Make or buy decisions – Remita, the TSA and CBN

Source: ThisDay Newspapers

In systems engineering management, one of the concepts we learnt was “make or buy decisions”.  This is the same model used in the "outsourcing vs in-house" decisions in business.

The results of make or buy decisions determine whether an item is to be designed and manufactured at the producer’s facility or purchased from an outside source. (Blanchard: 2004).

The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing.

 Factors that may influence a firm's decision to buy a part rather than produce it internally include:

1.      Lack of expertise

2.      Suppliers' research and specialized know-how exceeds that of the buyer

3.      cost considerations (less expensive to buy the item)

4.      Small-volume requirements

5.      Limited production facilities or insufficient capacity

6.      Desire to maintain a multiple-source policy

7.      Indirect managerial control considerations

8.      Procurement and inventory considerations

9.      Brand preference

10.  Item not essential to the firm's strategy
(Referenceforbusiness.com) 

Remita and TSA

Without the benefit of hindsight, one would argue that point #10 makes this decision to outsource a very questionable one.  Most other considerations, (save for lack of expertise) are weak in defence of this decision.  While lack of expertise (#1) is a very major consideration, the CBN is also reported to have in-house software that has the same basic capabilities as Remita. Surely, a personnel contracting support model, which has contract IT professionals sit in the CBN offices to administer this system, while receiving negotiated remuneration and HR outsourcing surcharge would have been an option here. This would have seen the CBN avoid the huge cost of transaction commissions.

A core part of outsourcing any service or product manufacturing is the legal contract. Several considerations need to be included to cover risks and uncertainties that may favour the business owner or the outsourcing company.

This is something that one hopes the CBN did in their TSA contract with SystemSpecs (Remita). The present uproar is because the processed cash volume drastically increased after this administration decided on a total implementation of the policy on single treasury accounts. With the alleged 1% transaction fees on monies handled, the commission to SystemSpecs will definitely go through the roof. While this is a perfectly legitimate earning for the company, it could be argued that better negotiation could have seen the company still rake in a healthy profit while the government gets to keep some extra billions of valuable Nairas to be employed in critical sectors of the economy. I have heard folks suggesting a reducing scale commission, as used in large real estate transactions, as one of the tactics that should have been considered in the contract.

In conclusion the interests of government and the outsourcing vendor must be considered in the contract. While they should both share in the outcomes arising from an upsurge  or downturn in transaction volume, the interest of the FGN must be paramount and properly covered in the contract. The current state of the economy cannot afford the commissions we are hearing about; and it will become an even bigger concern as tax revenues begin to pour in from government's efforts at diversifying the economy and plugging holes.