Clearly, one of the most typical benefits of outsourcing comes from cost reductions. This can include lower labor rates, lower management support costs, reduced capital outlays and other reductions in support costs. Despite these significant savings, I urge managers who are considering new outsourcing projects to do a careful assessment of costs and savings.

Direct costs such as wages are relatively easy to identify. Indirect costs, including things like staff planning, process documentation, legal costs (contract review) are more difficult to estimate but must be considered.
It is convenient to break down costs into two categories. First, there are non-recurring “transaction” costs that include:

  • Research and business planning
  • Negotiations
  • Contract costs (legal)
  • Implementation

Then we have the ongoing/recurring operations costs. Key costs to consider include (apply on a case-by-case basis):

  • Wages
  • Bonus
  • Changes to productivity
  • Communication costs
  • IT and software costs
  • Physical infrastructure and support
  • Resource redeployment
  • HR change management
  • Training and productivity
  • Disaster recovery and business continuity investments
  • Offshore knowledge development
  • Travel
  • Supplier management/governance

Understanding these costs is essential for budgeting and cost control. They also form the foundation of your ROI analysis, which I will touch on in a subsequent blog.

I hope this outline of costs is helpful. Please let me know what I have missed.

Author: Pat Keegan

Pat Keegan

Pat is a highly accomplished executive with extensive expertise in operational responsibilities across multiple functions and technologies. He has led large, mature organizations and has planned, launched and managed emerging Silicon Valley start ups. Pat is a decisive leader recognized for consistently delivering bottom line results beyond expectations. Pat has extensive experience and success with global outsourcing. Key areas of expertise include, professional services management, customer service management, process/quality management, corporate strategy, global outsourcing and building sustainable high performance teams.