In assessing xSP risk, it is important to distinguish two distinct components. First is that ITOs now use small/medium vendors to provide many services that cannot be efficiently provided in-house (e.g., Web performance monitoring). We believe small vendors will be a part of the IT "team" through 2007/08. Using smaller vendors introduces an element of risk that must be continually assessed to protect ongoing business objectives. We believe 35 percent of ITOs will have formal risk assessment methodologies by 2003; this will increase to 50 percent by 2004 and 65 percent by 2005/06. The increase in assessments will be driven primarily by the publication of horrific failures.

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The second factor is the ITO's risk tolerance. Although some ITOs are most sensitive to money (e.g., cost overruns), others cannot tolerate the risk of performance problems or project delays. The specific risks and the degree of tolerance vary across companies, between projects, and over time and must therefore be continually assessed. Risk assessments must identify where vendor viability and risk tolerance intersect. (It may be perfectly acceptable to use a "shaky" vendor for a low-risk project or inappropriate to use a moderately strong vendor for a high-risk project.).

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