Outsourcing vs Insourcing: A Critical Decision for Your Company
- Typically, senior-level subject matter experts are more productive. They provide the expertise you need more quickly and for less money. Why? They already have experience in your applications and industry. They’re familiar with best practices and can get up to speed quickly.
- Consultants only bill for hours worked. They do not bill you for unproductive time, such as holidays, sick days, vacations, doctors’ visits, etc. When the project is delivered, they’re no longer on the payroll.
- Subject matter experts often have unique skill sets that your organization may lack, so they add significant project, business, and IT value. The learning curve is minimized as their skill set on the project is fully matured.
- Reduced Overhead. There is no additional cost for benefits, payroll processing, and similar expenses.
- If the consultant isn’t performing to your expectations, you seek a replacement. There are no HR difficulties. They are making their living one successful engagement at a time, so they are highly motivated to perform well.
- Software vendors support their consultants, so a knowledge base of your business applications, processes, and IT environment already exists within the vendor’s product staff. They typically only need to be introduced to your business process and project environment.
- By utilizing subject matter experts, management time can be focused in areas of greater potential value to the business.
- Work on demand. Utilizing consultants offers flexibility to the changing work demands and priorities of your company and department.
- Loyalty – making the commitment to an employee can result in having an individual with stronger loyalty than a consultant (although good contractors never want to sacrifice potential future business and relationships).
- Dedicated Staff – you know who you’ve got and what they can do. There is no performance risk. You know exactly what to expect in terms of productivity, work quality, and timeliness.
- Payroll Costs – typically, payroll expenses for salaried employees are more stable than those of hourly contractors. If projects don’t go as planned, the additional hourly expenses can become a burden.
- Institutional knowledge – expertise is retained in-house. You don’t have to worry about resources leaving the project without sufficient knowledge transfer.
Which method is more cost effective – consultants or FTEs? The reality is that it depends on your goals and priorities. If the endgame is to execute a shorter-term project without incurring the long-term costs of expanding full-time staff, then consultants are the right choice. There is, however, a cost associated with an outsourced knowledge base. Employees with intimate knowledge of your processes and systems are invaluable. At a minimum, if you engage consultants to supplement your project or IT staff, make sure you plan for an appropriate amount of knowledge transfer, including documentation, training, and a post-turnover support period.
While using a consultant is definitely not appropriate for every situation, it can pay off for your company if you base your decision on business strategy, not hourly pay rates.