Vendor selection is also a factor in IT savings. It does matter a great deal as to which compant will best solve your problems. IT outsourcing can lead to significant savings provided you clearly understand your IT needs and selects a vendor who has the capability and skill to solve your business problem.

Several things to consider:

1. You can never ever create a competitive advantage by outsourcing. When you outsource something the entity to which you outsource puts the work into a common process with all the other folks outsourcing to them as well. They do this to get economy of scale. So if you and your competitors use the same process, you cannot gain a competitive advantage. Thus, only consider non-strategic items for outsourcing.

2. When you domestically (onshore) outsource something you are making a micro economic decision for your firm that you no longer will maintain a competitive advantage in that area and you reduce your firm's capabilities to maintain skills in that area.

3. When you internationally (offshore/near-shore) outsource something you are making a macro economic decision (for your your little part of the U.S. economy) that the U.S. no longer needs to maintain a competitive advantage in that area and you reduce the U.S's capabilities to maintain skills in that area.

Consider it.

The decision to out-source IT functions (and business operations as well) is a complex one, but underlying the decision is the one driving force of improving the efficiency of the entire value chain either by reducing the unit cost to the ultimate customer or by increasing revenue. In either case, clear AND appropriate metrics are critical to realize the additional value. You get what you measure.

As is the case in so many instances where the prize goes to the low bidder, it comes as no surprise that the low bidder cannot provide the service at the bid amount. Acrimony and limitations on resource time soon follow.

Having been in technology since the design of the wheel, I do not expect anyone to do an objective analysis on this issue - too many pundits and CIOs would end up looking stupid.

HOWEVER, this would be fairly easy to measure empirically. Savings as discussed here is a productivity formula, or how have my costs changed in relation to the total quantity of goods and services provided by the company - as measured by gross revenues. Therefore, the net 'savings' (or productivity) could be roughly and easily calculated using some variation of the following formula:

Before = Total IT Budget Before Outsourcing
After = Total IT Budget After Outsourcing
RevenueB = Corporate Revenue Before Outsourcing
RevenueA = Corporate Revenue After Outsourcing
ProductivityB = Before/RevenueB (cost ratio of services before outsourcing)
ProductivityA = After/RevenueA (cost ratio of services after outsourcing)

ProductivityG = (ProductivityB - ProductivityA)/ProductivityA {Productivity gain [savings] as a percentage of original budget}

Net Savings = ProductivityG * Before {$$ actual savings)

Of course this is simplistic, but if you factor in the dropping costs of equipment, software, and services in the IT industry, they would more than offset the inflationary costs (including non-outsourced labor, energy, etc.). Naturally, in certain circumstances extenuating factors (eg., increased competition and lowered pricing among others), may have an influence, but given a large enough sample, and assuming a fairly stable economy (Gross National Product has certainly NOT dropped), this would give a fairly accurate trend analysis - Assuming anyone really wanted to hear it

Does anyone else remember the same type of analysis published by Forrester that showed the net negative ROI on ERP? It's a fact that no one wants to hear or talk about.

Outsourcing does work and does save money. Companies which have not seen savings and efficiencies are usually very poor in management. These companies usually are staffed with outdated IT professionals with vested interests. Broadminded CIOs within forward-looking companies, with aggressive CEOs, almost always find BPO and outsourcing quite successful. Outsourcing is not for everyone. Outsourcing will not work in old-fashioned, 'techy-oriented' IT divisions. One needs to be quite 'smart' in being able to optimize business processes. Most CIOs are not capable of doing that, as they have never managed a business, or managed anything 'for profit'!

How does this work? This survey says outsourcing does not reduce costs as expected. The survey yesterday of CIO's and other C-level managers, across the business spectrum, said that corporate IT is going the way of the Dodo bird.
Another useless survey in the long list of useless information in this overburdened useless information world.

Having sat on the user side of IT as well as the consulting side, it should come as no surprise that you get what you pay for. That isn't to say that companies shouldn't always maximize their value by either hiring or contracting the "best" available resource (making the decision whether or not to hire on duration of need and future needs)but one size or in this case, all or nothing puts the vendor in charge, not the client who should know what they need and when.

The trap is always going to be hired employees with not enough to do in down times versus contracted for employees intended for short term needs who stay too long. Added to this mix with outsourcing is throwing work over the wall without sound management and control potentially because the vendor is doing that for you as well.

The latest rant on college campuses seems intent on getting more students to consider technical career paths, reversing the trend of lost IT degreed professionals coming out of our nation's colleges.

Bottom line is management can't be arbitrary on their decisions regarding in and outsourcing. That's doesn't mean they won't be, but if anybody is looking, it isn't always going to be a profitable venture for them.

Outsourcing's costs include the loss of institutional memory and other tacit knowledge which is immeasurable. Present employees have local knowledge which includes how to fix non-standard equipment and other randomly recurring problems. It takes years to generate a systems understanding of plant, people, and supply chain interactions. Not to mention building trust relationships in competence and integrity. Investments such as these cannot be recovered simply by saving in the short-run.

Having been involved in outsourcing (working for a service provider) since 1992, there are three main difficulties with the typical before and after cost analysis. These relate to the way internal IT shops operate:

1. Internal shops typically offload a lot of costs and effort to user departments, whether it is "expert user" support or equipment/software acquisition. With outsourcing, these become visible.

2. Internal shops seldom keep accurate and detailed records of support effort and often will not clearly distinguish between support and development work. Then, when the support portion of the work (or support of certain functions) is outsourced, it appears to be as expensive or more expensive than the previously incompletely tracked internal support work.

3. Internal IT shops seldom deliver to clearly defined and measured comprehensive service levels. Having the processes and capacity to reliably meet service levels is a significant additional cost that the outsourcer must plan for.

Nevertheless, cost savings alone should not be the key determinant for whether to outsource. The access to proven processes, high quality tools and expertise, as well as the transparency of costs, should all weigh heavily in the decision.

I agree with Michael S. comments that outsourcing can be a big saving if we are aggressive and have clear understanding of Business and Technology.

When I do cost analysis in terms of developing Onsite Or ( outsourcing internally ) AND outsourcing to Offshore Vendor, I see saving of more than 60% in development work.

In some of cases, Outsourcing is expensive and have inferior quality. For Ex. Analysis work ( which involves a lot of customer interaction) where we don't have clear definition.

The walls between traditional outsourcing and OnDemand Software solutions (SaaS) and Managed Services are coming down fast. I still believe the internal IT staff of an organization are going to be able to offer the best value to their internal business customers. If done right, IT is in a great postion to offer the best of both world's to provide a super competitve environment for their business.

I agree with Al Jacobson, with one addition. It is critical to fully understand the internal business reasons for considering outsourcing. I would add (0)Know your business, core activities and their key market drivers first. Typically the cycle to succesful sourcing is a long one which requires developing and investing in a partner for longer term business advantages (flexibility, deeper skills in less critical areas, shifted key resources to highest value work, etc. Short term cost improvement, rarely and maybe never is the true business advantage of outsourcing.

Outsourcing domestically does not save money when I have a temp. person from an oursourcer charging more than any two of my regular IT employees doing the same work. I failed to mention that the temp only collects 1/3 of what we pay the oursourcer and he has no benefits. The outsourcer is the one making the money. We Americans on the other hand will pay this person's medical bills when he can't pay.

Outsourcing does not provide a competitive advantage. Outsourcing causes companies to lose the flexibility and business process knowledge that American business is known for. Outsourcing is not good for employees, whether they are line of business employees or IT employees. Often times with outsourcing, employees are idle when something happens and the outsourcer's not on site to repair the problem.

Outsourcing should be used to provide temporary specialized knowledge and labor that should then be transferred to the company's employees.

Foreign Outsourcers will one day take all the knowledge they have gathered, go back home and destroy the companies that they used to provide services to by using the obtained strategies and techniques to create businesses. American companies are simply transferring their knowledge to another country or company.

Outsourcing is great for India, China and Russia. They will one day control the knowledge, process and people that provide us with the information we need to wipe our own butts. One day we all will start speaking Russian, Chinese or Farsi so that we can understand our bosses when they tell us to sweep the floor.

And we deserve it.....

Outsourcing has been around since the pre-computer punch card tab machine days of the mid-1950's... always being promoted as a cost saver, but never fully living up to it's promises.

What many today seem to be overlooking...or are not old enough to remember... is IBM's Service Bureau Corporation (SBC) which ran into anti-trust problems back in the 1960's.

The IBM service bureau approach was a reversal of current practices. SBC would sell an organization on the concept of automating one or two applications which lent themselves to cookie-cutter automation. Then, after a year or two, follow up with selling the client on moving the applications in-house which resulted in highly profitable hardware rental contracts for IBM itself, as, until the late 1980's, hardware and software was rented as opposed to today's business model of being sold. One of the primary points in the restraint of trade suite was the collusion between SBC and IBM's hardware sales force.

SBC is only one example of early outsourcing services being provided by hardware companies, Honneywell, CDC, GE, NCR also operating service bureaus along with independent service bureau companies. The primary sales pitch of these early outsourcers were partially valid as they focused on the limited supply of experienced IT staffing with the majority of the applications being automated were financial and in those days, most "tab shops" were organizationally under the Chief Financial Officer.

In their prime, service bureaus provided valuable supplementary service to overloaded in-house operations for specialized, intermittent applications.

Outsourcing underwent a resurgence in the 1970's with Ross Perot and his EDS undertaking "facilities management" of IT operations with the sales pitch that the client was faced with a lack of knowledgeable staff.

Outsourcing to acheive a savings is only beneficial in very select cases and requires expert management. I have managed resources in 7 countries with a high degree of success, but that should not be considered the "norm". I have been called in to consult on many projects with outsourcing, only to advise them to go in-house completely with better management and controls. Most of the posts here about the loss of expertise, loss of control, etc. are very valid and should be considered before outsourcing.

Outsourcing is merely a possible tool to use if applicable, but you have to know how to use that tool to make it effective.

Unfortunately, many C-level executives are too busy to dig through the details provided by someone who may see the outsourcing option as a panacea to cure many ills without accurately understanding the risks. This is not a criticism; it is an unfortunate fact in business.

Diligent efforts to explore the risk involved must accompany a look at the often rosy upside. Before agreeing to an outsourcing agreement, ensure you fully examine all the "what could go wrong" scenarios and implement solid resolution paths for each. It will complicate the agreement and extend negotiations, however this is far better than potential months of wrangling over unresolved issues and ultimately, dissatisfied users and/or customers.

As well, once the arrangement is in place, keep in mind that you are the customer of the services provided by the outsourcing partner - manage your own expectations.

The days of labor arbitrage are coming quickly to an end. The average cost of quality offshore skills is increasing as the supply of these finite resources flattens.

As a result of outsourcing areas where competitive advantage used to exist, "whitespace" is created inside large IT organizations. This is a costly disadvantage in a competitive marketplace, as a company's ability to quickly innovate or address change diminishes.

Donald Roper needs to reconsider some of the points based upon the comparative advantage gained with trading services. A starting point: http://en.wikipedia.org/wiki/Comparative_advantage

Al Jacobson, and others, make great points - but I disagree with point 3 as being something one should consider. It implies that one/all may be capable of saving the so-called competitive advantage for the country/region/whatever without acknowledging that the cost of that advantage may be unreasonable... if you want to cater to some niche client base with the extra money to spend, fine, but i would be lessening my own personal competitive advantage for my service by making decisions based on national/regional speculations rather than limiting it to objective data. Stop thinking 'us vs them' and think 'us, one world, one market'.

My comment is going to be brief as I feel that outsourcing is a pipe dream and a drain on the brain trust of America and my company. One thing to truly remember as we outsource the jobs we manage today ours might be the jobs they outsource tomorrow. Management and CIO's can be just as effectively done overseas where the work is going on if outsourcing is allowed to continue. Then one has to ask ones self what does America really do for business at that point?

The data is catching up with what most of us have known all along: the outsourcing trend doesn't work.

For one thing, what it takes to manage a remote developemnt effort (requirements, good process, quality control, etc) are precisely the things most managements don't or won't or can't do with their internal staff; if they could really figure out how to manage software development they wouldn't need to outsource.

But the reality is that it was never about money. Outsourcing is pure and simple the suits' revenge on the nerds. A culture war. And the suits will pay the price, as the poor quality and false savings eventually can no longer be ignored.

Companies have been trying reduce to the cost of IT operation as it customerily viewed as a cost center. And they should, but their method is crude and outdated, especially as better methods derived from the 70's and 80's in dealing with effeciency exist. The problem becomes one of ignorance with everyone thinking that have such a unique way for a solution; the C's just want it to go away, cheaply.

If you haven't used New Delhi India for tech support issues you will be surprised, Dell has already lost one large account locally that I know of because of the inept tech support, they have gone to another computer manufacturer that has an US tech support team and are very satisfied with the service.
I, for one who retired from this company opened up a Computer Repair center locally; repairing mostly Dell's. I dealt with Dell technical support for more than 10 years and was highly satisfied until they switched.
I'm totally out of gas dealing with them (New Delhi) and would rather not call Dell for service and just repair systems for customers. I have also had dealings with them in reference with our local Electric company customer service who outsource to New Dehli that was also a disaster. The people who are handling the support may have learned the English language fast but most of them have little understanding or comprehension uses of the English or American language.
I can�t understand the motivation of using other foreign countries for customer services when we have the talent in the United States, I know the reason for doing these things is to save money but in the long run its those company�s who are manufacturing in the US are going to be the losers and the United States itself; I guess there is no more loyalty to the country we will be sorry; if not for people living now but for our future American workers.

Subject: Outsourcing Works, So India Is Exporting Jobs - New York Times

September 25, 2007
Outsourcing Works, So India Is Exporting Jobs
By ANAND GIRIDHARADAS
MYSORE, India ? Thousands of Indians report to Infosys Technologies? campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too.
Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company?s American back offices.
India is outsourcing outsourcing.

More at:
http://www.nytimes.com/2007/09/25/business/worldbusiness/25outsource.html?ei=5087%0A&em=&en=03ef2d6ec22ea827&ex=1190865600&pagewanted=print

Personally, I would never invest in a company that outsources its IT functions.

A company which fails to use IT for its competitive advantage is just lazy and led by decisions to lower their headcount rather than finding ways to be more effective and efficient than their competitors.

It is the same symptom as companies who choose SAP or other "canned" solutions rather than developing software which gives them the ability to make quick changes and jump on opportunities as they arise.

Many managements are just too lazy, self-satisfied or blind to the opportunity to use IT expenses in order to enhance their company's competitiveness. Would I invest in such people? Never.

I.B.Kazin
Pretoria, South Africa

My rules for outsourcing are:
If it is a one off event that the business doesn't handle then outsource it to get the best results for the client.
If there are economies of scale involved ie Company A handles Company B's hardware requirements and Company B handles Company A's software requirements.
But outsourcing should never go offshore.

There are far too many variables across the spectrum of companies, vendors, and situations to categorically say that outsourcing does not save money. I also would question the study itself. It only asks participants whether they "think" it saves money or not. Who knows if these people even have the data to make that judgement.

The bottom line is that your outsourcing program should have well defined goals, you should go after them agressively, and adjust your plan/strategy if you are not meeting them.

Since it is proven in the majority of cases that outsourcing does not save.How can we get companies that do it to stop and employ local sources.Outsourcing in most cases irritates the clients.

I'll skip all the 'expert analysis',and get right to the point:Outsourcing ANYTHING to off-shore companies is counter-productive!The costs can't truly be measured,as there are too many variables(corporate info going off-shore,employee moral destabilizing,money being sent out of America,which in turn hurts our national economy,etc,etc-the list is too long!)
This all comes down basically to corporate greed:IT workers in so-called 'third world' countries are a nice panacea for the corporate greed-mongers(no employer-employee relationships,cause they don't work for you-don't have to worry about pay increases,fringe benefits-nothing,except the people they deal with that represent the outsourcee).
Sadly,this is the way of our times:Money means more to the corporate greed-mongers than ANYTHING!(I don't care what anyone says;money is the driving force here).And it will not change,until America becomes a 'third world' country itself,because these people simply don't care,period.Money talks,and BS walks-that must have come from a CEO of a fortune 500 comany:-)

Making an outsourcing decision is a bit more complex than identifying a segregated portion of work or cutting costs by moving to a lower cost labor pool. The decision to outsource involves managing business risk and keeping commitments to your clients and stockholders. Often, moving to a global delivery model will introduce some inefficiencies - but these are offset by extending the work day and closing out corporate initiatives in a reduced time frame with lower attrition risks and eventually achieving higher employee satisfaction levels.

I've had the privilege of assisting a leading BPM vendor through this process and seen their development move from a frenzied pace with heroic efforts from all to meet aggressive end of quarter release commitments go to a more measured and predictable process by extending their work day from 12 hours to 20 hours. This effectively reduced some high overtime requirements to meet delivery dates and also provided more time to assure product quality met their client expectations. All in, their main product has become incredibly stable and they now are firmly seated as the market leader in the space.

Was the transformation painless? Absolutely not - there were challenges in getting the offshore group up to speed and there were initially some communication gaps. Their existing processes were not conducive to multi-location development operations as many issues were resolved or worked out very interactively through spontaneous discussion between development team members. To become more effective in a global delivery environment many of their processes required some modification at some expense and it took years to close those initiatives out.

This is about maintaining a global competitive edge and capturing market share while extending existing client relationships. There is no question - the IT spend will increase, organizations must innovate more quickly or perish in an environment where their competitors are looking for ways to leap-frog their own abilities to bring new products or capabilities to market. Globalization is driving a new business model - this is not purely an outsourcing question so much as it is extending a companies business model and internal processes to remain competitive.

Many companies have attempted and will attempt to build their own foreign facilities but fail based on cultural gaps or a lack of investigation and understanding of the financial considerations from a taxation or regulatory aspect as they set up those facilities. Having a partner in the initial stages of this process to coach you through the transformation reduces the risks significantly.

I think the statistics are right but incomplete. Outsourcing is not a cost-cutting measure. We've known that for years, because the failures of financially motivated outsourcing contracts are well known. But that hardly means there are no benefits to the practice.

The key to driving outsourcing benefits is to understand what you can and should be outsourcing. Strategic systems that give you a clear competitive advantage? No. Support and maintenance of legacy back office systems? Sure. Project management and business analysis? Never. IT infrastructure? Absolutely.

Once you identify the right systems and processes to outsource, the choice of provider is "simply" a matter of balancing services, cost and corporate philosophies regarding on/off shore.

Outsourcing can provide great benefits or can be a disaster based on some factors:

1. Have I calculated how much I will save?
2. How much security is important to me?
3. How much trust I have with the vendor?
4. How much my vendor is committed to me?
5. Do I have a dedicated team assigned to me?
6. How much efficient is team assigned to me?
7. How much management of vendor is concern toward to me?

and many others.

Just a side note on the comment from Wm Miller on the fact that OutSourcing eliminates the "employer-employee" interface problem. What I am hearing here in CO (and my friends are telling me it is happening in TN as well) is that the Unions are returning to the workplace and targeting the traditionally white-collar IT shops!

There has been much chest-beating from both sides (it is good for the company/country; it is HORRIBLE for the company/country), but the pundits are missing the Elephant in the room - Unions came about as a direct result of the old Barons of Industry abusing their employees to the point that the workers weren't going to take it anymore! Want to guess why I think the Unions are coming back?

This survey, and I'm guessing many other surveys, regarding the costs of outsourcing are, in my opinion, overlooking one very important part of the whole thing: Language barriers. This is especially troublesome and costly in the outsourcing of customer service, for companies such as Dell for example.

When you call customer service, you expect people to be capable of understanding what you're saying, and providing you with a very clear, concise answer, that you can understand. In my case, I am a United States citizen. I don't think the same way as, for example, somebody from New Delhi. If I'm speaking to somebody who has learned to speak English, that's not good enough. I need to speak with somebody who speaks American. Why? Because I'm asking questions that make perfect sense to people who speak American, but this guy in New Delhi is totally unable to grasp what I'm driving at. This doesn't make the guy in New Delhi stupid, by any means; but he is 100% incapable of effective communications with somebody who thinks in ways he doesn't.

If you must outsource, use the right tool for the job, just like everybody else does. Let the people in New Delhi talk to people who think like they do; send your American callers to people offering the support required IN AMERICA. The savings in your customer's time, and that of the support staff, will be fantastic, and will increase customer satisfaction ratings.

Another aspect of outsourcing is to reduce the number of employees (former) who can buy the product that the company produces. If your main market is in the US, but you eliminate US citizens who can afford your product, then you are eventually going to destroy your company by sending the jobs to another place in the world. Even sending support jobs (like has been mentioned in reference to Dell) will have that effect. The base reason that most companies are outsourcing is for short-term results - not for long term benefit to the company being run by the CEO-of-the-month.

Oh please. The outsourcing sky is not falling, people are saving money, and people are not losing their competitive advantage.

What you tend to find is that (as Alter said, but buried) is that large companies with economies of scale tend to benefit, and they benefit best when they outsource 'commodity computing' - basic stuff that provides no competitive advantage to *anyone* (stuff Nick Carr likes to point to).

Do you really achieve a great benefit from insourcing your own HR applications? No. Your own email? No. Your custom-written data mining app that's customized for a special Linux kernel version? Yes.

Outsourcing is a good strategy, but you've got to be smart about where to deploy it.

Outsourcing. The terms that conjures up the ultimate in savings for some companies and smiles from those who are the benefactors of a new fat contract.

I have been in the IT industry for 17 years. I have served as developer, team lead, architect, project manager, and manager. During this time, I have seen several changes in the IT industry, some good, some bad.

As to outsourcing, the minimal questions that should be asked are: (1) Why? (2) What? (3) ROI? (4) Management of Project/CodeBase, in that order.

(1) First question, why are we outsourcing? If it is to cut cost only, then you will be sorely disappointed. Why? Because getting cheaper labor, especially in something as complex as IT work, usually means that you are getting less experience and less talent for less money. Let me explain.

Skilled IT workers bring more knowledge than cutting lines of code. Sure, a three year programmer can bang out lines of code probably at the same rate as a seasoned professional. But what kind of code are they producing? It is code that is well planned out? Is it code that is maintainable? Scalable? Logical? Does it actually work. or simply occupy logical code units?

Does it actually meet the project specifications? Does the lower skilled IT worker actually understand business concepts? Do they have the experience in merging complex business systems and B2B processes? In my experience, no. Sure they can cut code, but understanding that x=y is not the same as understanding that x=y when y=c. IT managers, wake up! You cannot replace business skills in development and you cannot replace IT experience. A three year developer working in isolation to your business processes is not going to produce equally with a 7 year developer who also has intimate knowledge of your type of business. They will not possess this knowledge and unless they gain the same type of experience, they never will.

So if your WHY answer to outsourcing is simply to save money, then you may save some dollars in the short term, but your products will be sub-par, requiring more maintenance and customization to fit your business model. In the end, ninety percent of the time, it will wind up costing you a great deal more tha it would have, if you had put together an internal team to accomplish the task.

The only time outsourcing should be seen as advantageous, is when you are attempting to bring in a company or people, who possess knowledge your IT staff does not. This has and does work. So if the outsourcing WHY is answered, "To save money", think twice. If the outsourcing (domestic or foreign) is because the firm your are seeking possesses knowledge your internal IT does not, then that is a wise decision. Make sure in these cases. that you include training for your staff as part of the outsource time. In the long term this will save you money and ensure that your valuable business savvy techs don't bolt because they feel that they are nothing more than glorified assembly line workers. Of course treatment of IT personnel, is another topic. There is much room for improvement here as well.

(2) What are we outsourcing? That question better take some serious consideration and soul searching. Are you outsourcing some minimal risk project or something that is vital to your business?

I remember that not too long ago, the U.S. Department of Homeland Security was looking to outsource some of its database operations. They found company X (this was a real company, but due to legalities I am with holding the company name), willing to do the work. Company X won the contract and then proceeded to outsource the project to an overseas company. Excuse me? You have outsourced Homeland security to a company who will use a foreign country to produce the code that will allow access to sensitive material? What is the risks involved in such an action?

I have seen financial institutions do the same thing. They outsource financial data systems to a foreign country. Excuse me, is there any intelligent management of IT these days? What are the risks involved with such an endeavor? Remember these firms and the people they employ are not subject to your laws. If they want a few back doors put in here and there, who would know? How long will it take your seasoned processionals to go through all of the code to ensure it is safe and secure?

If your brilliant decision became public, would it instill public confidence in your institution or shatter it? What would that be worth? A few thousand saved?

Be very careful WHAT you outsource and to whom you outsource it. Again rule one applies here, WHY? The WHY can oftentimes answer the WHAT, but the WHAT is sometimes important to see if it is even feasible to ask WHY!

(3) Third of all, look at ROI. Some put this at the top, and it definitely does not belong there. It is important. to be sure. But ROI should be looked at in terms of short term gain verses long term viability. If you outsource a project that is not well written, well documented, and you do not have personnel qualified to maintain it, or you are so short staffed that you may not have more than one person qualified to maintain and extend it, short term ROI could be realized, only to have the long term ROI actually drowning you in costs.

(4) Management of Project/CodeBase:
Most worthwhile IT projects do not have short term lifecycles. The code may go through many iterations, enhancements, and bug fixes and have a lifecycle of months to years. What exactly is this project's lifecycle? How long do we see this product being used in a production like environment. Failure to answer this question correctly could offer a short term win, but a long term cost. You need to be clear about the lifecycle of the project and rational expectations need to be calculated in.

These considerations just touch the surface of any project considerations, but perhaps it is a starting point for those considering outsourcing. Like all other worthwhile things in life, the overriding concern should be "Look, before you leap."

I have seen some outsourcing efforts prove very successful and I have seen some fail miserably. I remember one in particular, where a company spent a million dollars for a single stand-alone project through outsourcing, only to find that the product would not run properly at all. They hired others to fix it, only to throw good money after bad. The firm was desperate in attempting to make good on the expense and decided to hire me to fix it. Unfortunately, after spending some time getting intimate with the code, the fix I had to honestly answer them with was "throw it out and start over". Needless to say, they were not happy with my answer. However, the code was so bad and built upon such a poor foundation, that it was totally unusable in its current form. A rewrite was a much more feasible option than trying to correct someone's misunderstanding of programming principles and to continue coding on a faulty foundation. Yes, some of the code could be salvaged, but not much.

Of course it did partially fulfill requirements in its feeble form, but could not complete requirements. Memory leaks were so prevalent that it could not even run more than twice until it consumed all machine resources. The firm was in a pickle and I understood. They had to explain why one million dollars was spent for code that will not work, not counting the additional monies they spent having someone else come in and attempt to fix it, only to see it once again, fail. By the way, the others were before me. meaning that the original outsourcing cost plus the additional consultants costs were not tied up in this project.

Another company I worked for (fortune 1000), spent five million on an outsourced project. The overseas firm worked on it for eighteen months. When we finally received the so-called finished product, it only passed 20% of the security requirements. Did the program work? Yes, as long as you were content to have a 80% failure rate on the security criteria. What happened? Well to save the decision makers' posterior, a team was assigned to fix it. Guess what? Twelve months and ten developers later, it worked and went into production. The cost savings were originally valued at 1/2 million. The additional 12 months and 10 programmers later, made it cost an additional 800,000.00, which made it 300,000.00 over the original perceived savings. Additionally, the team that actually fixed the security problems were not feeling exactly jubilant about the finished product either. They felt it would be difficult to maintain and extend, since they had to use many hacks to make it pass muster.

Better ask and look before you leap! Failure to ask and answer the right questions can cost your company and perhaps you your job and status as a professional. Outsourcing can work, but only if you are outsourcing for the right reasons.