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Organizations outsource IT operations more to gain efficiency than to achieve cost savings. Sixty-six percent organizations outsource their services for IT efficiency and 34% for cost savings, according to a recent report IT Outsourcing by Purpose conducted by Info-Tech Research Group. Nonetheless outsourcing is usually linked to long-term savings or revenue growth. IT efficiency driven projects tend to focus on intangibles like access to skilled personnel, re-purposing of employees and management of overheads.
Cost savings are dependent on the type of outsourcing that is being done, percentage of total IT budget that outsourcing consumes and the size of the organization. The business case for outsourcing includes both cost savings and cost avoidance. Budget savings was defined as the difference between the internal costs and the outsource costs of the given IT component. Many clients indicated determining their own costs was a learning experience.
According to the research findings, outsourcing of IT infrastructure, which generally encompasses helpdesk, desktops, server and storage, telecom, databases, networks and security, can reduce IT budgets by 27%. Whereas applications development outsourcing can save cost by 20%, applications support outsourcing by 16% and outsourcing of helpdesk services can save cost by 13% (See Chart 3).
The study identified 15 key pitfalls of outsourcing, among which escalation process management; time and resources required to manage the outsourcer; understanding needs and deciding on the location of service delivery; and access to appropriate legal help have been identified as high alert areas.
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