By: Alexei Miller

1
Evaluating Offshore Outsourcing Providers Cost
Considerations
By Alexei Miller Director, Project Management _at_
DataArt
2
Summary

• The myth of hourly price
• Two main types of financial arrangements
• Measuring performance
• The quest for predictability
• Obtaining cost advantage for SMBs
• Choosing vendors of right size
• Demanding competitive advantage through better
  than average

3
Offshore engagements

• Primary types of financial arrangements
• Project-based
• Spec-proposal-implementation-payment cycle
• Requires larger investment on clients part
• Better predictability, less real-time control
• Relationship-based
• SLAs are defined
• Variation of TM payment model
• More real-time control, less assurance of final
  result
• Forming a trust about scheduling and pricing
  methods is a problem common to both.

4
Pricing methods

• Fact hourly price is still the most widely used
  method of pricing for offshore projects. That is
  a mistake
• Unit (hourly) pricing can only be used together
  with performance standards. Fixed-price method
  is effective for small tasks, but lacks
  visibility.
• There is no such thing as standard or average
  performance
• Performance can only be measured for specific
  group working on a specific type of tasks
• Measuring performance is the only practical way
  to improve predictability
• Test projects for fixed-price engagements
• Trials with specific group for TM

5
Achieving cost advantage for SMBs

• SMBs are
• Too small to use formal performance measurements
  and TCO calculations that are typical for large
  business
• Small enough to demand more than average
  performance
• Cost of internal outsourcing support and
  management can be disproportional
• SMBs are better served by smaller vendors who can
  be personal and provide better performance, than
  by large ones who are seemingly more reliable
• Savings in internal cost are achieved through
  using more advanced outsourcers (i.e. SMBs cant
  afford hiring dumb coders)