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Pricing Model for Infosys BPO limited.

Analysts estimate that while less than 5% of offshore contracts are currently outcome-

based, this trend will pick up in 2013. A!!"#$ estimates that 10% of total reenue

is comin& from outcome-based contracts'pricin& for the (ndian #utsourcin& (ndustry.

asscom beliees that the industry is be&innin& to moe beyond time-and-materialspricin&. About )0% of the industry*s total transaction alue now comes from fi+ed-

price deals irrespectie of the number of man hours spent. espite the outcome-

based model in prominence since last four years, the olume did not pick up in (ndia.

/his model is best suited for e+istin& clients and for new clients who hae a clear

understandin& of the model and in this models both endors and clients should ensure

that the scope of the en&a&ement and the outcomes are clearly defined.

/he success of this model lies in the understandin& of the customers business model,

operations and industry nuances and how to mana&e risk inoled at all sta&es. isk is

hi&h for the endors and they char&e premium and since they cannot wait for

payments till the business outcomes, only apportion of the reenues are bein& done on

the outcome-based pricin&. usiness outcomes are time consumin&. /he clients and

endors should hae a common basis for future alue creation and endors should be

clear as to how much risk he can bear and how well he knows his own processes and

business. #ther e+ternal ariables also hae to be taken into account and for the model

to succeed both the client and endor should hae a stron& and open relationship

between them so that they can achiee the planned common outcome. "ustomers

prefer such billin& models because they can keep their costs entirely ariable and

dependant on their own reenue &rowth.

Althou&h outcome based contract meant hi&h inolement between clients and

endors for efficient deliery of work. $any incenties could be obtained from price

based contract .(t also helped in cuttin& the costs as productiity and efficiency could

be achieed throu&h less number of workers. oweer it cannot be used due to

followin& reasons4

irstly (nfosys cannot rely on outcome based contract with eery client the

reason bein& simple, sometimes a pro6ect may re7uire lon& term till it can be

ealuated and its outcome alidated.

"lients and endors hae to inest more in understandin& each others business

in order to determine the proper leel of serice. /his is only possible if they

know each other well by terms of re7uisite and e+pected leel of serice.

8aluation of serice was directly related to the payment. Any hiccup in work

would directly result in losses. Also, it isnt easy to determine whether the

resources to be utilised will yield a &ood #(.

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(nfosys should lay its concentration on transaction based contract een thou&h

/8s based model has been impressie when the forecast is accurate.

/ransaction based contract would result in char&in& for the e+act number of

processes bein& handled simultaneously. (n transaction based pricin&, what and

how many resources are inoled and how much time is taken to 9rocess thetransaction while also meetin& 7uality and serice leel a&reement !:A

re7uirements, are the ;ariables that are typically mana&ed by serice proider.

/his essentially means that ariability and risk Associated with customers

business actiity is transferred to serice proider. !erice proider mana&es

this isk by utili? or for inoice processin&, the transaction price may be

7uoted as =y dollars per inoice>. oweer, since business actiity does not

remain at a constant leel throu&hout, there needs to be a mechanism which can

determine how the transaction price aries for different leels of business

actiity. /o address this, transaction price is &enerally mentioned as applicable

for a specified transaction olume ran&e. !uch a olume ran&e is known as@dead band which is typically deried by analy

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$akes it easy to compare and select serice proiders by comparin&

their per transaction price alon& with !:As

or smooth processin& of transaction based billin&4

"hoose the ri&ht transaction unit for pricin& the deal B one that ali&ns both

parties interests. or e+ample, in case of insurance, if the transaction unit is

@no. of policies issued, then the interest of serice proider and customer are

ali&ned - more the number of policies issued, more is the payment to serice

proider and more is the premium collected by the customer. As a&ainst this, if

the transaction unit is @no. of leads, then the interest of the customer and

serice proider are not necessarily ali&ned as more number of leads would

definitely translate into more payment for serice proider but may not

translate into more policies issued and thereby, premium, for customer. 8stablish a mutually a&reeable mechanism to address olume fluctuations. A

few such mechanisms could be4

efine an A"'" framework to handle olume ariations beyond the base

olume

Ad6ust the baseline olume periodically usin& aera&e olume e+perienced in the

past few months thus allowin& both parties to share the risk of olume uncertainty

and allowin& serice proider sufficient lead time to absorb olume fluctuations

A&ree for less strin&ent serice leels for serice proider if actual olumes

materially e+ceed those forecasted

A&ree on definin& and measurin& !:As durin& the initial phases of the

en&a&ement and use this data for base linin& them for the remainin& term of the

en&a&ement

9lan for a comprehensie chan&e mana&ement effort which includes top

mana&ement support, syndication of key stakeholders and end-user education

pro&rams.

8+ercise hi&h leel of transparency in sharin& data and details between the

parties to deelop an enironment of trust.