2 In house vs outsourcing costs comparison

Business Architecture Tools and Techniques:

Business architecture is still a nascent discipline, and hence the businessarchitecture tools and techniques are evolving as well. What businessarchitecture tools and techniques to use in your work depends on the scope ofyour enterprise business architecture undertaking as well as the purpose andoutcomes you are striving to achieve.To business architects, a professional toolkit with various techniques andtemplates is an essential part of practicing the discipline of businesscapability modeling and business architecture.Let’s broadly organize the business architecture tools and techniques intoframeworks, models, components, mappings, reports, and artifacts.Before we go too deep into business architecture tools and techniques, let’slevel set about the following:

Business Architecture Tools and Techniques:

A Business Architecture Framework to tie things together: As a part of thebusiness architecture tools and techniques, you will need to articulate howthe various components of business architecture will fit together. It can becalled a metamodel, a framework, or whatever, but the idea is for you topresent a picture of how the jigsaw puzzle fits together.Consider, a few of the following business architecture frameworks and models:Whichever model or structure or ontology or metamodel you choose to use orcreate yourself, there are some standard components you will need to model,and there are a variety of tools, techniques, templates to accomplish thesame.

To business architects, a professional toolkit with various techniques

and templates is an essential part of practicing the discipline of businesscapability modeling and business architecture.

Making a Business Case for Business Architecture:

To become a successful business architect, just having the desire to build abusiness architecture for a company is not enough. It is essential that youcan create a compelling business case to secure the buy-in and procure thefunding that is required to embark on the business architecture journey. Hereare a few resources to help you make a case for business architecture.

Business Vision, Strategy, and Direction:

If business vision, goals, strategies and direction are at the pinnacle ofwhat drives an enterprise, and capturing that essence cohesively and conciselyis of paramount importance in business architecture.There are several management concepts and tools one can use to distill thewisdom into a strategy on a page (or two).McKinsey 7s Model: McKinsey consultants Tom Peters and Bob Waterman arecredited with this original model to capture the interplay between vitalorganizational factors and how they affect corporate performance. McKinseydescribes the model as “the 7S framework maps a constellation of interrelatedfactors that influence an organization’s ability to change. The lack ofhierarchy among these factors suggests that significant progress in one partof the organization will be difficult without working on the others.”Alexander Osterwalder’s Business Model Canvas and Value Prop Canvas:Osterwalder’s canvases are a coherent and cohesive way to capture the businessmodel and value proposition of business, service or product.Strategy Maps by Kaplan and Norton are another tool to capture strategy of afirm crisply and concisely.Michael Porter’s Five Force Model is another potential tool you can use tounderstand the dynamics of competition.

Cost of development

The average European developer’s salary oscillates around €50K (annually).In the United States, according to Glassdoor, it’s around $90K.Additional costs increase this number by 2.7x (according to Joe Hadzima, MIT).These costs can pay off in time (especially while software will be the core ofyour business).The average rate in outsourcing is $50-100 per hour, per person (in Europe &the USA, the rate depends on the country). Any additional costs are minimal.

Speed of development

The speed of building things in-house is limited by the number of people onboard and time to recruit.Temporary teams can be quickly set up with outsourcing, which might translateinto faster development.

Costs of recruiting a new employee

According to the previously mentioned Glassdoor analysis, the average companyin the United States spends about $4,000 to hire a new employee. According tothe Human Capital Benchmarking Report, the average cost-per-hire in the UnitedStates is $4,129.Recruitment costs can be related to: * external/internal HR team (interview expenses, recruiting), * job board fees’ * the cost of training and onboarding.According to the State of Software Development 2020 report, hiring talents isthe 2nd biggest challenge managers face. The lack of workforce is an industry-wide issue for a few years.A word of advice: Recruitment takes time, which generates costs you may notexpect. Will they pay off?Yes, if you look for a developer for a longer, core project. If you needdevelopers only for a limited time or your demand will be decreasing, effortsrelated to recruitment and office settlement may not pay off.

Outsourcing perspective

How long does it take to find an outsourcing provider? There’s no simpleanswer to this question.Most often, companies research for a few best candidates. The selection stagecan include at least a few calls with the best ones. If you’re highlymotivated, it can take a week. Most often it takes a few. After all, thedecision is crucial.Also, while looking for an outsourcing provider the main resource you use istime. Hours spent on research and meetings are your price. There are no costsconnected to workplace integration or training.Although, you have to consider the cost of knowledge transfer.When external developers join your team, you also need to spend some time onknowledge transfer before they start to work effectively (the cost oftransition is around 2-3% of the overall cost of the project). Of course, thisfactor applies also to hiring.In general, outsourcing means a quicker start and less money spent before youkick off the project.

2. In-house vs outsourcing: costs comparison

Let’s dive into the most contentious topic, shall we?

Outsourcing costs

In outsourcing, you clearly know your total cost upfront. The hourly rate of asingle developer varies from region to region.Image source Image sourceSo what is this true, total costs?Toptal made a tool to calculate the true cost of an in-house employee and anoutsourced one.Based on their research, while the hourly rate for an internal employee perhour will double if you add up all the costs, the total cost of an hour ofwork of an outsourced developer will increase by about 20% of his base salary.Image sourceExistek presents the in-house vs outsourcing cost comparison like that:Image sourceHowever, the forgotten cost of outsourcing is connected to creating thecontract (checking or co-creating a contract with an expert). You also have topay the cost of server management.

You are the caretaker

When you hire people in-house, your responsibilities don’t end at hiring.You need to: * onboard them, * train them, * introduce them to the company’s values and culture, * define their responsibilities, * answer their needs, * keep them happy and occupied.You’re the manager and they look up to you.However, this effort comes with a reward. If you take care of your team well,it will be loyal and will treat your project as its own, and do what it can tohelp it succeed.When you outsource, the external team becomes your partner, it’s their jobto get on board quickly. Their responsibilities were defined upfront, theirdirect employers keep them happy and their needs satisfied. And it’s theirtask to help you, so in most cases, they will self-organize and be proactive.Holding their hands every step of the way won’t be necessary.It’s less likely that outsourced developers will treat your project as theirown, and get as involved as in-house employees. Although it depends on thepotential partner and your relation.

Summary table

| | —|—|— Feature | In-house development | Software outsourcing | | 1. Cost & time to recruit | Higher cost + longer time to recruit | Lessexpensive + faster set up 2. Cost of development | Even 2.7x the base salary | No additional costs 3. Talent availability | Limited | High 4. Flexibility & swiftness of operations | Limited | Great flexibility andhigher speed 5. Communication | Natural, but more prone to de-focusing | Generates morefriction, but helps with productivity 6. Language & culture fit | Great | Sometimes problematic 7. Management | More demanding but rewarding | Hands-free, but comes with aprice 8. Time zone differences | None | Likely 9. Security & legal issues | Security leaks and frauds possible | Securityleaks and frauds possible | | Points earned: | 5 | 6 | | Best for: | Projects with stable work-load, bigger budget, and companiesfocused on building their culture | Unpredictable work-load, limited number oftalents locally, cost reduction, improved speed”

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