IT Outsourcing costs: the most vivid and hidden ones

IT Outsourcing costs
By , Head of Account Management

IT outsourcing can be a great way for businesses to save money, but it can also become a financial black hole. It all depends on how carefully you plan and manage your outsourcing relationships.

In this article, we are going to take a closer look at both the visible and hidden costs of IT outsourcing. We'll also give you some tips on how to minimize these costs and get the most value for your money.

So, if you're thinking about outsourcing your IT, read this article first. It could save you a lot of money and headaches down the road.

What are Outsourced IT services?

Outsourced IT services refer to the practice of contracting or delegating specific information technology (IT) functions and responsibilities to external service providers or third-party organizations. These services can encompass a wide range of IT tasks and support, including but not limited to network management, hardware and software maintenance, helpdesk and technical support, cybersecurity, data management, and infrastructure monitoring.

Outsourced IT services are similar to hiring a professional chef for a dinner party. Just like you trust the chef's expertise to prepare a delicious meal, outsourcing IT tasks means relying on skilled professionals to manage your technology needs efficiently. It frees you up to focus on your core business, much like hosting a gathering while the chef handles the culinary complexities in order to help make the party stress-free.

When should you outsource IT services?

Outsourcing IT services can be a good choice in the following conditions:

Reasons to outsource IT services
  • When you lack in-house expertise. IT is a rapidly evolving field, and keeping up with the latest technologies and trends can be challenging. If your team lacks the necessary skills and knowledge for critical IT functions, such as cybersecurity, cloud management, or specialized software development, outsourcing to experts in those areas can be advantageous.
  • When you wish to cut costs. Maintaining an in-house IT department can be expensive because it requires investments in infrastructure, hardware, software, and personnel. Outsourcing can offer cost savings by eliminating the need for continuous training, hiring, and infrastructure maintenance. There may be instances where your in-house IT team faces temporary resource shortages due to employee turnover, leaves of absence, or spikes in workload. Outsourcing can provide a quick and reliable solution that bridges these gaps until your internal team gets back to full capacity.
  • When you wish to focus on core competencies. When IT tasks are outsourced, your internal resources can now be allocated to activities that directly contribute to your organization's mission and growth. This shift in focus can lead to increased productivity and competitiveness.
  • When you want to scale up your business. IT needs can fluctuate over time due to changes in business demands, seasonal variations, or project-specific requirements. Outsourcing provides the flexibility to scale IT services up or down as needed. This agility allows you to adapt to changing circumstances without having the burden of maintaining a fixed in-house IT infrastructure.
  • When you need 24/7 support and availability. In today's globalized business environment, IT systems often need to operate around the clock. Outsourced IT services can provide 24/7 support and monitoring, ensuring that critical systems are always available and any issues that arise can get addressed promptly. Such a level of continuous support can be challenging to maintain in-house because of the significant costs involved.
  • When you are planning a geographic expansion. If your organization is expanding into new geographic regions, outsourcing IT services can help facilitate this expansion. Local outsourcing partners can provide boots- on-the-ground support and ensure that your IT infrastructure aligns correctly with regional requirements and regulations.

To determine when to outsource IT services, consider conducting a thorough assessment of your current IT capabilities, future requirements, budget constraints, and the potential benefits involved. Consulting with IT experts and outsourcing advisors can also be beneficial for making an informed decision that aligns with your organization's goals and objectives.

How much does IT Outsourcing cost?

The cost of IT outsourcing can vary significantly depending on various factors, including the type of services required, the complexity of the tasks, the geographic location of the outsourcing provider, and the duration of the engagement. According to Accelerance Report 2023, the average IT outsourcing costs per hour in different parts of the world are the following.

 Latin AmericaCentral & Eastern EuropeSouth AsiaNorth America
Architect$72 - $96$71 - $95$58 - $71$139 - $182
Lead Developer$66 - $82$68 - $82$44 - $53$169 - $209
Senior Developer$65 - $82$68 - $76$41 - $49$143 - $172
Intermediate Developer$53 - $66$47 - $65$35 - $41$119 - $144 -
Junior Developer$41 - $53$35 - $53$25 - $36$75 - $91
Business Analyst$56 - $68$57 - $81$40 - $61$109 - $154
DevOps$59 - $82$62 - $79$29 - $44$114 - $148 -
Graphic Designer$48 - $75$53 - $71$38 - $43$79 - $100
Project Manager$59 - $82$53 - $78$44 - $55$96 - $123
Scrum Master$54 - $79$61 - $74$44 - $50$121 - $153
Junior QA (Manual)$34 - $52$26 - $44$24 - $29$62 - $78
Intermediate QA (Manual)$42 - $59$41 - $59$29 - $32$104 - $126
Senior QA (Manual)$53 - $66$47 - $61$34 - $37$117 - $139
Junior QA (Automated)$35 - $53$32 - $51$25 - $32$74 - $94
Intermediate QA (Automated)$48 - $62$43 - $63$29 - $39$125 - $151
Senior QA (Automated)$59 - $72$54 - $74$35 - $46$140 - $167

What are some of the hidden costs of outsourcing?

In addition to the direct IT outsourcing costs, there are a number of hidden costs that businesses should be aware of. These hidden costs can include:

Hidden costs of outsourcing
  • Transition costs. The cost of transitioning work and knowledge from the in-house team to the outsourcing vendor can be significant, especially for complex projects.
  • Communication costs. Increased communication costs can be a hidden cost of IT outsourcing, especially if the outsourcing vendor is located in a different country or time zone.
  • Quality control costs. It is important to have a plan in place to monitor and ensure the quality of the work performed by the outsourcing vendor. This can add to the overall cost of outsourcing.
  • Risk management costs. There are a number of risks associated with IT outsourcing, such as data security risks and reputational risks. It is important to have a plan in place to mitigate these risks, which can add to the overall cost of outsourcing.
  • Cultural differences. Cultural differences between the outsourcing vendor and the business can lead to communication challenges and misunderstandings. This can impact the quality of the work and lead to delays and additional costs.
  • Vendor lock-in. It can be difficult and expensive to switch outsourcing vendors once a contract is in place. This can lead to businesses feeling trapped in a relationship with a vendor that’s not meeting their needs.
  • Intellectual property protection. Businesses need to take steps to protect their IP when outsourcing. This can include using non-disclosure agreements (NDAs) and watermarking their work. However, there’s always a risk that the outsourcing vendor could steal or misuse the business's IP.

It is important to carefully consider all of the potential IT outsourcing costs before making a decision. By doing so, businesses can avoid any unpleasant surprises down the road.

How to minimize the hidden costs of outsourcing

Here are some tips for minimizing the hidden IT outsourcing costs:

  • Choose the right outsourcing partner. It is important to carefully choose an outsourcing partner that has both a good reputation and a proven track record of success. You should also make sure that the partner you select has the experience and expertise that can meet your specific needs.
  • Have a clear and concise contract in place. The outsourcing contract should clearly define the scope of work, the pricing, the service level agreement (SLA), and the terms of termination. You should also make sure that the contract includes provisions that protect your IP and mitigate risks.
  • Monitor and manage the relationship closely. Don't just set it and forget it. Once you've outsourced a task or process, be sure to monitor and manage the relationship closely. Make sure that the vendor is meeting your expectations and that you're getting the value for your money that you deserve.

By following these tips, you can minimize the hidden IT outsourcing costs and get the most bang for your buck.

Conclusion

Now, before you go and start outsourcing all of your IT needs, let me leave you with one final thought:

IT outsourcing is like a marriage. It can be a great thing if you choose the right partner and work hard at it. But if you choose the wrong partner or don't put in the effort, it can turn out to be a disaster.

So, choose your outsourcing partner carefully, and be prepared to work hard to make the relationship successful. Otherwise, you could end up with a very expensive divorce.

Frequently Asked Questions

Across various industries, approximately 60% of businesses opt to outsource their application development needs. Within the financial services sector, this indicator reaches 72%. At the same time, organizations operating in the healthcare sector demonstrate a relatively more conservative outsourcing approach, with an average rate of 31%.

What’s included in IT outsourcing depends on your agreement with the outsourcing company. The agreement should clearly define the scope of work, deliverables, timeline, cost, payment terms, intellectual property rights, confidentiality, and dispute resolution. In addition to these common elements, IT outsourcing agreements may also include other provisions, such as service level agreements (SLAs), change management procedures, risk management procedures, and termination clauses.

The pros of outsourcing include cost savings, access to expertise, improved efficiency, and scalability. The cons of outsourcing include loss of control, communication challenges, quality control challenges, and security risks. When considering whether or not to outsource, businesses should carefully consider their specific needs and requirements. They should also choose an outsourcing partner that has a strong reputation and a proven track record of success.

Calculating the IT outsourcing costs involves several steps. First, identify the specific services or functions to outsource. Then, consider factors such as labor, equipment, materials, and overhead costs. Request quotes from outsourcing providers and compare their pricing. Don't forget to take the hidden costs into account, such as transition expenses and quality control. Finally, evaluate the total cost of outsourcing versus the potential benefits and consider the overall ROI in order to make an informed decision.

Elena Titkova
Head of Account Management
Elena Titkova graduated from Faculty of International Relationship of Belarusian State University with honours in 2016. She started working in an IT company in 2018. At the moment Elena works with key clients. In 2021 she started MBA study.

Tell us about your needs