IT-BPM ENGAGEMENTS

Module 3

Fundamentals of
Business Process Outsourcing 101
Am I Protected?
• Why is a business contract important?

• How does a contract protect your business?

• For a contract to be effective, what should be

indicated in its terms and conditions?

• And therefore when dealing with a

contractor/service provider how can you protect
your business through a contract?
Topical Overview

• Client-Vendor Relationship, Attributes of

• IT-BPM Contract

• IT-BPM Contract Financials

• Regulatory Requirements
Module Learning Objectives
• To describe the attributes of a Client and Service Provider
Relationship

• Define the following: IT-BPM Contract, SOW, MSA, SLA, KPI

• Enumerate the five (5) core elements of a IT-BPM Contract

• Define and differentiate CAPEX and OPEX

• Enumerate and define what are the IT-BPM Contract

Financials

• Enumerate the different regulatory requirements

Client-Service Provider
Relationship
Attributes ~ SOW ~ MSA ~ Core Elements
Client-Service Provider
Relationship: Attributes
Client company is concerned with:

• Quality transition of processes

• Efficient operation of business functions that were once
handled in-house

Service provider company is concerned with:

• Scope of service
• Performance measures
• Benchmarks to ensure objective standards in assessing
work quality
Therefore, as a result of these relationship attributes, the
IT-BPM contract is a unique,
“tailor-fit” agreement captured in a document
that resembles a performance contract.
The IT-BPM Contract
• A business process management(IT-BPM) contract is a formal
agreement between a client and a service provider to take
over a “pre-agreed portion” of the client's business
operations.

• This “pre-agreed portion” is documented in the contract as

the scope of work (SOW).

• The IT-BPM contract, with all its attachments, assumptions,

and documented agreements, is referred to as the master
services agreement (MSA).
The IT-BPM Contract:
Master Services Agreement
Definition: Covering agreement that summarizes terms
applicable to every job-order with the service provider

Main elements:
A.Service to be provided

B.Performance management, issues, change management

C.Country laws

Groups (A) and (B) are the “operational” elements, used day
to day. Group (C) generally “just-in-case” terms.
The IT-BPM Contract:
Scope of Work

Definition: Describes specific work to be delivered,

by when, at what cost

Considerations:
−Can be similar to a “job order”

−Is generally an attachment/addendum to a Master

Agreement, points to covering terms

−May state that in case of terms inconsistency, the SOW or

Master Agreement supersedes
The IT-BPM Contract: Core Elements

• Service to be rendered or provided as documented in the

Scope of Work (SOW)

• Performance standards expected from the service provider;

Service Level Agreements (SLA), and, Key Performance
Indicators (KPI)

• Timeline of the contract; start date (“go live”), and, duration

• Costs to the client

• Other Specific Operational Requirements

The IT-BPM Contract: Core Elements

Service to be rendered or provided as documented in

the Scope of Work (SOW)
• Out-bound sales calls
• In-bound inquiries or subscriptions
• Delivering food or flowers or mail
Performance standards expected from the service
provider; Service Level Agreements (SLA), and,
Key Performance Indicators (KPI)
• “Handle Time” and “Average Handle Time”
• Sales attainment
• Customer satisfaction rating
The IT-BPM Contract: Core Elements

Timeline of the contract; start dates (“go live”),

and, duration.
• It is a detailed schedule of when the transition period
starts and when the service provider assumes control of
the contracted processes
• In terms of type per duration; most contracts are
typically multi-year contracts, however and when
deemed most effective, on-demand contracts may also
be put into effect

Costs to the client

• Refers to the payment made by the client to the service
provider for honoring contractual agreements
The IT-BPM Contract: Core Elements

Other Specific Operation Requirements:

• Who will provide the service
• Qualifications of personnel
• Location of operations
• Outline of reporting procedures, decision-making, and
escalation of problems
• Legal provisions (e.g., non-competition, confidentiality)
The IT-BPM Contract: Core Elements
• S_____ to be rendered or provided as documented in the
S____ of W___ (SOW)
• P__________ standards expected from the service provider;
S______ L____ A_________ (SLA), and, K__ P__________
I_________ (KPI)

• T_______ of the contract; start date (“go live”), and,

duration

• C____ to the client

• Other Specific O__________ Requirements
IT-BPM Contract
Pricing Models
Fixed Price ~ Time & Material
The IT-BPM Contract:
Pricing Models

1. Fixed Price:
• This pricing model is easy to plan and more predictable
than other pricing models.

• A fixed, pre-agreed price per unit is negotiated (e.g., a

fixed price per call or a fixed price per transaction)

• Advantages for service providers: it is known in advance

what will be paid and what will be delivered

• Advantages for clients: provides greater cost certainty

• Disadvantages: several risks with capital requirements

and lower flexibility
The IT-BPM Contract:
Pricing Models

2. Time and Material.

• The price for service is based on the time and material

that was used.

• Used when a service is very flexible and it is not

predictable in terms of how much time and material is
needed.
• In some cases, a maximum price for the service is
negotiated by the client/ customer to build in some
control or safety level.

In practice, it is often a mix of the above mentioned pricing

models that is used.
 IT-BPM Contract
Financials
CAPEX-OPEX ~ Process Costs ~ Loaded Costs
CAPEX and OPEX

CAPEX (or Capital Expenditure) is a business expense

incurred to create future benefit. Expenditure on assets like
a building or the physical space, machinery, equipment or
upgrading existing facilities so their value as an asset
increases.

OPEX (or Operational Expenditure) is the money the

business spends in order to turn inventory into output
(throughput). These are operating expenses which also
include depreciation of plants and machinery which are used
in the production process.

Those expenditures required for the day-to-day functioning of the

business, like wages, utilities, maintenance and repairs fall under
the category of OPEX
CAPEX and OPEX
Components of Process Cost

Process costs associated with roles (activities-

processes-tasks) that may be outsourced via the
offshoring outsourcing strategy

1.Labor cost

2.Direct costs

3.Indirect costs
Components of Process Cost

1. Labor Cost:

• Compensation
• Benefits
• Bonuses
• Incentives
Components of Process Cost

2. Direct Costs:

• Employee Development (Training), Employee Relations

Programs

• Employee Tools/ Equipment; desktop computers,

communications

• Coordination and Management: travel, representation,

meetings, and, workshops
Components of Process Cost

3. Indirect Costs

• Infrastructure: indirect costs for network, mail, and other

shared employee services, rental, depreciation/
amortization

• Other charges: head office or regional shared cost

allocation, interest cost, foreign exchange gains/ losses
Components of
Loaded Annual Cost

Loaded Annual Cost:

1. Compensation: Salary and Bonuses

2. Benefits: Training, Health and Life Insurance, Profit

Sharing, Pension Matching, Worker’s Compensation,
Employer share of payroll and Social Security taxes

3. Infrastructure: Facilities, Venue Rent, IT Support

Regulatory Requirements
BOI Qualification & Requirements ~ PEZA
Regulatory Requirements

Adherence to Government Regulations

(External):

-Board of Investments (BOI)

-Bureau of Internal Revenue (BIR)
-Bureau of Immigration
-Department of Labor and Employment (DOLE)
-Pag-Ibig Fund
-Philippine Economic Zone Authority (PEZA)
-Securities and Exchange Commission (SEC)
-Social Security Services (SSS)
-Data privacy Law
Regulatory Requirements

Industry/ Company Regulations

(Internal):

- Institutional and operational standards/ policies/ guidelines

- Service provider implements own regulations
External Regulatory
Requirements - BOI

Board of Investments

• A Republic of the Philippines agency created under the

Department of Trade and Industry.

• It strives to attract direct investments into the country to

contribute to economic growth and jobs creation in the
Philippines
External Regulatory
Requirements - BOI
BOI Qualification

A Philippine enterprise can register their project with the

BOI if the proposed activity is listed as a preferred project
in the current IPP. The said enterprise may engage in
domestic-oriented activities in the IPP whether classified as
pioneer or non-pioneer
External Regulatory
Requirements - BOI
BOI Qualification (Continued)

However, an activity which is not listed may still be

entitled to incentives if the following conditions
are met:
• At least 50% of the production is marked for export
(for 60% Filipino-40% Foreign-owned enterprises); or
• At least 70% of production is marked for export
(for more than 40% Foreign-owned enterprises)

Any outsourcing company is

Qualified under 100% export
External Regulatory
Requirements - BOI
BOI Qualification (Continued)
• For foreign-owned firms or those whose foreign investment
exceeds 40% of the outstanding capital stock who can
engage in domestic-oriented activities, can only be
registered with the BOI if they propose to engage in an
activity listed or classified in the IPP as pioneer.

• However, if it fails to meet the pioneer classification, it can

likewise opt to be an export-oriented firm to qualify for BOI
registration. However, this time, the export requirement is
at least 70% of actual production
External Regulatory
Requirements - BOI
BOI Requirements:

• DTI Registration: Sole Proprietorship

• SEC Registration: Corporation, Branch Office, Regional
Headquarters
• Audited financial statement and Income Tax Return for the
past three years (if applicable)
• Board Resolution to authorized company representative
• Accomplished Application Form 501 and Project Report
External Regulatory
Requirements - BOI
BOI Requirements:

• ___ Registration: Sole Proprietorship

• ___ Registration: Corporation, Branch Office, Regional
Headquarters
• Audited f________ statement and I_____ T__ R_____ for
the past three years (if applicable)
• B____ R_________ to authorized company representative
• Accomplished Application Form ___ and Project Report
External Regulatory
Requirements - PEZA
PEZA, The creation of

• The development of Special Economic zones throughout the

country, and the very competitive incentives available to
investments inside PEZA Special Economic Zones are
embodied in the Special Economic Zone Act of 1995
(Republic Act No. 7916), a law passed by the Philippine
Congress.

• Promote Philippine investments, extend assistance,

register, grant incentives to and facilitate the business
operations of investors in export-oriented manufacturing
and service facilities inside selected areas throughout the
country proclaimed by the President of the Philippines as
PEZA Special Economic Zones.
External Regulatory
Requirements - PEZA

Qualification

• Export-oriented enterprises that are found in any of PEZA

special economic zone
External Regulatory
Requirements - PEZA

Requirements

• Duly accomplished and notarized PEZA application form and

anti-graft certificate.
• Corporate Profile (including that of parent company, if
applicable)
• Board Resolution authorizing the filing and designation of a
representative
• Securities and Exchange Commission SEC Certificate of
Registration, Articles of Incorporation and By Laws (if not
available, submit draft of Articles of Incorporation)
• Project brief(i.e., Information on Market, Technical,
Financial and Management aspects of the project to be
registered)
External
Regulatory Requirements

Data Privacy Law – Republic Act No. 10173

An act protecting individual personal information in

information and communications systems in the
government and the private sector, creating for this
purpose a national privacy commission, and for other
purposes
Internal Regulatory
Requirements - Industry
Industry Specific Regulations - Control of communication
channels and information systems: ARTICLE 16- (1)
The communication channels and information systems of the
bank shall be controlled to ensure that information obtained
within the bank is reliable, complete, traceable, consistent,
in a suitable format and character to meet the requirement,
and accessible by relevant units and personnel in a timely
manner

Industry Specific Regulations - Auditing of partnerships

subject to consolidation: ARTICLE 34- (1)
Banks shall take all necessary measures to ensure that their
internal audit units can inspect all activities and units of
their consolidated partnership without limitation
Learning Check/ Quiz

1. Describe the attributes of a Client and Service Provider

Relationship.

2. Define the following: IT-BPM Contract, SOW, MSA, SLA,

KPI

3. What are the five (5) core elements of a IT-BPM Contract

4. Define and differentiate CAPEX and OPEX

5. What are the components of process cost?

6. What are the five (5) BOI requirements?

Group Activity
Group Activity

• Each group should come up with an SOW and MSA for

their respective businesses

• We have 30-Minutes to Prepare both the SOW and MSA

• Output (SOW and MSA) to be written on flipchart

• Each group has 30-Minutes to Present

Group Activity
Presentation and Q&A