Another way to develop an information system is to outsource (facilities management). Outsourcing is an agreement where an organization contracts for the provision of information system services from other company. Outsourcing vendors target to achieve economies of scales that would allow them to offer the services at a lower cost than the company would provide internally.
Companies choose to outsource their system as to cope with rapid technological changes. Outsourcing the development of a system can be attractive when resources such as people, skill or time are not available to develop the system internally. Outsources can do the job faster, better or less expensive than in-house, full-time staff.
There are 3 types of outsourcing contracts namely fixed price contract, value-added contract and short-term contract.
a) Fixed price contract
An agreement where the company will pays no more than the expected if the outsourcer exceeds the agreed-upon price. The outsourcer will have to absorb the cost.
b) Value-added contract
It is a contract whereby the outsourcer reaps some percentage of the completed system’s benefits. The vendor is expected to share the wealth once the system is in place.
c) Short-term contract
This type of agreement help leave room for reassessment if needs change or if the relationship is not working the way both parties expected. The contract is not specific and rigid and therefore allow for alterations. As a result, both parties able to gain benefits and communicate openly.