Don't be blinded by offshore savings claims

The business case for moving some IT operations offshore is, on paper, compelling for organisations of a certain size.

The business case for moving some IT operations offshore is, on paper, compelling for organisations of a certain size.

Amid eye-grabbing claims that exporting IT development and infrastructure can save in excess of 50% of their total cost, it is understandable that consideration of such a move is high on the agenda of many IT directors.

As we report this week on page 24, however, the promised savings often fail to take account of a number of real but hidden charges such as additional security and the cost of management and governance.

A decision that seemed open and shut at a 50% cost saving rate can be much more finely balanced at 20%, given the risks and the initial investment required.

It is critical that the ITdirector acts as a voice of reasoned restraint within the business to ensure that return on investment projections factor in all of the costs involved, even though there may be difficulties in assessing a value to some of the intangible costs.

Failing to conduct a thorough consideration of all the costs risks the outsourcing decision being considered a failure, even though it still provides a positive financial return, because it did not achieve savings that were unrealistic from the start. In particular, the more complex the work being outsourced, the greater the hidden charges and the more carefully they have to be considered.

This is not to suggest that offshore outsourcing is not a useful tool, nor that cost is always the primary consideration when exporting IT functions. But it risks being regarded as a panacea, a silver bullet that will cut costs and free up resources for investment in other parts of the business.

Importantly, the high level of savings claimed for offshore outsourcing risks blinding the business to other options that may be more efficient.

The full range of criteria used to determine whether a function is suitable for outsourcing should be considered when making a decision about moving it offshore.

Offshore outsourcing is still in its infancy and new issues are constantly emerging. Ultimately, your appetite for risk may be the deciding factor in how tightly you are willing to embrace it.

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