A simulation study of IT outsourcing in the credit card business
The use of Monte Carlo simulation for evaluation of financial risk of an information technology project selection decision is described. A major Thai bank considered the opportunity to expand credit card operations through information technology (IT) Alternatives considered were in house development and outsourcing. There were many strategic reasons for the initiative. However, there were also many risks associated with the proposal. A Monte Carlo simulation spreadsheet model was used to model risk parameters, and to analyze key performance variables of financial performance. Key output variables were the number of cardholders expected, project net present value, net profit, and expected return on investment. The spreadsheet model made entry of model elements transparent, and Monte Carlo simulation provided clear visual display of the financial output variables. The bank used this information in its decision to outsource its credit card operations.
Eur. J. Oper. Res.