The Outsourcing Continuum, Part VI: Making the Decision

The challenge to implementing this model is developing a true cost model of IT services so a reasonable comparison of costs and goals can be achieved. Today, the cost of IT is calculated largely on the personnel costs and the capital costs of the assets that IT provides. In truth, the opportunity costs of not providing more effective utilization of people in the business units is unaccounted for (this assumes, of course, that IT does improve effectiveness). The cost of not being able to determine the state of the business in a more timely way is left out of the equation. And the cost of decisions being made with incomplete information is missed. The cost of system down time is also largely ignored.

If, for example, you had 40 people making $25/hour and your systems were down just .5% of the time, it would cost you $43,800 per year. Putting real dollar figures to intangible items is difficult, but the risk to the business is too high not to make an educated estimate.

Most business managers never think about the technology they use every day and how lost they would be without it. They are concerned about the cost of the technology and what it lacks. These are real concerns. But, if business management can step back and think about IT as a utility they will begin to see that trying to keep the IT infrastructure running is like buying and maintaining your own power plant. You wouldn’t do that because you can’t justify the cost.

You use the power to run your business and focus on the things that make your business successful, you don’t worry about buying coal to keep the power plant running. IT should be viewed the same way, it is an information utility. The real value comes from the information that is generated by the plant, not in the electricity flowing through the wires.

Outsourcing Value

Step back and look at what you’re doing. By now you’ve outsourced your payroll so people get paid the right amount on time. You have outsourced your sales process management to somebody like or Microsoft Office Live. Why aren’t you outsourcing the other pieces of business process, like support, to somebody who knows what they’re doing? They have the experienced staff to solve problems quickly. They can help you put together a disaster recovery plan. They can help you protect your valuable information from theft and hackers. Your IT staff with limited knowledge and resources cannot do that no matter how smart or hard working they are. Get them some help.

One caveat, don’t outsource and forget. You need to manage an outsourcing partner just as you would an employee. It’s an important part of your company and you don’t want to just let somebody else make all the decisions when they don’t sit in your seat. Will outsourcing save you money? Maybe not directly, but when you calculate the lost opportunity costs of inefficient business processes, late development projects, time lost due to lack of skill or time or knowledge, the outsourcing decision will look a lot better.

Mike Scheuerman is an independent consultant with more than 26 years experience in strategic business planning and implementation. His experience from the computer room to the boardroom provides a broad spectrum view of how technology can be integrated with and contributes significantly to business strategy. Mike can be reached at [email protected].