Offshore Outsourcing – Figure Out The Hidden Costs

The concept of offshore outsourcing is considered as a powerful cost cutting strategy by business enterprises. The IT outsourcing service providers located in offshore countries like India claim to process IT works at a fraction of rates of what it costs in the United States.

While it does result in save an enormous amount of money, it is important to analyze all the fact figures before calculating the total cost of offshore outsourcing. And this includes calculation of hidden costs as well. There can be areas where you would need to invest more than you estimate or there may be situations where poor productivity and quality of deliverables can weigh down the potential savings. Here are some cost points that you need to evaluate.

Cost of Vendor Selection

Most clients don't realize the costs associated with selecting service providers for their projects. This costs include documentation requirements, sending of RFPs, response evaluation and subsequent contract negotiation. And there can also be legal costs associated with the process. The selection of the vendor is an important step that determines the success of the project. Therefore, keep aside a budget of 1% to 10% for vendor selection and the initial travel expenses.

Cost of Hand Over

Every outsourcing deal goes through a transition period where the clients hand over the concerned work to the service provider. This is a rather expensive stage in the course of the project because knowledge transfer involves a lot of time and coordination. Also, this is the phase when you need to overcome the cultural differences between the two parties. This is a very important to strengthen the outsourcing relationship and thereby ensure that the project would be handles well. The transition costs may be shared by both the outsourcing partners in order to bring down the expense.

Cost of Lay Offs

For firms that plan to lay off their employees and transfer the work to offshore providers, it may come a s a surprise that there are costs involved in that too. You may need to pay severance and retention bonuses to employees. It is best to talk to your staff, communicate with them and tell them about your vision for outsourcing. If possible, you may divert the staff for other processes so that there is no dissatisfaction and bad blood.

Cost for overcoming Cultural Barricades

One of the major challenges in outsourcing endeavors is that of cultural differences. Though offshore vendors might have highly skilled and professional staff, communication may pose as a problem in the endeavors. You may either have to spend money on training employees or you may have to face the brunt of mounting costs as a result of low productivity. This is why it is always advised to hire a professional offshore outsourcing company that has enough experience in the industry and don't have communication problems.

Cost of Contract Management

Another major cost point is that of managing the offshore contract. The costs arise from invoice works, auditing, checks for charges and time records and so on. This is something that happens on a persistent level. And without continuous scrutiny, the outsourcing project may just fail in efficiency. That is why it is important to invest in the diligent management of the project.