Article Calculating IT Outsourcing Costs, Savings and ROI

How to Calculate IT Outsourcing Cost

It can be difficult to recognize when you should begin considering managed IT.

• Do you need managed IT to complete a project?
• Do you need to outsource your IT to free up time for your existing IT staff?
• Do you need help making scaling easier?

If any of these apply to you, or if you simply want high quality IT support with quick turnaround times, then it’s time to outsource.

But, once you decide to pursue managed IT, make sure you get it done right.

The Benefits of Outsourcing Your IT

1. Reduced Monthly IT Cost

By outsourcing IT, you’ll have more consistent monthly costs. No matter how much support you need, you’ll always be paying the same amount.

With internal IT, if you need more support than usual due to an issue, you’ll end up having to pay for overtime. This also makes it much easier for you to budget, as you’ll never need to spend more unless you decide you want to get more service.

2. Lower Upfront IT Cost

One of the financial benefits of outsourcing to a managed service provider is that you automatically save on upfront costs that are associated with purchasing both hardware and software.

Managed IT service firms will be able to provide you with a monthly plan suited to your business needs rather than having to purchase a range of costly equipment.

3. Easily Scale IT Services with Real-Time Capacity Needs

With a managed IT services company, you can easily scale up or down as your business evolves. You won’t need to be concerned with training and hiring new staff.

In addition, you’ll be completely flexible with the software you use from your provider. If you find your business no longer needs a specific piece of software, you can just ask to remove it.

All of this means that when you’re growing your business, you don’t need to pay unnecessary costs.

4. Higher Productivity

IT issues can cause thousands of dollars in damage. Instead of needing to struggle with an IT issue, your managed IT service provider can quickly fix your issue to save you time and money.

How to Calculate the ROI of Outsourcing IT

You know outsourcing IT will reduce costs, but your management and investors want a clear picture of the benefits that this change will bring. By calculating ROI, you’ll be able to demonstrate the value of outsourcing IT.

But calculating ROI is not always a straightforward process.

First of all, there are some situations where ROI cannot accurately measure IT projects. Below is a list of examples where calculating ROI may not be appropriate.

• Expenditure on IT consumables and mandatory activities such as repairing or replacing broken PCs.
• Short maintenance projects that can be completed in under 1 month.
• Projects that do not produce inherent cost savings or revenue.
• Projects that are required for regulatory and compliance reasons.
• Projects that involve life or death. (e.g. Healthcare solutions)
• Projects that only have intangible benefits and no measurable financial benefits

For projects that fall outside of these limitations, ROI can be calculated with the following formula.

ROI % = (Return – Investment Cost)/Investment Cost x 100

However, even if the project you’re considering has an accurate ROI calculation, there are still many pitfalls to be wary of.

Some examples of issues you should be concerned about include:

• ROI calculations that can be manipulated through incorrect evaluations of the project benefits.
• Project savings, income, and costs need to be both measurable and realistic. However, accuracy is not guaranteed.
• Project utility may not be solely attributed to one improvement. As a result, you must take care when measuring to avoid double counting.
• It is not always possible to accurately anticipate the costs and benefits associated with a project.

IT Outsourcing Benefits that ROI Does NOT Account For

Additionally, there are factors to be considered that aren’t taken into account in the ROI calculation.

For instance, there are non-financial benefits that a project might bring that outweigh direct costs, such as customer satisfaction.

This cannot be factored into the ROI of a project, but it is still a critical piece of information when considering the implementation of new ventures.