Minimizing IT Infrastructure & Development Cost with Outsourcing

Outsourcing Updated On April 20 2020

This is the time where new competition is born every second. The core focus of organizations is one leveraging tool and techniques to get the best results. Outsourcing is one that is outshining the list. It helps you to manage the business and cut costs by 20-30%.

Besides having plenty of benefits, a higher level of effectiveness, round-the-clock work, and procurement of faster results, outsourcing allows companies to obtain high-quality services at less cost.

Despite the type, the company seeks outsourcing opportunities from the looking for web expertise to order fulfillment in case of supply chain management.

Many companies, big or small, have experienced cost savings with IT software development outsourcing to the offshore locations.

Today, the cost is the biggest motivator

The analysis of 210 studies that are conducted in the past two decades reveals that 85% talk about outsourcing.
According to the McKinsey Global Institute, outsourcing IT services reduce cost by 60%. There has been a drop of $121.14 million in non-IT operating costs as the IT outsourcing spent increased to $96.14 million in the US.

Is Outsourcing for You?

Cutting cost is undoubtedly important. Companies can hire offshore developers working in different geographical locations to get projects completed. But how to know if outsourcing is for your company? We will help you with this.

For that, you have to answer the below-mentioned questions:

Is your budget tight?
Is cost-cutting the only thing you wanted?
Are you unable to look for the suitable developer as per your budget constraint?
Are your resources not being utilized to their fullest efficiency?
Is your company losing sales because of an inefficient process?
Is your training cost exceeding when you turn-up employee turnover?

Nodded your head in agreement regarding one or more questions?

If yes, outsourcing to a reliable company is the right solution for you.

But wait! Before jumping to a conclusion too quickly, ensure the offshore development company answers the following questions for you.

Questions to Consider before Making the Outsourcing Decision

When you know that reducing cost is what your business is looking for in order to thrive and stay competitive, is offshoring the right solution? Will it be able to solve any problem?

As many companies outsource software development to cut-down operational cost or fit in the budget. In order to come to a solution, here are a few questions to consider:

How to calculate outsourcing costs?
Is there any hidden cost while outsourcing?
How will outsourcing help you reduce cost for you?
Are they any better practices to cut cost?

When you have answered these questions, it is important for you to know that infrastructure cost is a primary cost reduction factor to consider.

How Infrastructure Cost is Reduced via Outsourcing?

According to a CIO Magazine survey, small businesses spend about 6.9% of their revenue on their infrastructure costs.

This is above the recommended 4-6% range. Medium companies spent an average of 4.1% and large companies pay 3.2%.

Well, companies spend a lot on IT infrastructure costs. CIO Magazine also concluded that companies are outsourcing to reduce infrastructure costs.

Gartner’s managing Vice President Michele Caminos says,

“By lowering the cost to ‘keep the lights on’ – otherwise known as ‘run’ costs – you can start freeing up funds,” she said. “Since infrastructure and operations (O&O) comprises two-thirds of overall IT run costs, this is the most obvious area for reducing expenses.”

Gartner has predicted that global IT spending will keep on increasing every year. The sooner you choose to outsource, the better it is.

How to Calculate Cost & Savings?

No discussion on how to save money with outsourcing can be completed without knowing outsourcing cost and saving.

One of the best approaches to calculate outsourcing cost saving is with the help of cost analysis.

Here is the four-step approach to determine the outsourcing cost:

Step 1

You have to analyze the core operations that have to be outsourced and specified in terms of quantity and quality with respect to business preferences. This helps you know what your core and non-core tasks are.

Step 2

Now you must be aware of the tasks that you have to outsource and what quality standards you are looking for. Your savings will include hiring costs, salaries, software equipment, supplies, benefits, etc.

Step 3

Next is to calculate the overall cost of outsourcing the development work. This includes hourly rate, multiple hours of work, transition cost to the cost of administration, etc.

From the total calculated amount, deduct the amount you receive from selling existing supplies and software.

Step 4

Now is the time where you get your cost savings from outsourcing. This is calculated by getting the difference between the total in-house costs and total outsourcing cost.

When you are unaware of the actual cost of services may lead to false savings. Never assume potential savings. Be calculative and do your maths.

It is important to know how much your company can save by outsourcing to offshore firms. To know the actual cost, it is imperative to know if there is any hidden cost.

Are They Any Hidden Outsourcing Costs?

As outsourcing proves to cut-down costs for companies, it will be effective only when you take into account all hidden and indirect costs and calculate the overall cost.

A few of the hidden costs cost you may incur during outsourcing maybe:

Contract creation
Project management and monitoring during iteration
Looking for the right outsourcing service provider
Retraining existing staff for outsourcing methodologies
A virtual environment for collaboration and communication
Imposed intermediaries for project assurance

How Outsourcing Reduces Overall Cost?

The first thing every company looks for is cost reduction with outsourcing. Outsourcing to the best company means you get plenty of advantages besides cost.