Outsourcing is an essential strategy widely used by many organisations and businesses regardless of their size and field of operation. This article is part one of a series on outsourcing, and here we discuss the importance of outsourcing in project and programme management, and its substantial benefits.
Outsourcing is when all or part of an organisation’s activities are performed by others; it’s when organisations employ other parties known as outsourcers to carry out works and/or provide services the organisation would usually do in-house.
Outsourcing is an important business strategy as it provides a range of considerable benefits such as costs certainty and optimisation, risk transferring, flexibility, increased quality and increased reach.
Here are the different types of outsourcing used by businesses:
- Internal and external: External outsourcing is used by almost all businesses to delegate some or all of their activities to a third party/third parties. However, in the internal model, companies employ outsourcers which are owned and/or controlled/managed by themselves, such as their subsidiaries, affiliates, or branches.
- Selective (partial) and full: Selective outsourcing is more commonly used than full outsourcing. In selective outsourcing, some of the activities of a business are outsourced, but in full outsourcing, all activities are delegated to outsourcers.
- Front and back office: These outsourcing models are mainly used for business processes or administrative activities including front office affairs such as marketing, customer services, public relations and back office affairs such as IT, human resources, accounting and finance, are carried out by outsourcers.
- Offshore and onshore (domestic) outsourcing: Offshore and onshore outsourcing is the practice of procuring services needed by a business through a oversea or domestic outsourcer, respectively. Offshore outsourcing is predominantly used by companies that operate or have projects overseas, like international construction companies.
The benefits of outsourcing in project and programme management
Given the breadth, diversity and complexity of projects and programmes, practical strategies like outsourcing are of great importance. Outsourcing offers various benefits that are crucial and effective in completing and delivering projects and programmes:
- increasing efficiency
- facilitating procurement and providing access to needed expertise
- optimal management of human and financial resources and costs
- risks transfer
Depending on the organisations’ strategies and types, companies use outsourcing to develop and manage their projects and programmes, regardless of their size and sector of operation.
Outsourcing helps in cost certainty because outsourcing contracts are often fixed, therefore the costs associated with projects and programmes are generally highly predictable. Moreover, outsourcing can help project and programme managers optimise the costs associated with implementing their projects and programmes, mainly by reducing overhead costs. However, it’s important to note, that outsourcing doesn’t always lead to cost reduction because outsourcing costs aren’t necessarily less than insourcing.
Outsourcing enables managers to obtain all or part of the services, expertise, and machinery required for their projects and programmes without needing to mobilise or allocate the teams, human resources, equipment, machinery, and other resources and requirements necessitated by insourcing. This enables managers to streamline their operations, concentrate on their core activities, and better manage and employ the resources earmarked for their projects or programmes.
Outsourcing enables transferring some of the risks associated with implementing projects and programmes to outsourcers. In an outsourcing arrangement, outsourcers are obliged to properly implement the work assigned to them within an agreed budget and timetable. Accordingly, the risks arising from delays, unexpected rises in prices, shortages of skilled human resources, etc, concerning the outsourced activities are automatically shared with outsourcers.
Outsourcing plays a critical role in projects and programmes implementation, particularly complex ones. Organisations and managers can use and enjoy various benefits that outsourcing provides, such as cost certainty and optimisation, risk transferring, flexibility, increased quality and increased reach, in implementing a project and or a programme regardless of its size and type. The type and location of the project, programme and organisation concerned, and the executive strategies taken to implement the project and programmes, are determining factors in selecting outsourcing models.
Outsourcing doesn’t essentially lead to cost reduction but rather provides cost certainty, which is crucial in budgeting and cost management and the entailed risks. Stay tuned for part two of this series where we explore the risks and solutions in outsourcing.
You may also be interested in: