Executive Brief: Comparing In-House vs. IT Outsourcing
IT Outsourcing can be a very effective alternative to using internal information technology and resources, but a full understanding of the objectives and options are required to make that decision. The key to a successful outsourcing decision is the cost-benefit analysis, a mixture of the hard dollar costs and the less tangible soft costs, qualitative measures of needs, risks, and benefits.
Please note, this executive brief is an abbreviated version of the original. For the full version with charts, please view the Executive Brief: Using a Cost Benefit Analysis to Compare In-House vs. IT Outsourcing (PDF) . You may also find the Sample BIA Questionnaire (DOC) to be helpful in making your sourcing decisions.
Using a Cost-Benefit Analysis Framework
for Making IT Sourcing Decisions
The decision of when, how and what to outsource is also an essential part of the equation. Organizations evaluating their options for moving complex applications or functions, selective pieces of their IT environment, or their entire IT infrastructure to an external service provider – should consider how each option delivers on strategic business goals.
Some sample questions organizations should ask themselves:
- What are the goals we want to achieve from outsourcing?
- What are our core competencies and which services or functions are not core?
- What would be the cross-functional impact of outsourcing?
- What functions and services can the outside vendor manage better?
- What are the most critical IT and data security issues?
- What criteria should we use to select ‘what’ to outsource?
- How much experience does my IT organization have managing outsourced engagements?
Comparing Costs
An IT outsourcing cost-benefit analysis typical includes a comparison of the existing or future state of in-house capital and operational costs with the cost of externally provided services. To make an accurate and effective comparison, organizations must have a thorough understanding of all service costs and benefits.
While hard cost savings and the desire to avoid capital investments continue to be a top priority, business benefits and qualitative soft cost savings also play a role in the decision to outsource and the scope of the engagement.
Benefits are as Important as Costs
The benefits of IT application and infrastructure outsourcing can be significant. Financial and human resource limitations, the growing complexity of technology, and cost and risk of deploying new technology can present challenges to an organization’s internal IT operations.
By outsourcing selective pieces of the IT environment, CIO’s can leverage a service providers expertise, economies of scale, high performance, and enhanced IT service delivery to address some of their most pressing issues – and remove barriers to innovation and value creation.
The Decision to Outsource
CIOs and CFOs are rethinking their IT strategies to improve business processes, cut costs and make sure their organizations are future-ready.
Outsourcing all or part of an organization’s IT infrastructure, operations and applications is just one option in the CIOs tool kit for moving to the next generation of IT – and bringing IT in closer alignment with these business objectives.
Developing a systematic cost-benefit analysis can help assure that successful sourcing decisions are based on a clear picture of all the options, cost and benefits.
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