Many companies (perhaps even most) begin their outsourcing journey by calculating the cost advantages of outsourced technical services and support.
For all the compelling strategic and operational reasons for outsourcing (read Outsourced Technical Service & Support: A Complete Guide for more on these), there is no doubt that a high proportion of outsourcing projects begin with a desire to reduce or better manage costs.
Of course an accurate cost analysis can help a business better understand whether the financial case weighs in favour of retaining all or part of an in-house function, or outsourcing these instead to a specialist provider.
But in taking this first step it is vital to understand that an accurate cost analysis is not simply a matter of comparing the current annual cost of running your in-house function with a number of quotes from outsource providers.
Instead, this simple checklist provides a four-step process for a towards comprehensive and accurate cost-analysis.
1. Clearly define the process that you would like to outsource.
To carry out an accurate cost analysis you need to be clear which of these you want to assess for possible outsourcing. Is it the entire function, a sub-set of services, or a percentage of some services (by volume, territory, or product category for example)?
2. Calculate the in-house costs that would be avoided by outsourcing.
Itemise all the costs relating to the process, including both direct costs and indirect costs, but not sunk costs. The emphasis here needs to be on identifying avoidable costs which could potentially be eliminated or reduced by outsourcing.
3. Calculating the costs of outsourcing.
With an accurate brief from Step 1 you should be in a strong position to request accurate quotations from one or more outsource service providers. In addition to these you will need to consider the costs that your organisation will incur in administering the outsourcing contract, and the transition costs typically incurred in year one.
4. Making the final calculation.
By subtracting the expected cost of outsourcing from the total avoidable cost of running in-house functions, you will be able to identify whether there are potential cost advantages of outsourced technical service & support delivery, and whether these are significant enough on their own to justify taking further steps towards an outsourcing process.
You can find full details on this process in our free download, Calculating the Cost Case for Outsourcing.
However, in reaching a final decision it is imperative to understand that a cost analysis – no matter how accurate – is far from the complete picture.
As previously mentioned, there are any number of powerful strategic and operations advantages which might make outsourcing technical services and support the right thing to do even if it wouldn’t reduce your costs – and perhaps even if it might cost more!
Naturally the reverse could also be true: a decision which reduces or transfers costs might not be the right one for your company if those savings are outweighed by those self-same strategic and operational factors.
You can read more about the full range of factors to consider in our article Outsourced Technical Service & Support: A Complete Guide
Or simply get in touch today to discuss in complete confidence your technical service and support requirements.