May 11, 2011

Outsourcing Costs Often Higher than Expected


IT departments that outsource often end up paying much more than initially anticipated, according to the results of a new survey from security and identity management provider Lieberman Software.

The survey discovered that 43 percent of the IT pros work at companies that outsource a huge chunk of their IT work. Among larger organizations with more than 1,000 employees, 55 percent said they outsource IT projects. Among businesses with less than 1,000 workers, 33 percent said they outsource to external providers.

But most of those surveyed ended up paying more for outsourcing than was originally budgeted. A full 62 percent of those polled said that their outsourcing agreements cost than more money than expected, while only 11 percent said the costs were less. Even further 27 percent said the money spent on outsourcing was “significantly more than planned.”

The survey also called into question the reasons why outsourcing costs often come in higher than anticipated. Claiming that the “relationship between many outsourcing companies and their clients is at a breaking point,” Lieberman found that 77 percent of the IT pros surveyed said that outsourcing providers have “made up work in order to earn extra money.”

The survey results call into question a long held belief that outsourcing IT work can help cut costs and better ensure that projects are completed on time.

The decision to use external consulting companies over internal IT is often a tricky one. With internal IT staffers frequently overloaded with day-to-day tasks, there’s no denying the need for external resources, especially for special projects that need to be completed by a certain deadline. There’s also often the assumption at some companies, especially smaller ones, that internal IT people tend to be more generalists who may not possess the expertise required for specific projects, thus requiring outside consultants who are deemed to have the necessary expertise and experience.

But I know from my days in IT that outsourcing IT work didn’t always turn out the way we expected. External consultants often don’t have the vested interest in a company that an internal staffer may have, so there can sometimes be a question of commitment and loyalty. And although I was surprised by the 77 percent of people surveyed who said that outsourced providers have made up work to earn extra money, I have seen that happen myself.

I recall one particular project at my former IT job where we hired an external contracting company to help us with a long-term Windows migration project. The people brought in to assist us were paid by the day. And although they were highly skilled, there were sometimes days where their contributions were lacking or they performed simple, almost meaningless tasks that were not at all critical to the project.

What’s the answer? In short, IT management and professionals need to take a closer look at and keep better tabs on the contractors they bring in to make sure they’re getting their money’s worth. Lieberman offers its own take on the situation.

“What this survey confirms, is that many organizations are growing frustrated with IT departments that consist largely of outsourced employees who come and go at the whim of outsiders,” according to Liebermann. “If organizations are going to outsource IT they must measure their outsourcers’ performance across the appropriate set of criteria – not only cost, but resiliency, transparency, and data security.”

Conducted by Lieberman at the recent Infosecurity Europe 2011 and RSA Conference 2011, the survey reached almost 500 IT professionals, all of whom were fully or partly responsible for handling outsourcing at their companies.




Lance Whitney is a journalist, IT consultant, and Web Developer with almost 20 years of experience in the IT world. To read more of Lance's articles, please visit his columnist page

Edited by Jennifer Russell



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