of human resources Human resources can be hired for different periods of time, with different costs Permanent, Contract Labour Type of Contract Human resources can be hired for different types of contract, with different costs Permanent, Contract, Project, Task Labour Date of Hire Many IT professionals who were hired in the past earned higher salaries than they do today.

This factor directly influences cost and team building Another issue that has impact on costs is the use of capital expenditure CAPEX with specific amortization periods, which are essentially related with equipment and software licensing.

In many cases the equipment is owned by the provider, by the customer or even a mixed configuration. For example, the software might belong to the customer, but the hardware to the provider.

Additionally, size makes metrics worse, because it is assumed that large contracts benefit from scale effect, but in general they are also more complex, which increases management time and costs.

Table 7 identifies the demand as a factor with impact on costs. However, in general the provider charges the customer for extra services.

Table 7. Second, Hidden costs group in Table 3,which can be divided into three sub- groups, transactional costs associated with contract governance that include monitoring paperwork reporting requirements.

These costs are often assigned to overhead accounts, rather than allocated to products departments directly. Contingent costs associated to penalties, fines and future liabilities are costs that may or may not be incurred at some point in the future.

Examples of this are penalties for underperformed service level agreements and future remediation costs. Intangible costs, like corporate image, community and consumer relations, are difficult to estimate and are associated with maintaining corporate image, good relationships with investors, employees and customers, among others.

Demand costs group, in Table 7, is presented as a factor with impact on costs and revenue. The provider needs to answer market demand and to do that, a supply chain needs to be prepared.

The analysed cases showed that approximate costs are calculated for the full contract duration at market prices when the provider intends to sign the contract, allocating the resources to answer customer requirements and using the same approach described by Brealey for investment projects.

In this study, the comparison between contracts shows that IT Outsourcing contracts have a common cost structure grounded on direct and indirect costs that are adapted for every contract based on scope, but the concept of cost driver is not used.

Findings In order to obtain the answers to the aforementioned questions, the authors mapped the results with literature review. Add the files you created in point 2 to the folder created in point 1.

The PC Keyboard and its Controller. Whenever a user presses or releases one of its keys, the keyboard sends a scancode to the KBC. The KBC puts that code in a register, and generates an interrupt, if configured to do so.

It is then up to the interrupt handler to read the scancode from the KBC. Although the KBC can be used in polled mode, this is seldom the case.

A key's scancode depends only on the position of that key in the keyboard. The conversion between the key's scancodes and the code of the character on that key is usually done by the operating system using a keymap.

For example, by default Minix 3 uses the US keyboard keymap. The Minix 3 images you are using in LCOM use a "handcrafted" Portuguese keymap, because Minix 3 does not include any in its distribution.

The advantage of this approach is clear for keyboard manufacturers: a key in a given position, always generates the same scandcode, independently of whether the keyboard uses the US layout or another layout.

Furthermore, the scancode generated when a key is pressed is different from the scancode generated when that key is released.

To distinguish between them, we call the former make code and the latter break code. Usually, the break code of a key differs from the make code of that key in that the MSB of a break code is set whereas that of the make code is not.

For example, the make code of the ESC key is 0x01 whereas its break code is 0x Using different make and break codes provides a lot of flexibility.

For example, a keyboard needs not generate a different scancode for a key when the Shift key is pressed. Rather, it generates a make code for Shift and it is then up to the keyboard driver to do the necessary mapping between the reception of the Shift make code and the reception of its break code.

Most PC's scancodes are one byte long, although some special keys have longer scan codes. Two-byte long scancodes usually use 0xE0 as their first byte.

This prefix is used in both the make and the break codes. Again, the difference between the make and the break codes of a key is in the MSB, now of the second byte of the scancode.

Some keyboards have keys that generate even longer scancodes, but you need not worry about it in LCOM.

The scancodes that we have described are known as Set 1. However, the KBC can be programmed to translate Set 2 scancodes, received from the keyboard, to Set 1 scancodes, so that the keyboard device drivers need only know about Set 1 scancodes.

Minix 3 keyboard driver configures the KBC to translate Set 2 scancodes, thus, as long as you do not change the KBC configuration in that respect, your code needs to handle only Set 1 scancodes.

In modern PCs the communication between the keyboard and the processor is mediated by an electronic component that provides the functionality of the i, the keyboard controller KBC.

The communication between the KBC and the keyboard actually, a microprocessor embedded in the keyboard is by means of a serial communication protocol that is not the object of this lab.

In this lab, you need only to interface with the "i", which was thoroughly described in class. In addition to read the class notes.

There are several other resources on the Web, including those mentioned in the class notes. You may wish to take a look at these, if you find the material I wrote insufficient.

Minix 3 Notes. When Minix 3 boots, its terminal driver configures the KBC and installs its own keyboard interrupt handler.

This way, users are able to login to Minix and use the different virtual terminals. On one hand this is great: you do not need to configure the KBC.

On the other hand this raises an issue: how can your code read the scancodes? A solution to this issue, is for your driver to subscribe the KBC interrupts, as described in Section 5.

As a result, the standard Minix 3 KBC interrupt handler will not be notified of the occurrence of KBC interrupts, thus preventing it from interfering with your code.

Both the KBC and the keyboard may take some time to respond to a command. For example, IBM's specification of the i requires the keyboard to respond to a command in 20 ms.

Thus your code should not expect to get a response immediately after issuing a command. A simple approach is for your code to wait indefinitely, or until the KBC reports a time-out.

A more fault-tolerant approach is for your code to give enough-time for the KBC or the keyboard to respond, retry a few times on time-out, and finally give up.

Given that the time intervals to consider are in the order of tens of ms, it is not appropriate to use sleep.

Instead, you can use the function tickdelay of Minix 3's libsys as follows:. This function is similar to sleep in that it blocks the process that executes it for the time interval specified in its argument.

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