As a business entrepreneur, you aim to scale your business higher using minimum available resources. Outsourcing projects is one major trend that is revolutionizing many companies’ operations. It is all about sourcing top talents and professionals in a specific field to handle a specific task within a set time frame instead of hiring full-time employees. As a result, the overall costs are low with flexible working plans. However, the one question that will always come up is the overall costs of outsourcing a project. That is why, in this guide, we highlight all the insights about the costs of outsourcing a project.
Why do companies outsource a project?
There are several reasons why a company will opt to outsource a project. Here are the reasons:
Through outsourcing, a company will cut down on several expenses, thus saving costs. For instance, with outsourcing, you won’t incur operations, overhead, and labor costs. Besides, the hiring process isn’t as costly as hiring an in-house team for specific roles.
Therefore, there is no doubt that outsourcing is a perfect way to help companies save money.
Focus more on other valuable tasks
While outsourcing a project helps save money, it also helps business owners focus on other core values and practices that can help grow the business.
Once you outsource talents to handle your project, you have all the time to figure out elements and other daily tasks that can help grow the business to the next level. After all, a team of experts will be handling your project as you work on other business concerns.
Enhanced productivity & project quality
Outsourcing gives you the opportunity to pick the best talents and experts in a specific field. As a result, you don’t need to worry about the quality of the results and the overall service delivery. It is upon the outsourced team to streamline the work processes, create a schedule, and manage the project, ensuring timely delivery. Therefore, you are guaranteed a high quality of service delivery and improved productivity for the business.
Access to top talents or experts
Another reason why companies will opt to outsource a project is to connect with experts in a specific field. Sometimes, especially when handling a project for a client, your in-house team may lack technical skills and knowledge in a certain space. To cover up for the gap, a company can outsource top professionals in the exact niche to handle the task.
To reduce possible risks
Some business operations have some risks associated with the processes. As a result, it is upon the business owner to invest time and other resources to streamline the processes and ensure they comply with all the set guidelines on a specific process.
When a company isn’t ready to invest in such processes or when it doesn’t have enough resources to fulfill the required compliance processes, it can outsource a project. The outsourced team will, therefore, handle all the processes and responsibilities, ensuring they meet the rules and regulations. This saves the company from facing some risks and related penalties.
Flexibility and scalability
Sometimes, all a company wants is to scale the business to the next level while enhancing flexibility in operations. Therefore, outsourcing for a project comes in handy in such a scenario.
Well, scaling a business is always easier said than done. It is upon the company to lay in place measures that will stimulate business scaling. Outsourcing is one proven strategy that has enabled business scaling.
Through outsourcing, you can quickly access top talents in the market who have tech skills in a specific field and understand the market trends that can scale your business easily. As a business, therefore, you don’t need to hire, train, and buy tools and equipment to help scale the business. You simply outsource, and the team does the rest of the activities.
Process of outsourcing a project
Before you outsource a project, you must follow the steps outlined below to ensure you get the best-outsourced team and to experience a seamless process when outsourcing.
Preparing & planning
Here, you simply perform research and understand the reasons why you want to outsource. This stage, therefore, is all about performing an internal analysis, evaluating the benefits you will get from outsourcing, highlighting possible risks, and defining the overall requirements.
Select the best BPO – business process outsourcing
Based on the requirements of your project plus the vision you have for your company, you can now start the process of sourcing for the best vendor. Take note of the technical skills, knowledge, and expertise required in the specific field.
Once you select the appropriate vendor for your project, make sure you negotiate every single detail concerning the project. This includes the pricing, communication mode, responsibilities, and other agreements related to the project at hand.
Transition & knowledge transfer
Next, you need to ensure your selected vendor understands the dynamics of your business and all the requirements. This is significant to ensure you get the exact services as stated in the preparation and planning stage to save time and resources for both the business owner and the outsourced company.
At this phase, the vendor can start working on the project, following the set guidelines and objectives of the business.
Regular assessment and monitoring
As the vendor works on the project, you can then keep tracking the project’s progress through monitoring and assessment of the overall performance.
Review and improve
After delivery of the project, check the effectiveness and reliability of the delivered work. You can then identify specific areas that require some improvement and communicate with the outsourced team to make the required changes.
What is the cost of outsourcing a project?
When outsourcing a project, you will incur direct costs and hidden costs. It is, therefore significant to understand and comprehend direct costs and hidden costs to plan effectively and to ensure the outsourcing process runs smoothly. Below is a detailed overview of outsourcing costs.
Direct outsourcing costs
Direct costs are costs you can account for during and after outsourcing processes. They include the following:
Salary / Pay Check
This is the cost you pay the outsourced team or company after they deliver the services. Depending on the nature of the project at hand, you can outsource a full team or go for a single expert to handle the project.
Independent /single hiring:
If you need to hire an independent or single expert for the project, you can either select contract-based payment or per-hour mode of payment.
Note: You can hire a single expert when you need to fill a specific technology gap or when your project has a specific requirement, yet your in-house team doesn’t have the required skill set to accomplish it.
The cost of hiring a single expert differs depending on the location of the personnel you are hiring from. However, the overall cost of outsourcing a single expert could range from $15 to $20 depending on the nature of the project, the technology stacks required, and the location of the experts.
Still, you can opt to hire a complete team, depending on the nature of your project. A complete team comes with different experts specialized in different sectors of managing the project. For instance, a project manager, project designer, developer, and QA team are among other specialists.
Again, you can decide if you want a complete offshore team to handle your project or add a team extension (dedicated team) to your in-house team to handle the task at hand.
The hiring cost of a dedicated team varies depending on the skills and technology, i.e., the value they add to your in-house team.
Note: You can hire a full team when the project is complex, and you need a dedicated team to add some skill set, or when you simply want to extend your in-house team to speed up project completion.
The cost of hiring a complete team varies based on a number of elements. For instance, the nature of the project and the region you are hiring the team from. Ideally, the average cost of outsourcing a dedicated team will be approximately $30 per hour.
Full company hiring:
Here, you simply get a whole company that specializes in a specific niche, such as IT, to handle the process from the beginning to the end. For instance, in the case of product development, the entire company takes part in brainstorming the ideas, validating the ideas, and creating a comprehensive plan up to the product launching stage.
Depending on the type of your project, the price always varies. However, when a full company develops an MVP, it will cost an average of $7,000. This implies that the overall process will attract even more.
Hidden outsourcing costs
These are simply the costs you incur along the process. Once you enter into a contract with the outsourced team or teams, you might have to meet these costs along the way. They include the following:
Before you get your ideal partner for your project, you will need to perform research, screen applicants, negotiate, and document the details. All these processes will attract some charges.
Creating a contract cost
A contract is a binding document between the business owner and the outsourced teams. The contract ensures high-quality project delivery and timely project delivery.
Ideally, you will need an expert who understands the dynamics of the bigger market to create this contract. An expert will include every single detail covering the project, hence the need to pay for these services.
Regional taxes and commissions
When you outsource services from a company in a different country, you might not know the exact taxes and commissions as a result of outsourcing the project. That is why it is significant to draw this to attention during the payment discussion period to avoid any inconveniences along the way.
Cultural and time difference
Depending on the region you choose to outsource from, the cultural and time differences may delay communication, which in turn can delay project delivery. Along the way, there are hidden charges you can incur.
Knowledge transfer/ transitioning costs
These are costs you incur when you are handling the project requirements or guidelines for the outsourced company. Before the outsourced team gets a clear picture of the dynamic of your project, it might take some time, and it will certainly attract some charges. Therefore, always keep in mind these costs beforehand.
Misaligned business requirements
When you fail to establish the goals and objectives of the business, you may have to incur extra costs along the process. For instance, changing the project’s requirements when the process is already ongoing and adding extra requirements to the project are among the elements that can attract hidden costs in outsourcing.
Server management costs
In most cases many businesses are relying on technology to scale higher. Therefore, costs, including health scaling, threat detection & alerts, and infrastructure monitoring, are key in ensuring server maintenance and updates. In fact, if the servers are more, the costs could even be higher. Therefore, keep in mind all these hidden costs when estimating the overall costs of outsourcing a project.
Factors affecting the costs of outsourcing a project
Costs of outsourcing a project vary widely because of the following elements:
The complexity of the project:
A complex project will require technical skills and expertise to handle the task at hand. Besides, a tough project will need experts specialized in a specific niche. Therefore, a complex task will attract more costs than a basic project.
Size of the project
A bigger project will require more skilled personnel to beat the deadline. Besides, the size of the project will determine if you will need a single expert, a dedicated team, or a full company to handle the project. The costs, therefore, will be higher when the project is bigger.
There are different reasons and scenarios why a person would want to outsource a project. As a result, you can either outsource an independent talent, a dedicated team, or a full company to take charge of the project. The cost of hiring a full company is higher compared to hiring an independent talent.
Other factors affecting overall outsourcing costs include the phase or stage of the project and the region you choose to outsource the team from.
Avoid these mistakes to have a smooth outsourcing process
Apparently, outsourcing is the best option for a business that wants to scale higher. However, without a proper plan, outsourcing can backfire. That is why you should avoid the following common mistakes when outsourcing:
- Failing to invest in collaboration tools
- Pocking the cheapest or most expensive service providers
- Failing to state clear goals and objectives of the project
- Failing to conduct in-depth interviews
- Assuming the need to create a binding contract
Outsourcing is a practical solution for companies that require expertise but lack adequate resources to hire an in-house team, especially when there is a need for trendy technology and skills for a specific project.
Therefore, when you make the decision to outsource, make sure you create a clear plan and determine the overall costs of the whole process, including the hidden costs to stay on the safe side.
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