neoIT report examines true costs of offshore outsourcing

By siliconindia   |   Tuesday, 06 July 2004, 19:30 IST
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BANGALORE: Continuing its popular series of reports on offshore outsourcing, neoIT’s newest report examines the total cost of offshore outsourcing, urging enterprises to take a broader, more realistic, view of the costs and financial rewards that can expected from global sourcing initiatives. The report, titled "Total Cost of Offshore (TCO): Understanding The True Offshore Financial Rewards and Costs", provides guidance on developing realistic financial scenarios for global sourcing initiatives, and details the components that should be considered that comprise the total cost to offshore. neoIT recommends that enterprises invest in planning, focus on the total cost to offshore – not just wage rates – and manage costs holistically. The report outlines the multiple components that comprise TCO and underscores the need for corporations to carefully evaluate all of the costs involved in offshore outsourcing in order to obtain an accurate evaluation of the cost and direct financial benefits. "Many companies are lured into the prospect of dramatic, immediate savings by offshoring as a result of using only labor costs to project cost optimization scenarios. Unfortunately they are sorely disappointed when offshore outsourcing initiatives fail to meet their expectations," stated Atul Vashistha, CEO of neoIT. "In neoIT’s experience, our clients achieve savings ranging from 25% to 50% annually over a 3-year period, not the dramatic 70% to 90% that makes for attention-getting media headlines due to the additional costs and investments required in order to succeed at offshoring." The TCO report provides information on the multiple components of offshoring costs and points out the importance of offsetting lower labor cost projections with increased investment in other areas in order to ensure offshoring initiatives meet expectations. These expense components include: Investment in communication systems required to manage offshore initiatives *Significant expenses associated with physical infrastructure and support *Inadequate planning can delay transition deadlines *Development of a governance structure in order to avoid reactive management of offshore initiatives *Human resources change management and redeployment planning *Training required to minimize costs and improve transition times *Disaster recovery plans in order to minimize risk *Investment in offshore research and knowledge development *International travel costs at full fare *Exchange rate fluctuations can impact long-term agreements and captive environments A free copy of the complete report is available at neoIT’s Offshore Knowledge Center at www.neoOffshore.com.