Mapping Personnel by Service Tower

Today's guest blog on personnel considerations in IT outsourcing comes from Ray Bender, Senior Advisor, TPI.

How critical is quantifying the number of personnel who support the services you are evaluating for a potential IT outsourcing engagement?

Staffing and personnel costs generally form a significant portion of every IT budget. The percentages vary depending on the type of services being considered for outsourcing. Application development, maintenance and help desk services are on one end of the spectrum with a high percentage of labor costs, while mainframe and server support services are at the other. The percentage of staffing costs for network services depend on whether telecommunication carrier expenditures are part of the budget or a separate expense category.

The better you know the staff supporting the function and their corresponding expense structure, the better you will be able to develop a sound business case on which to base your financial evaluation.

Every evaluation requires a baseline for comparison. One step in the development of a baseline cost structure is the allocation of personnel by the functions they are performing. If your existing budget and cost accounting is not already broken down by the service functions performed, a significant one-time effort may be necessary to prepare a financial structure based on more than a topside percentage allocation.

An evaluation and mapping of your organization, including both employees and outside contractors, to the corresponding service function is generally required to accurately determine the true cost structure of service delivery. Additionally, don’t forget to evaluate the service functions being directly supported and funded by the business units. That population may not be under the direct authority of IT, but to evaluate what support is required to deliver the service functions without them is only capturing a portion of the cost. Don’t forget that corporate support groups should be included in the mapping exercise in addition to the direct IT line support team.

Where do you draw the line between counting overhead organization and the value that it provides?

Clearly the value has to be directly related to the service function you are evaluating. Sometimes it may not make sense to include corporate legal staff expenses in the business case analysis since the impact on the size of the legal staff you require is not directly tied to the outsourced functions. However, if corporate HR staff are directly associated with IT employees, the cost savings attributed to reduced HR staff after outsourcing should probably be included in the business case.

As with any financial decision related to outsourcing you need to know your current personnel cost and what they are doing. Use that information to make decisions about the sourcing of IT services. If you aren’t able to comfortably answer the first question I posed, you may need to temper the timing of your outsourcing decision to make sure that one of your biggest business decisions is based on the best possible information you can get, not just the information you have on hand today.