When it comes to making a decision, the human mind will always look for the “path of least effort”. For pricing, the most immediate and simple piece of information to consider is the “sticker price”; so, it’s no wonder clients look for vendors with the lowest rates when choosing a software development outsourcing partner.
However, basing your decision on “sticker prices” is misleading. When it comes to choosing an IT outsourcing companies vendor, there are a number of other variables that contribute to your project’s Total Cost of Ownership, and that you can’t afford to ignore.
Total Cost of Ownership (TCO)
Total Cost of Ownership, or TCO, is a term coined by the Gartner Group back in 1987 to help buyers determine both the direct and indirect cost of a system. What we understand as TCO for software engineering is the cost of an application, including its development, enhancement, maintenance and support. So, when you look at a “sticker price”, what you may think is a definitive price is actually just an incomplete one.
We posit that to make an informed decision, you need to keep in mind the following key variables:
Like any engineer will tell you, the success of a project involving more than one resource will hinge on how well the team works together. That’s why process —meaning behaviors, methods and practices that determine how a group performs— is critical to the success of all but the tiniest of software initiatives.
Finally, let’s take a look at the numbers. If we’re going to take cost at face value, it’s simply the price paid per unit of time (cost per hour, or cost per developer per month). However, the real cost of an engineer doesn’t stop at salary pay; it also includes the basic infrastructure needed for them to perform their job. An actual, fully burdened blended rate will likely go up between 50%-70% per engineer, which accounts for the cost difference between a US-based and a nearshore outsourcing vendor.
And, as we’ve seen, it’s not enough to think about how much any given “unit” will cost, we also need to consider what the effect of that unit (hour of work or developer costs) will have on the project in the long run.
[READ MORE: Discover the real cost behind your software development project in our Total Cost of Ownership whitepaper.]
All things considered, finding a vendor that can help you achieve your technology goals at a reasonable cost means finding a partner that understands the right mix of process, risk management, quality and productivity is the key to a successful engagement. PSL’s approach to engagements doesn’t start off by just answering the question “What are your rates?”, but rather exploring a project to ensure we can deploy the best talent and best practices, and develop world-class software engineering solutions at the lowest possible TCO. https://www.pslcorp.com/it-outsourcing-services-companies/