Learning about Hidden Costs in IT Outsourcing

Entrepreneurs, businesspersons think outsourcing as the ultimate cost-cutting and production optimizing solution. They outsource their IT tasks to third-party agencies that are miles away without feeling intimidated because they are trending, the outsourcing is trending. But not every time the trend shines or gives what best for you.

When a company decides to outsource just because to follow the practice, they fail to factor in various terms and cost is one such factor.

It’s a basic apprehension that organization saves in bulk just because they outsource. But that’s not true. Most of the times, organizations fail to understand or even recognize the hidden costs in IT outsourcing.

Rule No.1: Never lose money.

Rule No.2: Never forget rule No.1.

These words were quoted by Warren Buffet who is the most powerful American business magnate.

But what is the actual scenario?

‘Organizations are getting blinded by visible profit factors, but in reality, are failing to see the hidden losses.’

The Hidden Costs in IT Outsourcing, You Should be Knowing About

• Vendor Search and Contracting
  • Vendor search is nothing but the cost you have to pay for selecting a vendor.
  • The value of every project differs. The process of selecting a vendor starts with document preparation for bidding, followed by the time your in-house team has to spend clarifying the project requirements to the vendor. And then, a considerable amount of time has to be spent in the analysis of any non-complaint biddings.
  • The clarifications, corrections, most of the times, it may require that your internal team meet the vendors in person. All the travel costs and other expenses are not actually accounted in the final cost model of the project. From preparing documents to planning a contract, the whole process can take from few months to a year.
  • While preparing a contract, IT outsourcing, companies should create clauses that would address even the future requirements. Technology keeps updating, so a vague contract holds no value, but it would definitely affect the cost structure, and in the end, companies end up spending more.
• Transitioning to the Vendor
  • It can happen in two accounts.
  • Your vendor is taking his own time to take over the IT operations. Most of the organizations prefer working on the tasks in such periods themselves. Costs incurred during such events are not actually counted.
  • In the second case, for some reasons, your vendor cannot work on the operations, and to make for those few days, you may have to hire someone temporarily or make your internal IT team work on that. In some instances, the internal team may need additional training to get on with the new work. And in either of the cases, the companies end up paying more from their actual budget.
• The Cost of Managing Vendors
  • Companies outsource IT tasks due to lack of expertise and the thought that they will be paying less as compared to in-house IT team.
  • Possibilities are most of the time a project may go off-track, vowing to poor communication or some other internal issues.
  • In any of the cases, companies end up paying a hefty amount to keep the operation running. Managers have these responsibilities to carry out negotiations smoothly and make sure that the deliverables are received as well as the services are provided by the vendor team as per the guidelines.
• Transitioning after Outsourcing
  • It may be painful knowing that you outsource and end up paying more.
  • One more way, how organizations end up doing that, let’s see.
  • Switching vendors or reintegrating the IT services because of poor planning at the end of the contract, companies should altogether avoid. The damage is more than addressing the additional expenses; the changes can cause potential disruption to the business operations.