Are You In or Out?
By Gina Valentino
Nobody likes to talk about outsourcing. Looking beyond the walls of the organization is complicated. But for good managers, the decision-making process should be ruled by simple math and balanced with sound judgment. Regardless of the type of company, outsourcing provides alternatives to hiring full-time employees and investing in capital.
As with any decision, a cost justification is necessary. Each organization is different, and the decision to outsource or develop the resources internally requires due diligence.
Keep It Simple
There are as many metrics as there are managers. When developing comparison data to determine whether
in-house or outsource options are best, analyze expenses with a known per-unit cost, or a percent of net sales.
For example, when determining if it will be cost-effective to outsource call center operations, find the cost per order by dividing all costs by the total number of orders. In this way, you will be calculating cost per order for comparison purposes. Also review the total cost as a percentage of net sales. An industry benchmark for call center fees is 2.8 percent to 4 percent of net sales.
If a company decides to outsource its CFO functions (common for small businesses, startups and consulting firms), the most relevant comparison is cost per pay period. In this example, let's assume payroll is monthly. We're comparing a year's worth of CFO work outsourced (equal to the total expense divided by 12) versus the personnel cost of doing it in-house (also divided by 12). When calculating personnel costs, include salary and benefits.
Time Is Money
Have you ever watched a home-improvement show and been so inspired by the ease with which a room is transformed that you tried it yourself? But rather than hiring the professionals, you decide to tackle the weekend project yourself. Sure, you spend less cash, but without the right tools, experience and ability to anticipate problems, you spend a lot more time and effort, and end up with a mediocre result.