IT Outsourcing: The outsourcing of It operations can be described as the process of sub-contracting responsibility of each or all parts of an IT function to a third-party service provider that handle the work. This practice has been present for several years since the commencement of business computing as many firms use it for functions that range from infrastructure to software development as well as support and maintenance. One of the major reasons for the widespread use of IT outsourcing is the fact that it's perceived as a means of lessening costs, enhancing operational flexibility, minimizing management overhead, and increasing levels of service. The other reason attributed to this practice is because IT is not considered as the core competence of the firm and the possibility of third-party companies to provide better and cheaper jobs. However, the company's financial manager should evaluate investment in technology, especially from the shareholders' perspective.

Evaluating IT Outsourcing Decisions:

As previously mentioned, outsourcing IT systems and services is a practice that is growing at a rapid rate since companies across the globe view it as a means of accomplishing strategic goals, lessening costs, improving customer satisfaction, and improving efficiency. Similar to other organizational decisions, this practice needs effective management from the beginning of the outsourcing evaluation to the end of the contractual relationship because it's not free of risk. From the shareholders perspective, IT outsourcing may or may not significantly increase or lessen shares....

This is primarily because investors pay keen attention to the type of IT firm and type of outsourcing as part of developing good reasoning and sound decisions (Kowalczyk, 2009). However, the main concern is whether standard investment information and criteria are all factors required for efficiently evaluating decisions regarding IT outsourcing.
While strong management, standard financial investment information, and criteria are critical for effectively evaluating IT outsourcing decisions, they are not all that is needed. When some investments are made on a third-party company and the firm becomes a failure, the shareholders lose their money and seek for answers from the company. Therefore, a business should be very careful and specific when outsourcing because the sub-contractor is considered as a reflection of the business. The reason for the inadequacy of the standard financial investment information and criteria in effective examination of IT outsourcing decisions is because the practice consists of other crucial factors.

Some of the other critical factors for success in the process including defining the objectives, answering vital questions, considering stakeholders, using a methodical approach, involving the right people, understanding the vendors, choosing a suitable relationship, and negotiating an appropriate contract (Klepper & Jones, 1999). The other crucial factors in successful evaluation of IT outsourcing decision are using objective performance criteria, using performance incentives and penalties, and managing people issues. During this process,…