Building an IT department takes time, effort, and money. However, not all businesses have the resources to build a technology infrastructure that can support their growth.

This is where IT outsourcing steps in. Outsourced IT costs depend on multiple factors. While saving money is a key factor, firms may choose to outsource IT services for other reasons as well.

Let’s check out more about outsourced IT costs, benefits, and how you can get the best value out of your money.

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What is IT Outsourcing?

Outsourcing IT is the business strategy of outsourcing complete or partial IT services to a full-time third-party expert that is commonly known as a Managed service provider (MSP), IT consultant, or IT service provider.

These third-party experts serve as external vendors handling the IT business aspects. They may also offer support regarding enabled business processes, infrastructure solutions, application services, utility services, cloud-enabled services, and software as a service. These aspects help develop relevant outsourcing strategies and vision.

The offered services may include:

  • Web Development
  • Software Development
  • Technical Support
  • Website Maintenance
  • Database Development and Management

Outsourcing IT may be done offshore, nearshore, or onshore, depending on the location of the service provider.

A business may partially or completely transfer functions related to maintenance of equipment, software operations consultations, and installations. The number of delegated functions, in a package or individually, determines the cost of IT outsourcing.

Outsourcing IT services helps with:

  • Better risk and compliance management
  • Help desk services
  • Operation marketing
  • Procurement
  • Server management software
  • Basic cybersecurity protection
  • Management costs
  • Network monitoring and management

IT Outsourcing Best Practices

Brands may opt for outsourcing operations to work faster, cheaper, and more efficiently, but they should also weigh the pros and cons before making the final call.

Here are some best practices that organizations can integrate into their workflows to get the most out of outsourced IT costs:

#1: Determine the Right Project

Organizations should determine the projects to be outsourced, as some of them can be done in-houseor may have specific requirements.

As mentioned, along with a quicker time to market, experts also allow the team to focus on what they do best.

#2: Create a Strong Outline

Clear, realistic, and achievable guidelines can help both teams be on the same page and offer more control.

Detailed information can also help with estimated size and project cost and offers a clear reference in case the project goes off track.

#3: Find a Trustworthy Provider

An outsourcing provider is an extension of the firm, so it is essential to find someone with a solid background, relevant experience, and strong ethics in handling confidential or trade secrets.

Since a deeper understanding helps with smoother project execution, they should also understand your industry or niche while aligning with business culture, vision, and objectives.

To begin, a small mock test can help gauge if the provider is the right fit without putting the main project at risk.

#4: Be Agile

Agile development refers to short iterations in the development process.

These iterations help with creating, testing, and releasing new versions within short sprints, whereas a traditional development release would take months.

#5: Assemble A Dedicated Team

A study suggests that outsourcing providers continue to evolve and adapt to consistently changing geopolitical conditions.

Dedicated teams are ideal for large-scale and long-term projects. Moreover, being introduced to the project since the initiation offers a better understanding of the project scope.

A dedicated team offers consistency for the project’s timeline, which saves training and onboarding costs and time.

However, it is essential to ensure that the outsourced team may shift developers onto other tasks, based on availability, without the organization’s knowledge. This consistent change may affect both time and expenses.

#6: Make a Price-Independent Decision

While outsourcing takes away the financial worries, that shouldn’t be the sole reason for outsourcing.

Strike the right balance by finding one that offers quality services within the right price range. Create a list of bids, which filters the lowest and highest price. This can help find the right balance between price, expectations, and requirements.

#7: Communicate Clearly

Communication is the backbone of any organization.

Apart from keeping both parties engaged, it consistently helps with project updates.

Communication barriers, time zone gaps, and cultural differences can impair a project. However, the latest communication and project management tools make connecting teams seamless.

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Factors That Affect IT Outsourcing Costs

IT outsourcing costs may depend on multiple factors such as the outsourced staff experience, specialization, reputation, project scale and complexity, and others.

Below are the factors that influence the IT outsourcing costs:

#1: Location of Specialists

Outsourcing costs may vary based on the specialists’ location. For example, countries in the western hemisphere are economically and technologically advanced, which may lead to higher prices.

Each country has its specialists at an average price, making geography a key decisive factor.

While you may get higher bids in the United States, Latin America, Eastern Europe, and South Asia may offer cheaper bids.

#2: Deployed Technology

Outsourced IT costs also depend on the type of technology used — whether traditional or advanced.

While traditional technologies may be well-mastered and already implemented in multiple organizations, modern technologies have a sophisticated approach. Organizations often choose the latest technologies because they are cost-effective and offer a higher success rate.

#3: Rank and Specializations

Experience and skills are decisive factors to base the final costs on.

Here’s how rank and specializations determine costs:

  • A junior developer will cost the lowest ($18 to $110 per hour).
  • A mid-level developer charges approximately $25 to $140 per hour. This is because they are a trained professional with more information and knowledge than a junior.
  • A senior developer is a high-ranking expert with superior experience. The prices range from $42 to $163 per hour.
  • Further costs may also depend upon specializations that showcase the services offered and to whom they are delegated.
  • The positions affected by rank and specialization include QA engineer, project manager, and UI/UX designer.

#4: Pricing Model

Pricing is an essential component of outsourcing IT costs because of varied modes such as hourly, project-based, or monthly payments.

Pricing may also be based on team size, while additional costs may also be incurred during the project lifecycle.

A prior detailed understanding of deliverables is required to avoid unnecessary expenses. Marketing, engineering, and legal support, are some other hidden IT outsourcing costs.

Service Level Agreements (SLAs) may help ensure that decided deliverables are achievable and realistic. Before outsourcing, some expenses may also be incurred in the search and selection for the right fit.

How to Choose the Right Payment Model

Every business has different needs, which requires a different pricing model.

The service packages may differ significantly, ranging from an ad hoc hourly support team to a recurring monthly service contract for comprehensive services.

Here are some of the payment models:

#1: Hourly Fees

Small businesses or short-term projects may opt for low-cost options such as hourly fees.

This refers to charging a fixed amount at the beginning of the project. The charges may increase as per the scope of work.

#2: A Flat Fee

An ideal flat fee is approximately $1,000. However, businesses must ensure that the project scope covers rushed response times, on-site support, delivery fees, or hardware support fees.

Aspects such as the package, deliverables, and costs must be discussed beforehand.

#3: One Price per User

IT service providers may also charge in the per-user format. This refers to paying one price per user, which offers peace of mind as other aspects will be taken care of.

Other services may include drive space, security monitoring, and technical support.

This model is safer as it helps avoid surprises and additional payments.

A per-user and monthly model helps know what exactly organizations are paying for, which helps efficient future expansion and a growth plan. These models may work perfectly for a small organization, whereas an IT manager with an IT outsourcing partner may work wonders for a large organization.

Benefits of Outsourcing IT Services

Outsourcing IT services brings benefits to a small or large-scale organization.

They are as follows:

#1: Flexibility

Flexibility helps manage IT tasks and workload spikes easily and efficiently.

IT operations require hiring or making consistent changes within the team in the long run.Outsourcing offers the same skills to an organization for a short period within a limited amount.

It further maintains responsiveness, especially when organizations aim to scale.

#2: Wide Pool of Talent

Outsourcing offers a wide pool of talent and specialized resources.

On the other hand, finding suitable talent might be difficult within an in-house team, Training them can also be time-consuming and tedious.

Working with an experienced individual helps evade costly mistakes and deliver the project just effectively. They may also offer advice and guidance for the project.

An outsourced service provider has a large team with the required skills and technologies.

#3: Focus on Core Business Offering

37% of small businesses outsource at least one business process.

When the outsourced team gets the pulse of the business right, they can offer more value to the core operations, especially when they have already worked on a similar business or niche.

This is better than overloading tasks to a team lacking knowledge. The in-house staff can then focus on their core tasks and offer better quality service.

#4: Sophisticated Equipment

Outsourcing IT eliminates the need to spend money on expensive hardware and software. Organizations may not require such expensive infrastructure after the completion of the project.

Teams should also aim for results with sophisticated equipment and technology for superior quality services.

#5: High Productivity

Outsourcing offers prompt and efficient performance as tasks are split into proficient teams. Such proficiency helps add value to the core business offerings.

Time zone differences also offer an uninterrupted workflow, leading to faster development performance and time to market.

#6: Additional Industry Knowledge

In-house employees might have comprehensive business knowledge, but outsourcing helps when they fall short of innovation.

Such a lack of creativity can hinder future innovations leading businesses to miss out on current information technology trends. Hence, an expert team can offer a fresh outlook and an outsider’s perspective on organization requirements.

#7: Cost-efficiency

According to a study, the cost is the biggest challenge for small businesses looking to outsource.

Outsourcing helps save money on operations and iterations, and it eliminates the need to hire and train employees. The labor costs are further reduced when outsourcing to cheaper regions.

On the other hand, maintaining an in-house team may lead to additional hidden costs such as expensive hardware and software, taxes and rent, and more, which can cripple an organization’s growth and scalability.

#8: Risk Management

Outsourced expert IT services also offer security services such as managing service outage risk, disaster recovery, and data security services to safeguard data and intellectual property. These services should be included in the services agreement in the initial phases.

Moreover, these teams may also be aware of government regulations, market competitions, and financial conditions.

#9: Additional R&D Layer

Firms may choose to do R&D in-house for better results. However, without suitable resources, firms may stumble with trial and error and waste their time concluding.

Rather, expert teams may have the relevant tools, technologies, and experts to offer a quicker time to market.

#10: Comprehensive Documentation

Detailed documentation for each step, stored in a centralized repository, may help with future references.

Moreover, deliverables, revisions, updates, and project plan changes can be studied for future projects.

The forms of documentation may include emails, manuals, bug trackers, submissions, code comments, and meeting notes.

Outsourced IT Costs – Key Takeaways

Outsourcing IT services is a great way to engage and leverage the right talent without burning a hole in your pocket.

Benefits such as scalability, robust disaster recovery, easier access to SMEs, lower costs, accelerating time to market, and focusing on core business offerings, have made outsourcing a great option for organizations.

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