How does outsourcing save money?
rda at rti.org
Tue Aug 15 11:40:31 EDT 2000
Outsourcing saves money if you can contract for services that you need
without the long standing costs like benefits, retirement, office space,
management staff, etc. You also can "manage" the contracts in a way that
you can't manage in-house projects.
Directly hiring people has expenses over and above salary and fringe
benefits. Some contract agencies have experience in work that you can't
afford to keep on hand. They can develop methods for multiple projects
that would take you years of heartburn to redevelop in-house.
It works if you look at labor as a commodity such as getting the
plumbing fixed rather than part of the core services of your business.
(You don't have a plumber or painter on staff unless you have an economy
of scale that makes it worth the costs.)
I would question whether this is a good idea for IT services, but many
people have decided to do it. They may not understand how to hire and
manage geeks so they out-source. In theory, a staffing agency could have
experts on hand to do a lot of different projects. The contracting
business would not have to keep expert staff on hand and could "hire the
plumber" for a specific job. (Sorry if I offended any contract people,
but have you hired a plumber lately?)
My $.02. Roger (in RTP)
Michael S Czeiszperger wrote:
> I know someone whose department is being outsourced, and they'll all
> being picked up by the outsourcing supplier at their same salaries and
> benefits. Given that the outsourcing firm is charging a 25% overhead on
> the total cost of salaries and benefits, even assuming the employer
> doesn't have to pay payroll taxes its still costing the employer more.
> Payroll taxes don't cost 25% of an employee's salary.
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