Costs Could Slow IT Outsourcing

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OK, we’ve all heard plenty of news about outsourcing and off-shoring. Scary estimates show an increasing number of U.S. IT jobs being lost to overseas workers, and many U.S.-based IT professionals are worried about their current jobs and their careers.




The main reason cited for the growing outsourcing trend is cost savings. But many of the companies that outsource their IT functions in order to lower costs are not getting the savings they are looking for. In a recent people3 survey, only 21.1 percent of companies said they got a cost savings of more than 20 percent from IT outsourcing. A little more than 18 percent of companies saw no cost reductions at all, and 9.2 percent actually saw a cost increase from IT outsourcing. 




According to Lily Mok, a senior consultant at people3, a division of Gartner Inc., the problem is that a lot of the companies are not taking all of the costs associated with managing outsourcing into consideration. She said these costs average about 4.5 percent of the total contract’s value, but can run as high as 15 percent.




According to the people3 report, “Embarking on a Successful IT Outsourcing Journey: Refocusing Your Human Capital Management Strategy,” extra outsourcing costs are often difficult to measure. Some of the things that lead to these unexpected costs include the time and effort spent during transition and the disruption of existing work processes. Other factors include increased turnover of IT employees who have the business-critical knowledge and skills to maintain the success of the organization, lost productivity and poor morale.




Let’s hope that companies begin to take these factors into consideration and weigh their outsourcing decisions very carefully before replacing existing IT workers with a more expensive outsourcing option.




For more information on the report, which goes on to suggest ways companies can find outsourcing success, go to



Emily Hollis is associate editor for Certification Magazine. She can be reached at 

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