How to Measure the Costs of Outsourcing

Your desire to expand your business through outsourcing needs to be tempered by a calculation of outsourcing costs. There are many ways to save your budget through outsourced labor but initial costs for foreign expansion can be considerable. You also need to measure the public relations and personnel costs of outsourcing before you initiate your business plan.

Difficulty: Moderate

Instructions

Weigh the Pros and Cons of Outsourcing

1. Analyze total profits over the last 5 years to measure the necessity for outsourcing. Your focus should remain on drastic decreases in profit after taxes and a comparable increase in business expenditures.

2. Place your company's financial report in context with the competition while measuring the costs of outsourcing. Companies that are in a highly competitive industry need to consider outsourcing to remain strong, while dominant companies can afford to stand pat over the short term.

3. Read rental agreements, business mortgages and other facility documents to determine potential savings through outsourcing. One barrier to outsourcing into new regions is the initial cost of new offices and factories. Your company may be able to sell off older properties and find lower-rent offices miles away from current locations to save money.

4. Study equipment costs at all levels of your company to measure the costs of outsourcing. Your company may need the current machines in your factory, but you may be able to sell or transfer computers, desks and office supplies to save money while you outsource.

5. Reconsider bonus programs, fuel reimbursement and other fringe benefits to current staff members. Your expansion into new markets and restructuring of current facilities may lead to high costs accrued by a motivated work force.

6. Work with your accountants and managers to determine the exact number of man hours need for production processes. You can eliminate positions and outsource production work to cheaper markets after determining the necessary amount of work required.

7. Compare the wages, benefits and overall costs between your staff and potential employees in other markets. Your desire to outsource positions may be reinforced by replacing a current worker with a hypothetical worker.

8. Present the possibility of outsourcing to middle management and investors to gauge their interest. Your presentation of the cost effectiveness in outsourcing may be met with hostility by some parties. It is important to use every bit of feedback before making a final decision.

Tips & Warnings

• Review stock trends and sales numbers in relation to past announcements of outsourcing and corporate shuffling. These tangible figures indicate public trust in your company as you change personnel and investments. You should look at past press releases to determine the right language for outsourcing announcements.

Who Can Help Sponsored

• Fax without a fax machine! Over 11 million people use eFax® to fax online. Get your free trial today
• Onebox® - Virtual Phone System for Small/Medium Businesses. Service includes Toll Free, Local Number, Call Forwarding, Voicemail, Online Fax & more. Free Trial!