software outsourcing

A blog related to software development company and offshore software outsourcing

Saturday, April 29, 2006

IT Outsourcing saves less than ascertained

According to the latest survey, IT Outsourcing saves less than ascertained as the development cost seems to be increasing slowly globally. Many companies have now started to complain about the less cost savings through the Offshore Software Outsourcing and other IT services. These companies are now finding that their service provider are charging marginally bit more and the expected profit of the company is going down. According to the survey IT Outsourcing and business services provides average cost savings of 15% only. The survey suggests that many IT companies are there that are claiming for around 60% of cost savings through the process. But this estimation of the Offshore Software Outsourcing companies seems to be counterfeit as the facts and figures of the survey indicates the different results.

There are numerous procedures and payment structures involved in this payment system of the sending or delivering development jobs and services overseas. First of all professional fees is charged. After that severance pay and governance costs are also on the clients. So these additional payments fetch the profit margin of the company down by a large margin. Because of these additional payments savings range of the overall process comes between 10 percent and 39 percent according to the survey. And the average level of the savings still goes down at 15 percent when contracts are first let by the companies.

IT Outsourcing procedure

This research of cost savings through IT Outsourcing proves that the promise of enormous operational cost cutting and savings are impractical and unrealistic when one take into account the costs of attainment and ongoing contract management services of Offshore Software Development and other services. Lots of well professionals also think in the same way and believe in these facts and figures. According to them huge cost saving is there in IT Outsourcing procedure but such additional expenses and payments reduces the profit margin of the companies. They also states that such Offshore Software Development services which are only focused on cost savings advantages often fails to convert in a quality deals.

In such services and deals cost reduction remains the primary motivation, but an increasing amount of companies and competitions are leading to reduction in the profit margin. Companies that are involved in IT Outsourcing focuses more on quality that generally never used to the happen that much in the past. The ratio for the qualitative services in Offshore Software Outsourcing is increasing gradually. Even the no. of IT Outsourcing deals are also increasing in the market and first quarter of year 2006 is the record for any years first quarter for the no. of deals that has taken place.

In short according to the survey companies are now more focusing on the qualitative services as well as more and more deals are taking places for sending the development job work to the overseas destinations. It is one of the reasons for the reduction in the profit margin of the companies in IT Outsourcing dealings.