Comparing the Costs of IT Outsourcing against In House Handling

Staying ahead means constantly optimizing operations and enhancing productivity.  IT outsourcing is a strategic solution, providing access to specialized expertise and resources without the overheads of maintaining large in-house teams. However, there’s a balance between costs, risk and return. How do you ascertain what’s the best approach?

Let’s consider the costs. To compare the cost of IT outsourcing versus handling a task in-house, you can use take the following simplified approach:

Cost of Outsourcing (CO)

CO=ODC+OTC+OC

Where:

• ODC (Outsourcing Direct Costs): The cost of hiring the external vendor or service provider. This includes per-hour or per-project fees.
• OTC (Outsourcing Transition Costs): Costs related to transitioning the task to the vendor, such as knowledge transfer, setup costs, and any initial training.
• OC (Outsourcing Ongoing Costs): Ongoing costs, like service management, communication, or additional unforeseen expenses.

Cost of In-House Handling (CI)

CI=IDC+ITC+IC+ICQ

Where:

• IDC (In-House Direct Costs): The cost of salaries, benefits, and overhead for the employees who will handle the task.
• ITC (In-House Transition Costs): Costs related to training existing employees, setting up infrastructure, or any new software licenses.
• IC (In-House Ongoing Costs): Ongoing costs such as equipment maintenance, employee overtime, and any potential support needed.
• ICQ (In-House Quality Costs): Costs associated with quality control, such as rework, testing, or potential delays.

Comparing CO against CI provides an easy way to evaluate the costs of both approaches. However, what it doesn’t consider is quality, scalability, long-term benefits, or strategic control. Can your in-house team scale effectively? Does your in-house team have the breath of expertise to deliver what is required? Outsourcing to experienced professionals not only provides access to cutting-edge technology and industry best practices but it allows companies to quickly scale their operations up or down based on demand. This agility is crucial for businesses seeking to respond swiftly to market changes or customer needs.

Focus on the value delivered rather than merely the cost. Having your in-house team cut their teeth on a new technology for a critical project is a high-risk approach and will likely lead to huge unplanned costs and undesired outcomes.

Navigating the complexities of IT outsourcing requires expert guidance and strategic planning. Contact us today for professional consultation and planning to unlock the full potential of outsourcing for your business. Let us be your trusted partner in achieving your IT objectives.

Eileen O’Mahony
General Manager, WM Promus