Term Paper: Outsourcing Best Practices: 5 Key Considerations

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Outsourcing Best Practices: 5 Key Considerations

Outsourcing in today's globalized yet cost-conscious environment can be an ideal way to use new sources of labor and technology to gain a competitive advantage. Utilizing the demand for outsourced labor has also proven advantageous for many overseas firms. However, when a firm is contemplating using outsourcing to save revenue, it is still important to keep in mind the same cautions about quality control and revenue optimization as when conducting the same operations in-house. The following best practices are essential considerations when contemplating outsourcing and also can be helpful for a firm providing outsourcing as guidelines for service improvement.

Consideration 1: Calculate the complete cost of the proposal

The complete cost of a bid does not necessarily mean the figure provided by the bidder will be the only costs incurred by the firm outsourcing its operations. When taking into consideration the costs of a bid, a firm must also consider the technology, process changes, and other demands that will necessary to get the outsourced work to the desired end state. An individual buying a new car would not simply take the lowest price offered, if that lowest price did not include the cost of air conditioning, a radio, power windows, or tires (Goolsby 2007)! Whatever amenities the buyer needs to being the project to completion must be reviewed when comparing proposed bids. A slightly more expensive proposal that incurs fewer hidden costs may be a better bargain in the long run. Likewise, the bidding firm must review the costs it may have to bear to bring the project up to the buyer's specifications, before it agrees to a new project. Although hidden costs will always arise, some effort must be made to predict where these will occur, before a firm goes 'bargain hunting.'

Consideration 2: Currency Fluctuations

Doing business overseas can be a great savings, but it also requires a business to keep a watchful eye on the international economic environment. Some of this risk can be contractually transferred, but regardless, it should always be remembered that, for example, a technology firm that outsources its labor, the dollar-to-rupee rate always puts the final costs somewhat up in the air. This is "a very significant part of the service delivery costs and the currency fluctuations can have a very strong effect on providers' costs and margins" (Goolsby, 2007).

Consideration 3: Don't Micromanage

Although a buyer should be aware of how the provider is abiding by the contract, the buyer should also allow the provider some flexibility to "harness economies of scale and standardized processes. The buyer often does not allow the provider to make enough money so it can save and redirect some to make the necessary investments in… [END OF PREVIEW]

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Outsourcing Best Practices: 5 Key Considerations.  (2007, November 17).  Retrieved November 18, 2019, from https://www.essaytown.com/subjects/paper/outsourcing-best-practices-5-key-considerations/9345359

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"Outsourcing Best Practices: 5 Key Considerations."  Essaytown.com.  November 17, 2007.  Accessed November 18, 2019.
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