Global sourcing is an attractive option for many IT companies, as it offers numerous benefits and a substantial return on investment (ROI). It is important to note that many organizations that are making the decision to outsource for the first time frequently make the mistake of overestimating ROI. This overestimation can lead to disappointment regarding the perceived value of the outsourcing arrangement. IT executives must consider hidden costs and other factors when quantifying the business value of global IT sourcing. By looking at a more realistic comparison, they can avoid overestimating ROI and get a more accurate picture.
IT executives commonly make a comparison between completing an IT project onshore versus offshore. They analyze the costs to determine if it would be profitable to send the work to a global IT vendor. However, onshore costs are sometimes overstated in this comparison. For example, many IT executives believe that it will take the same number of employees to develop a project in-house, as it would to send the project to a vendor. This thought process is not always accurate, since fewer employees are usually needed to complete a project in-house. Most employees are already efficient in areas like knowledge transfer, knowledge capture, environmental support and project coordination.
Sometimes the assumption is made that the work done onshore will be performed by newly hired internal staff. The cost of hiring and training the employees is then factored into the cost comparison. This assumption exaggerates the expense of developing the project in-house, as most IT projects will be completed by existing employees or contractors.
One of the most common areas that is ignored when comparing cost savings in outsourcing are hidden costs. Hidden costs need to be considered when determining ROI in global IT sourcing. It is easy to identify some costs associated with global outsourcing, such as labor costs, communication and IT infrastructure, but many of the other related expenses are not so apparent. Hidden costs may include such items as knowledge transfer, training, travel expenses associated with the onshore staff traveling to the global sourcing provider's location and management of the outsourcing relationship. Other hidden costs may include the expenditure to retain work onshore and the expenses of the transitional team, who will assist in the transition with the new vendor.
By taking into account the actual costs of completing projects onshore and the expenses associated with outsourcing, IT executives can calculate a realistic ROI.
Author Resource:-
A&E Consulting is a full service consulting firm that has been successfully helping clients with their global needs. Visit http://www.globalsourceyourit.com or call 818-572-8399 for more information.
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