Risk-Reward Sharing in IT Service Contracts - A Service System View

The paper analyzes the sharing of risks and rewards in IT service contracts from a service system perspective. Using a formal model, it can be shown under which conditions a risk-reward sharing contract can be advantageous for both supplier and customer and, thus, make the IT service system that is formed by them more efficient. Decision criteria for the selection and suitable design of such contracts are developed. Risk sharing turns out to be advisable in typical situations with IT providers being more or less risk averse than their customers. The application of these results hinge on the progress of measuring risk and risk aversion in practice.