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Outsourcing: False economy or money saver? Take the test to find out Posted on October 9, 2018
But what is the real cost? Where are the savings? And if there are some, what would you do with the extra time?
Read here as we discuss some of the pros and cons and a simple method tool to work out what the cost benefit to you is.
Broadly when a client raises a discussion regarding outsourcing the reasons FOR come in 3 categories
1. Reducing “back office tasks” and costs, some most obvious examples would be:
Lower resource cost; this topic deserves a separate discussion but for now let me just say that if you are good at utilizing offshore you may realize 25-30% savings; eg Payroll, HR, Finance, Book keeping
General & Admin savings (benefits, office space, utilities, etc.); Other resources related savings (reasonable severance, resource add-on acquisition cost, training cost, etc.).
2. Reducing time to operations / time to market, some examples include:
Access to existing pool of resources vs. hiring;
Establishing development / operations infrastructure vs. using existing or building upon existing
Access to specific skills / domain expertise / methodology, etc.
3. Solving specific organizational issues, here are just a few common examples:
Outsourcing legacy maintenance to motivate developers by moving them onto more glorious tasks.
Risk mitigation, for example: should you hire for dealing with substantial spike in demand? Is the change permanent or when the novelties ware off you will be facing RIWFs? Outsourcing could be a better way to handle the spike.
3 reasons why you WOULD NOT outsource include:
1. No support at a management level
Successful outsourcing requires a commitment at the most senior level of the business. For it to be successful it needs full partner support.
2. No processes to follow
Think of outsourcing being akin to providing a turn-key business – in other words, you need the people who are facilitating the work to be following systems and process as opposed to making decisions and judgement calls.
This means great systems.
3. No control and check points
Following on from great systems, outsourcing needs control and “milestone” checkpoints in the process that prevent work from progressing in the process until it has been properly QA’d.
So what are the costs? The costs of getting it wrong can be expensive. But sometimes the cost of you doing certain tasks your self can be greater.
Eg If you are a builder for example with an average daily charge rate of $75 per hour and you currently spend 3 hours per week on book keeping, 2 hours per week on HR issues and 1 hour per week on payroll, then over a year this adds up to 312 hours. At your rate of $75 per hour, this equates to $23,400 per year.
The question is, “is there a better way”? This is where looking at outsourcing can be a real option.
To work out how much you can save, email us here, and we will put your business through our unique “Business Stress Test” to identify if outsourcing some of your work is an option.