IT leaders have a lot to weigh when they’re considering whether or not to outsource IT tasks. The goal in outsourcing should always be to free time for your team to tackle more duties that are strategic to the business.
My approach for deciding whether or not to outsource a project is to answer these questions:
- Is it a skill set that’s core to our business? I lean toward hiring someone internally to tackle any projects that are core to our business – assuming the skill set required is available in the marketplace at a reasonable price point. Core to our business in insurance is selling policies, administering policies, servicing, and claims. So, as such, things like our claims system, our policy system, our agent transaction system, our agent portal, those are things that we keep internal
- Does the project require niche skills? I may need to look to external partners for their expertise if a project requires niche skills that I don’t already have in my organization and can’t afford to hire full-time, indefinitely. That could be someone like a data scientist, who I may contract with temporarily to help me define my data strategy.
- Is the project limited in duration? If a project has a defined start and end date, it often makes sense to leverage external expertise. However, if a project is going to go on indefinitely because it’s core to your business, then I find that it’s often better to staff it internally.
- Does it make more economic sense to staff a project internally or externally? To answer this I do some math. And while the calculations may vary, generally I look at it like this: I take every single hourly rate and multiply it by 2,000 hours, and that gives me what a consultant is costing me. So if I have a $150-an-hour consultant — which, from a market rate perspective, isn’t that out of whack — that’s a $300,000-per-year person if they’re here full-time. Then I look at how much it would cost me to hire someone full-time.
We do outsource some functions that are not core to our business. We’ve also looked at cloud-based offerings or software-as-a-service offerings for things that are outside our core business.
For example, we are in the middle of a Workday implementation for both our HR and our financial systems. We’re partnering with Workday because it’s not core to our business. We’re not an HR or financial company, and they offer a product that meets our requirements at a good OPEX price point. So that’s an example of where we partnered with a consultant or outsourced it.
How has it affected IT costs? By limiting our dependency on external vendors, I’ve actually been able to increase my capacity while holding my overall IT costs flat. Over the last several years, I’ve been able to give my employees merit increases. I’ve also had significant promotions from within. We continue to outsource some items strategically, but by reducing some of the things we’ve outsourced historically, I’ve been able to increase my overall headcount and increase my total capacity to do work.
My IT costs have remained flat the last two years, but I’ve added about 20,000 hours of additional capacity. The benefit from that additional capacity to do work is quicker throughput or more capacity to deliver more business capabilities. And that makes it worth taking the time to answer those four questions.
Paul Brady is Vice President of Information Technology at Arbella Insurance. His responsibilities span infrastructure, application development and IT core services.
