What Is Managed Services? A Definitive Guide With Benefits

Updated 16 December 2022

Many organisations have a dedicated IT department to help manage digital assets and keep systems operational. IT departments often have multiple systems or projects to manage and maintain simultaneously, which can create the need for something called 'managed services.' Understanding what a managed service is and why organisations use it can help you determine if you can use this kind of service to improve your IT project management skills. In this article, we answer the question, 'What is managed services?', explain the benefits of using it and explore some best practices for managed services.

What is managed services?

To answer the question, 'What is managed services?', consider this definition: managed services is when an organisation outsources the responsibility for maintaining certain services, particularly in IT, or information technology. The purpose of outsourcing certain services is to improve those operations by giving the responsibility for those services to a third party that focuses solely on that operation. This concept can also help organisations save money on retaining dedicated staff for specific processes, reducing the overall budget for labour. For example, an organisation might outsource all of its customer service operations to a dedicated call centre to reduce payroll costs.

Related: What Is Outsourcing? Benefits and Examples of Outsourcing

Benefits of using managed services

Using managed services can help businesses with various aspects of the organisation, including reducing payroll costs and improving services. Here are some of the primary benefits for using managed services:

Higher production capacity

If an organisation outsources specific services to a third party, they typically pick a company or contractor that specialises in that service. This can create a higher output for that service, since all the company or contractor's efforts are for a single service. This means the organisation doesn't require additional resources to maintain certain production levels, and can instead depend on the third party. Managed services sometimes can increase an organisation's production capacity and quality, which may have an overall positive impact on its products or services and its profits.

Related: What Do System Analysts Do? (With Salary and Key Skills)

Reduced payroll costs

One of the main benefits of using managed services for an organisation is the reduction in payroll costs. For example, if an organisation needs a dedicated IT team, it might cost hundreds of thousands or even millions of dollars to build, maintain and improve its IT services. To save this investment, and the continued investment of keeping dedicated IT employees on payroll, an organisation can outsource its IT needs to a dedicated IT firm. The firm can provide that same kind of support and infrastructure that a dedicated IT staff might provide, but at a lower cost.

More consistent maintenance

With a dedicated third-party handling certain services, organisations can spend less money on the maintenance of those services and also increase the consistency of maintenance. With a dedicated third-party, services are more likely to remain up-to-date. The third party becomes responsible for all updates, improvements and maintenance for whatever system they maintain, which can also reduce the cost of those updates and maintenance. For example, an IT system might require costly hardware upgrades as technology evolves, but the organisation that outsources its IT requirements can avoid those costs.

Improved risk management

Another benefit of managed services is improved risk management for the organisation outsourcing its services. Since a third party oversees that specific service, they also assume responsibility for all the risks associated with providing that service. For example, an organisation that outsources its bookkeeping might avoid some risk of tax problems if the bookkeeping service makes a mistake. Since the bookkeeping company handled all the financial information for the organisation, they may be liable for the tax problems since it was likely their systems or personnel that made the mistake.

Related: 12 Business Risk Examples (Plus Risk Management Benefits)

Solidified services for the future

Organisations that outsource things like IT services can also 'future-proof' those services, or ensure that they're available for the future and continue to evolve as the organisation needs change. The organisation itself may not have the resources or knowledge required to upgrade or improve services as new components or systems become available. By outsourcing, the organisation can ensure that it always has access to the same level of services and that it doesn't fall behind competitors because of a lack of funds, understanding or both.

Shorter deployment times

If an organisation wants to implement a new IT system or infrastructure system for its internal operations, the deployment time can sometimes be months or even years, depending on the scope of the changes. With managed services, organisations can outsource the deployment of new systems to companies or contractors who already have the necessary tools and resources to do the job. This can help reduce those deployment times, which can help reduce potential downtime that might otherwise cost the organisation revenue.

Best practices for managed services

Here are some best practices for managed services:

Use managed services to augment or expand current capabilities

A managed service rarely replaces current staff, but helps augment their current capabilities or expand them. For example, if you have an existing IT department, you might use a managed service to help provide more expert oversight for their operations, expand current capabilities and grant them access to more IT resources to improve their contributions. You can use a managed service to help balance a current internal service with outsourced resources and personnel. You might also want to notify employees before implementing managed services.

Related: What Is IT Service Management and Why Is It Important?

Research service providers prior to partnering

Research potential providers before committing to one, because each provider can offer different levels of service. Consider what you expect from the managed service, what kind of services the organisation needs to improve its operations and whether you're expanding on an existing department or creating a new service for the organisation. Remember, any budgeting considerations for managed services and ensure they're the more affordable option compared to a dedicated staff.

Assess the risks of using a managed service

Even with managed services, organisations can incur some risks. Consider any relevant risks before you commit to a managed service and ensure the organisation has the risk tolerance to work with that service. For example, working with a financial service provider can expose sensitive financial information to a third party, which may make that information more vulnerable to cyberattacks. If you're building managed IT services, giving third-party service access to the organisation's internal IT networks can also be risky. Consider these risks and the potential consequences they present.

Determine the role and boundaries of a managed service

When you hired a managed service, establish the exact role of that service prior to committing to a contract. This helps establish boundaries for that service, or what the organisation allows them to do or have access to. For example, you might determine that while your IT service has access to the organisation's internal servers, it doesn't have access to the financial servers for the business. These boundaries and expectations typically exist in the operating contract you create with the service provider, so ensure whichever service you choose can commit to a contract.

Related: A Guide to Business Value in IT (With Calculation Methods)

Reassess managed services frequently

Sometimes, an organisation only needs a managed service for a short period to help build internal capabilities. Other organisations use managed services throughout the entirety of their lifespan. Reassess managed services to ensure they're still meeting the organisation's needs. If they're not meeting specific needs, you can either choose to discontinue the partnership, change the contract or choose a different provider. Frequent assessment can help the organisation stay competitive and ensure it's getting the best possible services.

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