Chapter 15: Engagement Models for IT Services

##Introduction

The right engagement model aligns incentives, controls risk, and delivers measurable value. This chapter compares commercial models (fixed-bid, T&M, outcome-based), delivery models (onsite/nearshore/offshore), and governance frameworks for healthcare IT consulting.

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Commercial Models

1. Fixed-Bid (Fixed-Price)

Structure: Defined scope, deliverables, timeline, price

Best For:

• Well-defined requirements (EHR upgrade, specific integration)
• Low tolerance for cost overruns
• Regulatory deliverables (HIPAA audit remediation)

Pros:

• Budget certainty for client
• Vendor incentivized for efficiency

Cons:

• Change control friction (scope creep battles)
• Quality risk (vendor cuts corners to protect margin)
• Requires detailed upfront requirements

Pricing Example:

• EHR-to-HIE FHIR integration: $250K fixed (12 weeks, 4 FTE)
• Includes: Design, development, testing, go-live support
• Excludes: EHR vendor changes, data migration (>50K patients)

2. Time & Materials (T&M)

Structure: Hourly/daily rates, invoice actual time spent

Best For:

• Evolving requirements (digital transformation, innovation projects)
• High uncertainty (legacy system modernization)
• Flexible scope (staff augmentation)

Pros:

• Flexibility to adapt scope
• Lower proposal effort (less upfront design)
• Pay for actual work done

Cons:

• Budget uncertainty (cost overruns)
• Requires strong governance (prevent scope bloat)
• Client bears risk of inefficiency

Rate Card Example:

3. Outcome-Based (Value-Based)

Structure: Payment tied to measurable KPIs/outcomes

Best For:

• Mature partnerships (shared risk/reward)
• Measurable outcomes (readmission reduction, cost savings)
• Long-term engagements (multi-year)

Pros:

• Aligns vendor to client success
• Shared risk/reward (gain-sharing)
• Focus on outcomes, not activity

Cons:

• Complex contracting (KPI definitions, baselines, attribution)
• Requires robust measurement (data infrastructure)
• Longer sales cycles

Example Structure:

• Base Fee: $500K (70% of estimated cost)
• Performance Bonus: Up to $200K based on KPIs:
  • 30-day readmission reduction: $100K (if ≥15% reduction)
  • Clinician satisfaction (NPS): $50K (if NPS >40)
  • Go-live on time/budget: $50K

KPI Measurement:

• Baseline period: 6 months pre-go-live
• Measurement period: 6 months post-go-live (after 3-month stabilization)
• Attribution: Isolate impact (control groups, statistical modeling)

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Delivery Models

Onsite

Definition: Team located at client site (or same city)

Advantages:

• Proximity to clinicians, operations (workflow observation)
• Real-time collaboration, fast decision-making
• Cultural alignment, trust-building

Disadvantages:

• Highest cost (travel, per diem, local rates)
• Talent constraints (limited local pool)

Best For:

• Discovery, design phases (stakeholder workshops)
• Go-live support (24/7 presence)
• Highly regulated environments (on-premise only)

Nearshore

Definition: Team in nearby time zones (US → LatAm, UK → Eastern Europe)

Advantages:

• 4-6 hour overlap for real-time collaboration
• Moderate cost (30-50% savings vs. onsite)
• Cultural affinity, language proficiency

Disadvantages:

• Some travel required (quarterly visits)
• Time zone challenges (early/late meetings)

Best For:

• Development, testing phases
• Agile teams (daily standups feasible)
• US clients with Spanish-speaking clinicians (LatAm advantage)

Offshore

Definition: Team in distant time zones (US → India, Europe → Asia)

Advantages:

• Lowest cost (60-70% savings vs. onsite)
• Scalability (large talent pools)
• Follow-the-sun coverage (24/7 work)

Disadvantages:

• Limited real-time overlap (1-2 hours)
• Cultural, language differences (requires strong processes)
• Travel overhead (12-24 hour flights)

Best For:

• Commoditized work (maintenance, support)
• Well-defined requirements (less ambiguity)
• Mature processes (detailed runbooks, automation)

Hybrid (Global Delivery Model)

Structure: Blend of onsite, nearshore, offshore

Example Ratio:

• Onsite (20%): Architect, PM, clinical SME (client-facing)
• Nearshore (30%): Scrum teams, integration developers
• Offshore (50%): Backend development, QA, DevOps

Benefits:

• Balance cost, quality, proximity
• Risk mitigation (diversified geography)
• 24/7 coverage (follow-the-sun)

Governance:

• Daily Standups: Video (all locations)
• Sprint Planning: Onsite + remote
• Retrospectives: Rotate time zones (alternate early/late meetings)

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Centers of Excellence (CoE)

Purpose

• Reusable Assets: Accelerators, reference architectures, code libraries
• Standardization: Best practices, playbooks, templates
• Expertise: Deep skills in niche areas (FHIR, security, AI/ML)
• Innovation: R&D, emerging tech pilots

CoE Types

Operating Model

Shared Services:

• CoE provides reusable assets to delivery teams
• Delivery teams provide feedback, enhancement requests
• CoE maintains asset catalog, versioning

Funding:

• Centralized: CoE funded by company (overhead)
• Chargeback: Projects pay for CoE services (internal billing)

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Governance & SLAs

Service Level Agreements (SLAs)

Severity Definitions:

• P1 (Critical): System down, patient safety risk
• P2 (High): Major feature unavailable, workaround exists
• P3 (Medium): Minor issue, no business impact

Key Performance Indicators (KPIs)

Delivery KPIs:

Relationship KPIs:

• Net Promoter Score (NPS): Client satisfaction (>40 target)
• Staff Retention: Consultant turnover (<15% annually)
• Training: % team certified (>80% in relevant certs: FHIR, AWS, HITRUST)

Escalation Paths

Incident Escalation:

1. L1 Support: Helpdesk (triage, known issues)
2. L2 Support: Engineering team (troubleshooting, fixes)
3. L3 Support: Architect, vendor (complex issues, design flaws)
4. Executive Escalation: CIO/vendor executive (contractual disputes)

Contractual Escalation:

• Project Manager → Program Manager → Delivery Head
• Client PM → Client Director → CIO
• Joint Steering Committee: Monthly review, resolve disputes

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Implementation Checklist

✅ Model Selection

• Commercial Model: Fixed-bid (defined scope), T&M (flexible), Outcome-based (mature partnership)
• Delivery Model: Assess scope certainty, budget, need for proximity
• Risk Appetite: Client risk tolerance (fixed=low, T&M=high)
• Contract Terms: Payment milestones, acceptance criteria, change control

✅ Governance

• SLAs: Define uptime, response/resolution times, penalties
• KPIs: Track delivery, quality, relationship metrics
• Escalation: Document L1/L2/L3 support, executive escalation paths
• Cadence: Weekly status, monthly steering committee, quarterly business review

✅ Team Structure

• Onsite/Nearshore/Offshore: Balance cost, collaboration, proximity
• CoE: Identify reusable assets, standardization needs
• Certifications: Require FHIR, AWS, HITRUST, Epic certifications

✅ Change Control

• Change Request Process: Submit → Assess (scope, cost, schedule) → Approve → Implement
• Change Authority: PM for <$10K, Steering Committee for >$10K
• Documentation: Maintain decision log, impact analysis

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Conclusion

Engagement model selection requires aligning commercial terms, delivery approach, and governance to client needs and risk appetite. Fixed-bid suits defined scope, T&M enables flexibility, outcome-based aligns incentives. Hybrid delivery balances cost and collaboration.

Key Takeaways:

• Fixed-Bid: Budget certainty, vendor risk, requires detailed upfront requirements
• T&M: Flexible scope, client risk, strong governance essential
• Outcome-Based: Shared risk/reward, complex contracting, measurable KPIs
• Hybrid Delivery: Balance onsite (proximity), nearshore (collaboration), offshore (cost)
• SLAs: Define uptime, response times, escalation paths, penalties

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Next Chapter: Chapter 16: Target Market Segmentation