The cost of project staff is much higher than hiring a full time employee. And the provider charges you that salary and benefit cost plus their margin, which can be from 35 to 75 percent, Ruckman says. Short term workers are fine for truly short-term needs, but they can become a long-term resource if a project drags out. You don't want to be gouged for full-time work.
In addition, always compare the provider's temp rates to those offered by local staffing agencies. "We have seen many cases where a client can save 20 to 30 percent for the same skills," Ruckman say.
5. N-1 for Hardware and Software
Chances are your contract contains a clause stating the outsourcing provider must keep hardware and software at a defined level—likely N-1, the industry term for one version prior to the newest one. "Customers don't want hardware nor software that is too old, because the older it is the more is breaks down and higher the expense to maintain," says Ruckman. "Customers also don't want all hardware and software to be the latest and greatest, because the new stuff hasn't been tested in the real world."
The problem is that most providers don't maintain software at N-2 or N-3, let the N-1 you are paying them to maintain. "Eventually the customer is going to experience larger or more frequent outages or have to pay a large bill to upgrade multiple versions," Ruckman says. "Rarely is the provider at the required level and reaching compliance can be expensive and, thus, a bargaining chip [for the client]."
Older software and hardware can also cost you in the maintenance department (see #9 below).
6. The Responsibility Matrix
Most IT services contracts have one or more responsibility matrices. Review each responsibility to determine if the vendor is living up to it. In some cases, vendors are performing 50 percent or less of their contractual duties, says Strichman. You'll likely find responsibilities that you don't understand at all so be prepared to do some additional investigation.
An audit of software charges almost always pays off, say Strichman and Ruckman. They recently found that one outsourcing client was paying $400,000 a year for software they didn't use.
8. Pass-Through Expenses
These are additional fees the vendor charges you as they are incurred, and even they don't review them as they "pass through." Some may be subject to restrictions such as advance approval. Start with the biggest pass-along invoices and figure out what it is for, if you are using it, and what alternative exist to the product or service.
9. Hardware and Software Maintenance
Sign up for CIO Asia eNewsletters.