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 22 names in this directory beginning with the letter O.
An objective is a specific result that a company aims to achieve through a sourcing contract. See also outsourcing objective.

The term obligation is used in reference to anything that an organization is required to do because of a promise or contract. It refers to a contracted or moral duty that an organization can be forced to perform or penalized for neglecting to perform. 

Obligation management
Obligation management is the ability of an organization to drive the realization of contractual obligations throughout the life cycle of the outsourcing arrangement.

Obligation tracking
Obligation tracking or monitoring refers to the observation of the execution of contracted obligations

An active acquisition of information from a primary source, which may refer to a process or carrying out an operation. Observations can be visual or involve the recording of data via the use of instruments. Observations can be qualitative, that is, only the absence or presence of a property is noted, or quantitative if a numerical value is attached to the observed phenomenon by counting or measuring. Observations are conducted by the client when business critical activities are performed by the service provider

Offshorability is defined as the percentage of in-house scope that can be delivered from an offshore location, and is calculated as the percentage of in-house process FTEs that can be transitioned offshore

The transferring activities or ownership of a complete business process to a different country that is significantly geographically separated from the country (or countries) where the company receiving the services is located. Companies may utilize offshore either through an outsourcing arrangement with a third-party or by establishing their own captive operation in the offshore location

Offshore development center (ODC)
An operation set up for a specific organization by a service provider, which dedicates assets and resources specifically to that single client, in exchange for guarantees of steady work

Offshore GIC / Shared Services Organization
The operation established by a corporation in an offshore geography with the objective of providing support services to the company establishing the operation (vs. providing the services to other companies)

On-demand computing
Form of outsourcing agreement, sometimes called utility computing, grid computing, or computing on tap, that is based on variable payments for variable volumes of variable types of services over a long term that includes at least one refresh cycle for some, if not all, of the underlying technology. Targeted toward enterprise customers, the key element is the scalability of the computing resources—licenses, computers, networks, systems, storage, telecommunications, and asset mangement—that the customer may purchase under the program. The customer’s commitment is equivalent to a subscription or requirements purchasing contract, but payment alternatives may run the gamut from a customer’s purchase, leasing, or payment “per use.”

Ongoing Cost Reductions
Savings in Total Cost of Ownership (TCO) created through automation, process consolidation, simplification, etc.

When the services are provided in the same country in which the buyer is located

Operating Cost
Ongoing expenses associated with administering a business on a day to day basis. Operating costs include both fixed costs and variable costs.

In outsourcing the operating costs consist of a) the costs for the services delivered by the service provider and b) the cost of governing the engagement on a day-to-day basis. The cost of service are typically to a large extent variable cost; they vary with the volume of services provided. The governance costs are to a large extent fixed; they do not vary according to the volume of service. Having said this, one however should note that the cost of governance typically increases when the quality of service decreases. You could the cost of governance are inversely proportional to the quality of service. When the quality of service is low, the natural response of most client organizations is to step up their governance efforts (incl. resources) and hence increase their governance costs.

To operationalize a contract is to put it into operation or use. It is the process of making the contract a living, valuable part of the way you work with your service provider by strictly defining contractual obligations into measurable actions. Contract operationalization is a critical step to bridge the gap that exists between a sourcing strategy / contract and what actually happens day-to-day to turn sourcing objectives into reality.

The idea behind operationalization is that if you want to manage the performance of a contract you need to control the units of performance which are obligations, services, deliverables and cost elements. The process links the contract to everyday work by clarifying obligations and allowing compliance to be measured, empirically and quantitatively. In other words, it's about removing ambiguity in the contract by defining all relevant variables so that the can be acted upon and objectively measured.

Contractual obligations are typically defined in rather generic wording such as:
• provide annual isae 3402 type ii statement;
• run a quarterly user satisfaction survey;
• be an innovative partner;
• perform a benchmark;
• deliver monthly performance report.

Operationalizing makes obligations actionable so they can be followed up and controlled. This includes defining when or with what interval the obligation will be executed, who will deliver the obligation and to whom. These operational aspects are captured in a contract calendar.

The purpose of contract operationalization is to bridge the gap between what is contractually agreed and what gets executed on a day to day basis. The contract is half the story. The other half is execution. Closing the execution gap is to achieving the expected contract value over time.

Order-to-Cash (O2C)
Order-to-Cash (O2C) process is an end-to-end process that includes order management, billing, dispute and deduction management, accounts receivable, aging and collections, and business analytics and reporting

Out-of-Scope Service Request
Request for service that is outside the standard services being provided

Outsourcing of a part, components or actvities of a full process

Output-based Pricing
A system of pricing based on the number of units of output provided in order to deliver a previously agreed-upon service

Outsourcing is the process of delegating a company’s business process to third parties or external agencies, leveraging benefits ranging from possible low-cost labour and improving quality to product and service innovation.

Outsourcing at the Customer Interface
Outsourcing where a provider assumes responsibility for direct interaction with an organization’s customers. This interaction may be in person, over the telephone, via email, mail, or any other direct means

Outsourcing objective
An outsourcing, or sourcing, objective is a specific result that a company aims to achieve when entering into an outsourcing arrangement. Objectives are basic tools that underlie all planning and strategic activities. They serve as the basis for creating policy and evaluating performance.

Although firms may outsource for a wide variety of reasons, the following are the most common ones grouped into 5 categories:

• Savings
- reduce operating costs
- reduce headcount
- free up capital

• Quality
- improve quality of service
- more flexibility and innovation
- access to skill and capabilities

• Control
- improve risk management and risk mitigation
- maintain business continuity
- improve regulatory compliance

• Focus
- focus on core business and value adding activities
- reduce management attention

• Result
- improve customer satisfaction
- alleviate operating constraints
- improve efficiency and reduce costs
- improve quality, flexibility and growth

Expenses that are necessary to the continued functioning of the offshore operations, but not directly related to the execution/volume of work. Includes salaries and training of expat/ general management/support staff, depreciation, etc.