Gillian Hickey warns that first-time outsourcing projects are not the same as third-party transitions.
First-time outsourcing projects are not as uncommon as people think and, whilst the trend of DB closures has continued, so has the gradual process of in-house operations being outsourced for the first time.
As active scheme member populations have gradually moved into contract-based arrangements, and defined benefit populations have matured, the arguments in favour of maintaining an in-house administration service have diminished.
But, despite the common perception that all schemes must already have been outsourced, there are still a significant number of pension schemes going through this process for the first time now.
For those schemes and administrators that are tackling this type of project I offer a cautionary warning: first-time outsourcing projects are not the same as third-party transitions and have some unique challenges that must be addressed.
Anybody involved in a first-time outsourcing project should not assume it is the same as running a third-party-to-third-party service transfer. Whilst the objective of these projects might be the same, the journey and process of achieving the goal is often markedly different for several reasons.
Service definition – in-house teams rarely define the service in such precise and prescriptive terms as third-party providers. Whilst it might seem an obvious step, describing exactly what is required, by whom and when is the essential first step in any outsourcing project.
Satellite or unique "pension benefit" tasks invariably find their way into in-house administration operations – we have seen this range from paying corporate mobile phone bills to arranging annual membership dinners to fund rebalancing and management. All third-party administrators have a core service level agreement (SLA) that fees and delivery are based upon.
Start by looking at an example of one of these and building a gap analysis between what the in-house team does compared to what a standard SLA covers. If you would like to see a copy of our SLA to assist you then contact joe.anderson@thpa.co.uk.
Knowledge – experience has taught us that in-house teams rely more heavily on human capital to deliver services than on systems or processes.
Often, due to smaller in-house teams not possessing the required specialist developers or analysts needed to deliver and maintain process automation, they instead build operations around experienced personnel.
Without the requirement to define and describe calculations, processes and outputs, this often results in in-house teams not maintaining fully documented calculation and scheme guides. More time is therefore required as part of the transition to fully document operations.
Resilience – an administration transition invariably results in more work for the transferring administrator. They are required to both continue usual operations through the transition window as well as support the transfer process by answering questions and supplying data.
With limited resources, in-house teams cannot backfill or transfer support from other teams to assist the transition project. When combined with the double-whammy of needing to wind down operations at the same time, if not closely managed, these pressures run the risk of jeopardising the delivery of live operations.
Sensitivity to this risk and the development of a 'plan b' solution is critical to the transition planning process.
Skilled resources – administration transitions rely on both the resilience of the live delivery team as well as the skilled expertise of the project team.
Developers, programmers and analysts are often needed on both sides to deliver the migration. In-house teams will rarely have full-time programmers or developers, so carefully planning where this resource will come from, most commonly directly from the system vendor, is key.
If third-party support partners are being used, then greater care and planning needs to go into resource mapping and issue resolution.
First-time outsourcing has not gone away. As a specialist in administration we have seen a sustained steady number of schemes each year still tackling this type of project.
In our experience, the most successful first-time outsourcing projects are those that apply the flexibility, creativity and additional support to address the unique nature of each one of these projects.
Whilst most third-party-to-third-party service transfers follow a similar pattern of requirements, process and deliverables, a first-time outsourcing project always throws up unique and highly specific challenges that have often evolved from many decades of in-house service provision.
Recognising, defining and developing solutions to address these unique challenges is an essential part of achieving success – do not try to fit a square peg into a round hole.
Gillian Hickey,Projects Team Manager,Trafalgar House
