1. Assessing the cost of Offshore Outsourcing: Efficiency, Effectiveness, and Risk Todd Little

2. Efficiency, Effectiveness, and Risk Efficiency –The speed at which things are done Effectiveness –The net value generated from activities Risk –Major things that might happen to impact Effectiveness or Efficiency

3. About Landmark Commercial Supplier of Oil and Gas Exploration and Production Software Users are Geophysicists, Geologists, Engineers Subsidiary of Halliburton Energy Services Integrated suite of ~60 Products ~50 Million lines of code Some products 20 years old

4. Landmark Product Suite Common Model Representation Well data Production data Seismic data Velocity data Reservoir / Fluid data Structural / Stratigraphic data Common Model Representation

5. Offshoring the CEO March 11, 2007, 8:35PM Halliburton to move headquarters to Dubai CEO Dave Lesar says the oil giant will maintain a Houston corporate office By BRETT CLANTON Copyright 2007 Houston Chronicle Halliburton Co. surprised the energy world, members of Congress and the city of Houston today by announcing it will open a new corporate headquarters in the United Arab Emirates and relocate its chief executive officer there.

6. Financial Drivers Offshore outsourcing can Save 75% (multiple sources) Offshore outsourcing can average 75% of cost. (Forrester)

7. Experience with Offshore Outsourcing Pakistan (since 2000) India (since 2005) Canada (Near shore Insourcing since 1994)

8. Financial Drivers

9. Cost Savings Cost Savings = Expected Cost Inhouse – Cost Offshore – Cost of Overhead Expected Cost Inhouse = n n * c n Cost Offshore = n f * c f Cost of Overhead = n m * c m

10. Cost Savings c= Cost ratio = c f /c n e= Efficiency = n n /n f m= Management Overhead factor = n m /n f

11. Our Experience e ranges from 0.10 to as high as 1.0 –But is subjective and uncertain m tends to run about 0.10 to 0.25 c from cost tables, 0.25 to 1.0

12. Sample Data for Pakistan Outsourcer emcSavingsComments Development0.400.110.1633% Testing0.270.040.1816% Testing0.600.060.1959% Testing0.600.050.1960% Development0.600.170.2334% Development0.640.170.2338% Testing0.800.060.1772%High performance, low overhead Development0.560.130.3023%Cost factor compared to Canada Testing0.400.100.2026% Testing0.600.060.2155% Testing0.200.050.27-56% Bad project. Cost factor compared to Canada and team lacked proper skills. 33%

13. RM Projects with TCS for 2007 emcSavingsComments Development0.140.050.31-152%SDS - needed domain help Test0.200.060.42-141% General testing. Only smoke tests w/o domain help Development0.200.100.37-135% Java development did not require domain, just understanding of systems -143%

14. Risk adjusted Savings Risks –Cost –Value Types –Technical Risk –Project/Business Risk –Political Risk –Outsourcer Risk –Security/IP –Financial Risks

15. Value Risks (Effectiveness) Lost Value due to Delays Lost Value due to Quality Lost Value due to Security Lost Value due to Missed Opportunities

16. Technical Risk Does the outsourcing company have all the technical skills necessary to do the work? Does the outsourcer understand the business domain? Can the project requirements and specifications be defined to meet the capabilities of the outsourcer? Quality of work

17. Project/Business Risk Rapidly changing requirements amplify remote communication challenges Lost opportunity from dialogue between business and technical people

18. Political Risk Is the supplier in a stable political regime? Are there difficulties getting work or training visas in either direction?

19. Outsourcer Risk Is the outsourcing company stable and predictable? Does high employee turnover put the project at risk

20. Security / Intellectual Property Theft of Intellectual Property Risk of IP pollution Export Compliance

21. Financial Risk Inflation Currency variation

22. Portfolio Management and Dealing with Darwin (G. Moore) Market Differentiating High Low Mission Critical Low High Invent Deploy Manage Offload Create Change Embrace Change Eliminate Change Control Change Ad HocAgile OutsourceStructured

23. Project Selection Probability of Success High Low Risked Cost of Failure Low High OutsourceConsider Avoid

24. Landmark’s Portfolio Conclusion