To outsource or not to...

Driven by the incentive to improve productivity and profitability in an increasingly competitive market, more and more businesses are outsourcing projects rather than handling them in-house. The costs of paying a vendor rather than an employee is quite different.

However, outsourcing is not just about cutting costs and saving money anymore.

It is about how to do things quicker, more efficiently, getting to the market faster than your competitors, maximizing workforce flexibility and gaining access to highly qualified employees. For this reason, it is becoming one of the most significant business trends to date. The findings of consultancy EquaTerra's Pulse survey for the third quarter of 2008 revealed that 42 percent of survey respondents believed economic conditions were driving more outsourcing, despite slowness in certain market sectors.

It is hard for businesses to decide whether it economically makes sense to outsource their projects and really, the answer depends on several items such as project duration, required expertise and future needs.

To determine which direction best suits the circumstances consider these questions:

* Is this activity or project a core process to your business?

* Are specialized skills needed?

* What is the estimated project duration?

* Do I have the staff now or would I need to hire them?

* Do I want close management of day-to-day activities?

Are my employees qualified to complete this activity effectively?

If specialized skills are needed that are not typically within your scope of work, outsourcing makes sense. Not only are costs reduced, but the quality of work is increased, resulting in a win-win situation.

For example, many business owners outsource their accounting work because it makes bookkeeping more cost-effective and saves them the time and hassle of having to teach an employee how to handle company finances. The money an accountant would charge for doing the work is less than half the amount to hire a full time accountant to handle your work in-house.

If you have a project needed for a short duration, it can also make sense to outsource.

If you want to write an employee manual listing all of your policies and you want to make sure everything is legally correct, it would make most sense to outsource this to an experienced human resources consulting firm, rather than employ a specialist you do not need in the long term.

If your company decides to outsource a project, it important to also keep these items in mind:

1. Analyze the total costs of outsourcing the project

Don't look just at the difference in labor costs, but be sure to factor in additional costs for conducting due diligence, communications and oversight.

2. Be realistic about the level of productivity that outsourcing providers can offer

Some companies assume that the productivity of an outsourcing partner will match that of internal staff. This is not always the case.

3. Effective communication between your company and your outsourcing provider is important

If companies fail to communicate their goals clearly, problems that may arise include lower productivity and increased errors in the project.

4. Evaluate a service provider like you would a full-time employee

Ask questions, check references and ask for feedback from other clients who have used the provider's services.

5. Consider time savings

Don't reinvent the wheel. Someone, somewhere has done it before or developed an easy solution - why not use it?

Rushing into an outsourcing project before you have fully considered all of the factors associated with the kind of project can result in additional costs or poor results. So it is crucial that you carefully evaluate the situation, weighing what is most important to you and what will give you the best result.