IT analyses

By definition IT outsourcing is subcontracting a service to third-party. This might be fashion for business at developed countries, but for Bulgarian business it is “survival” model. Managers here must outsource everything that will improve service levels and decrease price. They cannot afford to do business in another way, so it becomes the standard working model for many Bulgarian companies. Every day more and more companies offering such services, which helps to reduce their prices and quality improvement.

 Why outsourcing?

 Not all departments of a company make revenues, but each of them generate costs - at least compensation plans of a team. Thus thinking, we can divide profitable departments (in the case in excess of revenue over expenditure) and ancillary departments that do not generate revenues but are required to support the work of the organization. We can divide departments to revenue centers which are in the focus of business and auxiliary – cost center. Traditional cost centers include: administrative – financial department, security, marketing department, IT department. Revenue centers typically include: sales, production or rendering professional services to external customers.
If the formation of revenue centers, as a rule, is determined by the mission and vision of the business of the company, the cost centers are usually established because of necessity.
In general, it is difficult to imagine a mission formed in the following way: “To become number one distribution company with a brilliant security department.”

In fact, any company willing to take leadership positions in the market would hold its first-class security department.
Revenue centers are profitable, so their export outside the company contrary to common sense. In this line of thought, most companies outsource services to allow not only reducing the cost of a unit, but also to maintain the required level or even improve key performance indicators.IT outsourcing must fit at SLA (service level agreement). But this is not enough. Next step is to develop plan for continual service improvement.

 Successful work prerequisites

Many companies are afraid to resort to IT outsourcing, because the other side acquires access to their information. Paradox is that almost nobody realize the security risk form their own employees. System administrators (internal or external) also have such access and can read user’s e-mails, for example. Protecting confidential data is achievable with information security policy. Necessity is company’s employees strictly to follow up this policy. In other words, those who will use IT outsourcing will need to rethink the measures to ensure information safety and monitoring their implementation.

 Benefits

Qualification level of professionals in the outsourcing firm is usually higher than the statutory professionals. Discrepancies in the results based on the expectations of the contracting authority unless it is agreed otherwise, the outsourcing firm is required to correct deficiencies at their own expense. If the task is performed by staff, the debugging will bring extra work, entails unplanned expenses. IT outsourcing allows you to ensure the quality of work done in fixed costs, but also to reduce some problems in managing IT personnel, in particular problems with his motivation. Compensation plan is not enough. High qualified specialists need an opportunity for professional growth and career. Very often their employers do not have possibility of doing this. Outsourcing companies entering into the role of the forge of cadres, in due time as the training of employees and provide them with opportunities for professional growth. Until that is reached through a variety of tasks in service companies. Professionals working in outsourcing companies usually pass special training that allows the customer to save money and time to send for training and certification of staff and use the services on demand of well experienced professionals. Similarly in case of redundancy, sickness or cancelling labor contract, unless it is otherwise agreed in the contract outsourcing firm replaces this specialist with another in the same qualifications. Therefore, resorting to IT outsourcing, with minimal state can be implemented major IT projects, attracting professionals with the necessary qualifications. Cutting state, in turn, allows minimizing personnel costs.

 Is it profitable IT outsourcing?

If the use of IT outsourcing is possible, then the next step will be the cost estimates. It is necessary to clarify whether indeed the situation in the services of foreign company will come out cheaper than the work of the staff. Formula presented allows comparing the cost of its own staff and external contractors for the same work:

D = X * (Z + K) / T – A,

Where: X – the cost of employee hours;

Z – Parameter – a monthly salary;
K – parameter – the indirect costs of employee per month (social package, securing the workplace, etc.);
T – number of hours per month (usually – 176);
A – price of service outsourcing company (monthly).

So, D is the difference and if it is positive it is more advantageous to resort to outsourcing Services Company, rather than working only with internal forces.
If outsourcing is not separate parts, but a whole volume of the work of this specialist, such as system administrator, it significantly complicates the bill. It is necessary to increase training costs, demand for staff in accordance with the turnover of personnel, payment of sick leave and holidays, etc. The most accurate method of comparison is the cost of the IT department for a year with the annual contract value of outsourcing company.
There is a factor which is very difficult to participate in the estimates, but should be borne in mind: constantly presence on-site of professionals (regardless of illness, holidays and dismissal), capable of operating to prevent the collapse in IT infrastructure, helping keeping continuity of the company’s business. Most entrepreneurs and managers are persuading to sign a contract for IT outsourcing, because this fact. It should be noted that the reduction of costs is always an powerful tool to improve profitability, and IT outsourcing enables not only reducing costs but also to be used in the newest business management and information technologies, which allows small businesses to solve larger problems and issues, and successfully develop.

Look in practice

Company named N with turnover 10 million euro per year has a local network of 20 computers, one or two servers and mini ATC with 20 phone. Maintenance of an infrastructure typically hires one full-time employee who is able to eliminate the problems in the computer and telephone network.
Suppose that stay under the outage of IT systems for 8 hours, brought losses to 10% of daily turnover, i.e. 4 thousands euro. Serious problems (viruses, hacker attacks, etc.) are able to lead to serious losses and lost profits, such as staying in business, theft and / or loss of information.
The salary of the system administrator with the required qualifications is about 1000 euro. For our example, planned workload is approximately 30% of working time. Contracting with outsourcing company for one year by 500 euro monthly subscription is ready to offer a specialist on-site in the office of the customer within 3 hours daily for 4 workdays per week. There are options to pay for additional visits if necessary. This fully meets the IT service needs of the company N.

Let me clarify the relevance of IT outsourcing for a company. Basic wage system administrator is 1000 euro. Indirect costs (social insurance, payments for sickness and holidays, to hire an additional assistant during sick leave or dismissal) – 500 euro more per month. For a year D = 12 * {(1000 + 500) – 1000} = 6000 euro. This is a potential cost savings for one year.
It follows that N is the company profitable to contract with a foreign company than to maintain full-time professional.

 Comment on the market today

Leaving aside the many articles and analysis dedicated to IT outsourcing is the finding that in Bulgaria that industry is still in embryonic form. Turning to any system integrator company – application software developer, consultant or hardware specialist, we find that each has a service area of IT outsourcing. But whether this activity is a major supplier to the organization? No! Missing on the Bulgarian market companies, IT outsourcing, which would be a major business and which can not only give tone, but to establish the rules of the game. This means in particular that the scheme of interaction between the sponsor and the contractor to set out a framework of types of services can be understood differently. For example, some large Bulgarian companies create IT department and then released into a separate legal entity. Among medium-sized companies that can afford the IT department or IT specialist enjoys great popularity following schedule: rent a room in a business center, Internet access spending and other communications and to recover the investment quickly, began offering services to its IT specialists at other firms – usually located in the neighborhood. It is important to distinguish between service outsourcing and IT professionals outsourcing; the latter may also be called out staffing. These models are used, independently of one another, and a mixed mode. IT outsourcing to have recourse not only to reduce maintenance costs. It is necessary to take into account the totality of conditions, including the quality of services, time and management factors. By reducing internal costs, for achieving obvious financial benefit the business will get increased efficiency of operations. If the company grows in volume or professional, it usually comes to improving the quality of IT services and saving time for development of the company’s IT environment. Very important responsibilities for the managers are to implement the results of specific activities of the IT contractor, to ensure consistent quality and support services provided by the released time devoted to solving problems for business development. In the near future would be expected appearance of the subsidiaries of outsourced IT companies emerging from systems integrators, as well as a few years ago was with departments to develop application software. Some of these companies became serious players not only Bulgarian but also the international market.