Organizations need to cut down costs to spur growth. With increasing competition, there often isnt any space left to splurge and your company will do well to cut down where it can. The money saved can also be gone onto research or improved employee salaries that can help boost productivity and sales.
IT organizations can yield major savings with a fixed-fee outsourcing model for developing applications and maintaining them. If the delivery contract for app development and maintenance is well-planned, it can yield up to 25 to 45 percent cost reductions in the starting year and go as high as 50 to 70 percent in the coming five years according to Steven Kirz, managing director of Pace Harmon which is an outsourcing company.
Why Do Costs Increase?
Due to the client not spending enough effort or time on figuring what is actually going to be built, most development projects are not fixed-fee and the cost increases tremendously. By actively managing the four factors mentioned below, IT leaders can reduce outsourcing rates and reduce costs easily.
- Roles – It is quite essential to standardize roles when adopting a staff augmentation model. Kriz says that the same roles with different nomenclature is referred to by different companies and parts of the same IT organizations and this helps establish a benchmark and baseline on these roles and even rates across all boards.
- Location – Geography plays a vital role in deciding how much money is to be paid for a resource and is defined generically as offshore or onshore. A company should examine the rates being offered for all location delivering services for a project as rates can differ by as much as 15 to 20 % within the country.
- Experience – The more experienced an IT professional is, the higher the rates he commands. Kirz suggests that IT outsourcing companies should state 3 or 4 bands of experience levels for all the roles to help avoid overpaying for resources.
- Technology expertise – Every role needs special knowledge, skills and training. Hard-to-find experts often command high market rates while standard rate levels are applicable when expertise is easily available in the market. The rates should also be inclusive of the continuum of technology expertise to ensure that the right price is being paid for any specific role.
Focusing on these areas will help you to cut down on maintenance costs and build better organizational infrastructure.
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