Gartner Research

Outsourcing Incentive and Penalty Best Practices

Published: 22 December 2003

ID: G00119134

Analyst(s): Richard T. Matlus, Kevin S. Parikh, William Maurer

Summary

The popularity of using external service providers has led to a wide variety of outsourcing deal types and numerous types of service-level agreements. These agreements are enforced through incentives and penalties. This report describes the best ways to use such contractual elements.

Table Of Contents
  • Management Summary
  • Introduction
  • The Service-Level Agreement
  • What Are Incentives and Penalties?
    • Definitions
    • Cultural Aspects
  • How Should Incentives and Penalties Work?
    • Incentive Key Factors
    • Penalty Key Factors
    • Other Penalty Considerations
    • Are Incentives and Penalties Effective?
  • How Do Enterprises Build a Business Case?
  • Determining What Contract Clauses Enterprises Should Use and How to Use Them
    • Penalties as a Contingent Liability
    • Contract Clauses
    • Definitions
  • Risk Scenarios
  • Measuring ESP Performance
  • Conclusion
  • Acronym Key

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