It Services Company: Lowering Costs With An Outsourcing Strategy
When considering an IT services company, you should pay particular attention to how an outsourcing relationship will lower your operating costs
. IT cost management has always been a hot topic for companies. However, the issue looms even larger in the current state of the economy. As IT spending continues to be scrutinized closely, technology managers must do more with less.
Today, enterprises evaluate every IT activity to determine what should be funded or supported. During this evaluation, managers justify the demand and compare the projects costs relative to the projected ROI. Obviously, costs must be at the lowest level possible to demonstrate a greater ROI in a shorter period of time.
Evaluating an
IT services company as an alternative to traditional in-house service delivery should be done by an organizations IT leadership. Often an outsourced model can provide the same or better services at a lower cost. This approach saves the organization money on an ongoing basis, as well as freeing up resources that can be deployed against other high-value projects.
For every IT project analysis, decision-makers should include an in-house versus outsourcing cost comparison. Although outsourcing benefits have become well known over the years, enterprises need to start at square-one, ask some basic questions and evaluate all costs.
Key Considerations
Prior to running the numbers, managers need to ask why they would consider outsourcing with an IT services company. For example, if you started your business from scratch today, would you build this capability internally? To answer this question, you need to assess your internal capabilities:
Would other companies hire you to do this for them?
Will tomorrows leaders of your company come from this area of the business?
Are you receiving world-class services at a competitive cost today?
Does this process create or defend a unique competitive advantage for your firm?
Is this business process directly contributing to business growth or expansion?
To make the best decision for your company, and to save the most money, you must have the required expertise to manage your IT operations at peak performance. If you dont have, or cant afford, this expertise, your IT operations will most likely fall short of expectations and end up costing you more.
In addition, managers need to explore the reasons for outsourcing to an IT services company:
Are you looking to solve tactical issues? For example, are you looking to achieve short-term results, immediate cost reductions and current staff augmentation?
Are you looking to solve strategic issues? Is your focus longer-term and do you want to free up your time for strategic initiatives? Do you want to improve your service level measures?
Or, are other issues prompting you to outsource, such as leadership frustration or wanting to transfer risk to a third party?
Answers to these questions will provide valuable insight and help align outsourcing projects with business priorities.
Cost Considerations
IT managers must know the current costs associated with, and current state of, their IT operations. They also must objectively evaluate the service levels associated with these costs to understand how using an IT services company might increase or decrease these levels.
Other required cost figures include the total cost of ownership, the cost of hardware refreshes and whether those will be capital or operating expenditures. Businesses must also determine the cost impact on a disaster recovery plan. Finally, what is the cost of doing nothing and continuing as-is?
Compliance can create significant additional costs for businesses. For example, Sarbanes-Oxley, HIPAA, 21 CFR Part 11 and SSAE 16 all come with hefty price tags. Examine if some of those costs can be deferred or eliminated by outsourcing.
Who you select as your service provider and how you select them can significantly impact your IT costs. To get the best fit, you need to determine what criteria matter most to you and your organization, such as:
Does the IT services company fit within cost objectives?
Do you want your service provider to be onshore, offshore or something in-between?
Is it important that your vendor have specific experience in an application or your particular industry?
Another important consideration, and one that will dramatically impact your IT costs, is the type of delivery model your IT services company will use. If you operate within a time and materials (T&M) model, you will pay for resource time as it is incurred.
Each project, task and issue will be billed separately and you will incur variable costs. Typically guaranteed service levels for service delivery are included and you have substantial flexibility in managing your projects.
With service level (SLA) models, you pay a defined fee for a defined service level. Your costs are fixed and your results are predictable. The vendor manages your environment on an agreed upon service level rather than the amount of time it takes to complete tasks. Most often, an IT services company requires a contract term.
Finally, the roles and responsibilities between you and the outsourcing organization must be spelled-out. Discrepancies can wreak havoc on IT costs and performance. Your contracts, service level agreements and measurement criteria should clearly identify who will be doing what along with the associated expectations.
To recap, identify the multiple components that could affect your decision and accurately determine the actual cost of those areas within your business. Understanding where you are now as it relates to costs are crucial to assessing the real cost of in-house versus outsourcing to an IT services company.
by: Chuck Vermillion
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