Vendor Related Risks in IT Development: A Chronology of an Outsourced Project Failure

Abstract

Many organizations consider outsourcing their information technology (IT) developmentprojects as an attractive risk-mitigating approach. In such an engagement, the vendor may agree tocomplete a project for a fixed cost and according to a defined time schedule. Nevertheless, while the vendoris liable for the traditional project risks, other forms of risk may arise, which are the vendor risks.This paper presents a recent case study of a project failure that demonstrates some of the major vendorrisks and their contribution to system development failure. The risks discussed in the paper are: (a)Adversarial relationships and loss of trust between the vendor and the client; (b) Vendor managementde-escalation of commitment; and (c) Di.fficulry in breaking the contractual engagement. The case showsthat IT outsourcing, an organization might not eliminate the traditional IT project risks but ratherexchange them for equally fatal vendor risks. Furthermore, the case raises doubts regarding theeffectiveness of the contract-driven control approach to mitigate vendor risks. This paper suggest thatperhaps, since placing all risks on the vendor is impractical, a partnership approach of sharing risksand rewards may be more effective in bringing the client and the vendor to successful project outcomes.