Glossary of terms

This glossary is intended to assist you in getting a general understanding of commonly used terms and concepts when dealing with outsourcing and outsourcing governance. We welcome your contribution to further improve and expand the glossary.

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
There are currently 25 names in this directory beginning with the letter A.
A written communication in which the client informs the service provider that he acknowledges the documents, activities, deliverables, results of work or changes, issued for acceptance.

Acceptance Test
A test developed (following reasonable consultation with service the provider) and conducted by the client to test each deliverable to ensure that it complies with the performance/acceptance criteria

Acquired Rights Directive (ARD)
First introduced in Europe in 1977. The original Directive was intended to safeguard the rights of workers by ensuring that workers were entitled to continue working for the transferee employer on the same terms and conditions as those agreed with the transferor employer. Whenever a transfer is within the Directive, contracts of employment run with the undertaking; the transferee cannot take the business without the employees and must take those employees subject to existing employment rights and obligations. Further, a transfer cannot constitute grounds for dismissal, whether carried out by the transferor or transferee, unless there is an economic, technical or organizational reason entailing changes in the workforce. ARD has been modified through the years to address specific circumstances

Activity-based accounting
A form of cost accounting that focuses on the costs of performing specific functions (processes, activities, tasks, etc.) rather than on the costs of organizational units. ABC generates more accurate cost and performance information related to specific products and services than is available to managers through traditional cost accounting approaches 

Activity-based pricing
Clients agree to pay a flat fee to cover the service provider's fixed and variable costs — including hardware and software, labor, infrastructure and administration and maintenance. Activity-based costing is often used when establishing an offshore development center (ODC) or putting together a build-operate-transfer model 

Add-on Technologies
Technology solutions that help buyers plug functionality gaps in existing systems and develop more holistic solutions (e.g. interfaces, applications, reports, workflows, dashboards)

Additional Resource Cost (ARC)
The charge per Resource Unit that is applicable whenever the actual consumption of a defined resource unit by the Eligible Recipients exceeds the Resource Baseline for such resource unit. The total additional charges will be calculated by multiplying the Additional Resource Charge by the number of Resouce Units in excess of the Resource Baseline actually consumed by the Eligible Recipients

Agent of the Client
A party that has express (oral or written) or implied authority to act on behalf of the client. The agent is under the control (is obligated to) the client, and (when acting within the scope of authority delegated by the client) binds the client with his or her acts

A negotiated and usually legally enforceable understanding between the client and service provider with regard to the delivery of products or services. An agreement typically documents the deliverables and specifies the minimum acceptable standard of performance

An aspect of the outsourcing contract's Terms and Conditions. Specifies how any subsequent changes to the deliverables as requested by either party will be handled

Annualized spend
The sum of annualized contract value of all in-progress transactions

Annualized/Annual Contract Value (ACV)
Annual Contract Value (ACV) is the potential annual revenue associated with the transaction and estimated at the commencement of the contract (e.g., sum total of revenues accrued to the service provider from the transaction over the entire transaction term, usually measured in thousands of millions of Euros, divided by the duration of the contract)

Application Development & Maintenance (ADM)
The development and upkeep of the software code for systems, applications and products

Application Hosting Service (AHS)
An assumption of delivery of several cross-tower functions related to operations and support of an application (e.g. SAP)

Application Service Provider (ASP)
An organization that hosts software applications on its own servers within its own facilities. Customers rent the use of the application and access it over the internet or via a private line connection/network. Typically, the service fee is usage based, for example, per user per month. Also other fee components may be involved such as initial set-up cost for a customer specific tailored implementation

Application service provider model
The rental of software to support a business process

Arbitration (Binding and Nonbinding)
When the client and the service provider are unable to resolve any controversy or dispute arising under the agreement between the two parties the dispute may be subject to arbitration. Arbitration is where a mutually agreed upon independent party is contracted to hear both parties position and make a recommendation on the solution. Arbitration may be either binding or nonbinding. Binding arbitration is where the parties are required to accept the recommendation of the arbitration. Nonbinding arbitration is where both parties are not required to acception the recommendation, however it is suggested that they accept it

Areas of risk
Leadmark's Value-led method identifies the following 6 areas of risks to oursourcing initiatives:

Engagement risk
• Strategic risk arises when the service provider’s services, products or activities no longer align with the client’s strategic intent, requirements or expectations. This also included longer term risks, such as losing the capability to execute sourced processes in-house due to loss of talent and knowledge.
• Provider risk arises when the service provider operates in an unsustainable manner (i.e. insufficient access to knowledge) or when service delivery is not in compliance with applicable laws and regulations.
• Relational risk arises from poor communication and management of the engagement.

Delivery risk
• Service risk arises from services, products or activities of a service provider which do not align with contractually defined requirements.
• Financial risk arises when services, products or activities of a service provider generate higher costs or when financial processes are not executed correctly and conscientiously.
• Coordination risk arises from the complexity of the arrangement which refers to the number of entities (e.g. contracts, processes, people, technologies, risks, issues) and relationships that have to be managed simultaneously to realize engagement objectives.

For each of these areas risk can originate from one or more of the following sources:
• People
• Process
• Tools
• External

Activity by to client to get insight in the realization of a defined goal; typically the performance of a system, process or product. Preparation, execution and reporting of an assessment is based on the Performance Control Plan. Objective evidence can be obtained through reviews, tests and inspections

Asset Management
Management of physical assets including space, hardware, equipment, furnitures and fixtures, etc.

The act of transferring/assigning any of the management or obligations of a contractual agreement from one party to another

A formal evaluation of an organization, system, process or product / services.
Outsourcing audits typically take four forms: compliance, security, billing and performance.

An audit can be performed by both the client and the service provider. Prudent governance requires the service provider to perform regular audits (at least once per year) of its service delivery, supporting processes and the way these are managed. The audit has to test actual performance against performance norms agreed with the customer. These performance norms are typically included in the contract.

The audit conducted by the client typically builds on the service provider's audit report. Its purpose is to clarify certain aspects, address gaps or to deep dive into certain areas.

Audit criteria
Audit criteria are used as a reference point and include policies, (contractual) requirements, and other forms of documented information. They are compared against audit evidence to determine how well they are being met. The client uses audit evidence to determine how well policies are being implemented and how well requirements are being followed by the service provider

Audit evidence
Audit evidence includes records, factual statements, and other verifiable information that is related to the audit criteria being used

Audit findings
Audit findings result from a process that evaluates audit evidence and compares it against audit criteria. Audit findings can show that audit criteria are being met (conformity) or that they are not being met (nonconformity). They can also identify best practices or improvement opportunities.