B.P.O - Comparing costs

If the primary goal of outsourcing is to reduce costs then why do most companies fail to accurately assess their internal costs?

Certainly capital equipment investments in printers, mail machines, servers, supplies, maintenance contracts and operator salaries are easy numbers to obtain - in fact, most studies stop right there. What's wrong with this comparison?

The outsourcing company, if properly managed, has the same hidden "soft" costs of running any production operation. Therefore, an accurate comparison to an outsourcing quotation should include true in-house costs, not just hard dollar line items in budgets.

An example of soft costs rarely addressed is indirect labor cost, such as

• Accounting, budgeting,
• Interviewing, training, recruiting, payroll, benefits administration
• Mailroom management, temporary labor, IT support, building facilities management, vendor contract management, shipping and receiving, purchasing, and mail delivery.

What about hidden expenses that are buried in larger line items

• Warehouse storage space, delivery vehicle usage for mail delivery,
• Various types of insurance, real estate and utility costs, and so on.

All of these costs are included in outsource pricing. If the objective is a true, accurate comparison of in-house versus outsourcing, then be prepared to spend some time analysing real internal costs.