Outsourcing and Negotiation in Project Management

The prevailing tendency of organizations is to concentrate on core activities and opt to outsource those activities which are considered to be noncore. 1) Discuss the concept of outsourcing, reason behind outsourcing and its challenges. Outsourcing is the act of one company contracting with another company to provide services that might otherwise be performed by in house employees. Often, the tasks that are outsourced could be performed by the company itself, but in many cases there are financial advantages that come from outsourcing.
Many large companies now outsource jobs such as call centre services, email services and payroll. These jobs are handled by separate companies that specialize in each service. Outsourcing is therefore, the process of contracting an existing business function or process of an organization to another independent organization and ceasing to perform that function or process internally, instead, purchasing it as a service. Reasons for Outsourcing i. Cost reduction/Cost Savings- outsourcing cuts costs such as labour costs, regulatory costs and training costs.
Most companies that provide outsourcing services are able to do the work for considerably less money as they don’t have to provide benefits to their workers and have fewer overhead expenses to worry about. ii. Focus on Core Business- companies are able to focus their money and resources more towards improving the core aspects of their business when outsourced. this allows the outsourcing company to build onto its core functions that keep the business running smoothly. iii. Access to more Knowledge, Talent and Experience- outsourcing means contracting to an organization that is more specialized in a particular area, e. . , payroll services. this means that the process that is outsourced will be performed in a more efficient and effective manner hence improved services. iv. Increased profits- due to the fact that some services or processes are outsourced at a cheaper cost, it means that the services/products a company offers will also be provided at an affordable price hence higher revenues. Cost savings and reduction also increases the profits. Challenges of Outsourcing i. Eliminates direct communication between a company and its clients especially in instances where customer service has been outsourced.

This may prevent a company from building solid relationships with their customers which can lead to dissatisfaction. ii. The danger of not being able to control some aspects of a company which have been outsourced which can lead to delayed communication and project implementation. In turn, this can cause a company to become highly dependent on its outsource providers which can cause problems or complications should the outsource provider back out on the contract for one reason or another. iii. Any sensitive information is more vulnerable as there is reduced confidentiality and also the risk of leakage.
Outsourcing means that some information needs to be shared with the outsource provider hence confidentiality is compromised. 2) Discuss the significance of negotiation and its approaches to achieve procurement objectives, factors influencing buyer negotiations, strengths and weaknesses of negotiation styles. Negotiation is dialogue between 2 or more people or parties intended to reach an understanding, resolve point of difference or gain advantage in outcome so as to satisfy various interests of the negotiating parties. It is therefore mutual discussion and arrangement of the terms of a transaction or agreement.
It is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise. Approaches to Negotiation i. Structural Approach Structural approaches consider negotiated outcomes to be a function of the characteristics or structural features that define each particular negotiation. These characteristics may include features such as the number of parties and issues involved and the composition or relative power of the competing parties.
In this approach, there’s an emphasis on the means parties bring to a negotiation. Power is thus the central determining factor in negotiation. In this view, the relative power of each negotiating party affects his/her ability to secure their individual goals. However, other factors such as negotiating skills can play a key role in shaping negotiated outcomes. Therefore, victory in negotiations does not always go to the party that is more powerful. Another limitation of structural approaches is their emphasis on taking positions.
Negotiators should be aware that a blind attachment to winning from a negotiation regardless of the resulting satisfaction of other parties, can be a poor long term strategy if it means that the other side will lose its will or ability to maintain its side of the negotiated agreement. ii. Strategic Approach Here, the emphasis is on the role of ends (goals) in determining outcomes. Negotiators are viewed as rational decision makers with known alternatives who make choices guided by their calculation of which option will maximize their ends or gains.
Actors choose from a choice set of possible actions in order to try and achieve desired outcomes. It’s grounded in the belief that there is one best solution to every negotiation problem hence look for best solutions from all perspectives of a negotiation. iii. Behavioural Approach Behavioural approaches emphasize the role that negotiators’ personalities or individual characteristics play in determining the course and outcome of negotiated agreements. It explains negotiations as interactions between personality types. It therefore, highlights human tendencies, emotions and skills.
It may emphasize the role played by arts of persuasion, attitudes, trust, perception or misperception, individual motivation and personality in negotiated outcomes. iv. Integrative Approach Negotiations are viewed as interactions with win-win potential. It looks for ways of creating value so that there is more to share between parties as a result of negotiation. Uses objective criteria, looks to create conditions of mutual gain and emphasizes the importance of exchanging information between parties and group problem solving. It thus calls for participants to work jointly to create win-win solutions.
It involves uncovering interests, generating options and searching for commonalities between parties. Objectives of Negotiation for Procurement 1. Obtain the quality specified- through negotiation, buyers and suppliers are able to reach a consensus on quality required for the products/services. 2. Obtain a fair and reasonable price. 3. Create a long term partnership with a highly qualified supplier- through negotiation, an organization is able to identify which supplier it best relates with hence creating a long term relationship. 4.
To get the supplier to perform the contract on time- delivery date schedule for quantity and quality specified should be realistic. It’s important that buyers negotiate delivery schedules which suppliers can realistically meet without endangering other requirements of the purchase. 5. To exert control over the manner in which the contract is performed- buyers need to negotiate for controls which will assure compliance with the quality, quantity, delivery and service terms of the contract. Factors Influencing Buyer Negotiations 1. Type of Buyer All buyers are not equal.
Buyers have different acquisition objectives, growth and competitive pressures, availability of capital and the attendant costs, risk tolerance and adeptness at negotiating deals that will impact the amount they are willing to spend on procurement. 2. General Attractiveness of the Company Naturally, an asking price that is below market valuation will make a supplier more attractive. Also, an asking price that is in close proximity to a company’s fair market valuation is also attractive. Therefore, factors that make a supplier attractive include: • Strong management A strong balance sheet • High growth rate • Leadership or dominance in the market Such factors will attract buyers since the supplier will be viewed as dependable or reliable. 3. Financial Parameters A buyer’s financial parameters that determine what to be paid include: internal cash available for procurement and the amount they are willing to invest in a single procurement deal. 4. Relative Negotiation Skill and Bargaining Leverage of the Parties As a buyer, the amount of money you will pay will be influenced by your negotiation skills, bargaining leverage and time constraints.
For example, if the products/services are required urgently, then you might not have enough time to bargain for a good deal. Ultimately, the greatest power possessed by both the buyer and seller is to walk away or end the negotiation process. 5. Buyer’s Experience with Prior Suppliers The amount of money that a buyer is willing to pay is influenced by prior experience. If the buyer paid a high price in the past and the supplier failed to deliver, they will think long and hard before offering an overly generous price and vice versa. 6. Inherent Risk Factors and the Buyer’s Tolerance
Risk can be defined as the possibility of a bad outcome or the uncertainty of a desired outcome. Tolerance of risk is a buyer’s willingness to accept and manage risks that can come about say due to a delayed or even failed delivery. When it comes to negotiation, the biggest risk is overpayment then the product/service procured does not meet the specifications or is not even delivered. 7. General Market and Economic Conditions Economic and market conditions strongly influence buyers. Favourable economic conditions means that buyers are willing to spend more; unfavourable economic conditions means that buyers will reduce on their spending.

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