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Contracting and timing for outsourcing of information system with uncertain requirements

  • S.I.: Machine Learning and Big Data Analytics for IoT Security and Privacy (SPIOT 2021)
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Abstract

This research examined the impacts of market conditions on the choice of contract and timing for information system outsourcing. Real options approach is applied to develop several analytical models to investigate the decision making for outsourcing information system. The results show that the information asymmetry, requirement uncertainty, cost structure and vendor’s competition have important impacts on the client’s cost reduction, value of outsourcing option and probability of outsourcing. With symmetric information, the cost reduction, value of outsourcing option and probability of outsourcing under cost-plus contract and fixed-price contract are indifferent. With asymmetric information, however, the two contracts will generate different cost reductions and values of outsourcing option. We identify market conditions under which a contract is superior to others and also characterize the market conditions under which the client can switch to outsourcing or postpone outsourcing.

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Acknowledgements

The authors acknowledge the financial support of China Postdoctoral Science Foundation (2018M631126), Shaanxi Postdoctoral Science Foundation (30102200010) and the National Natural Science Foundation of China (Grant 71502132).

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Authors and Affiliations

  1. School of Economics and Management, Xidian University, Xi’an, 710126, China

    Zongming Zhang

  2. School of Economics and Management, Zhejiang Institute of Mechanical & Electrical Engineering, Hangzhou, 310059, China

    Rundong Liao

  3. School of Economics and Management, Changzhou Vocational Institute of Mechatronic Technology, Changzhou, 213001, China

    Qingyuan Zhou

  4. The Institute for Industrial Economy of Intelligent Manufacturing, Changzhou, 213001, China

    Qingyuan Zhou

  5. Changzhou Electronic Commerce Research Institute, Changzhou, 213001, China

    Qingyuan Zhou

  6. Changzhou Key Laboratory of Industrial Internet and Data Intelligence, Changzhou, 213001, China

    Qingyuan Zhou

Authors
  1. Zongming Zhang
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  2. Rundong Liao
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  3. Qingyuan Zhou
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Contributions

ZZ and QZ designed the research framework and wrote the manuscript, and RL was responsible for proofreading and optimization of the results.

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Correspondence to Qingyuan Zhou.

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Zhang, Z., Liao, R. & Zhou, Q. Contracting and timing for outsourcing of information system with uncertain requirements. Neural Comput & Applic 35, 2279–2289 (2023). https://doi.org/10.1007/s00521-022-07355-6

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