I came across a question which i replied on LinkedIn and thought to share with you guys here on the blog as well. So here's the questions:
When does it makes sense to outsource, specifically the maintenance and support of an application system.
Here's my Reply: There are 3 possible scenarios.
First, if the application system was custom developed by a vendor than I’d suggest you have a support contract in place the moment the systems goes live. This allows you to negotiate lower costs and also gives the opportunity to the vendor to retain key talent/knowledge base required for the support.
Secondly, if you have developed the application in-house. In such a case ideally one should understand the support requirements on a weekly/monthly basis and thereon match it to the cost of in-house support resources. One significant factor is retention of right skilled resources at a stable cost. In-house resource cost shall keep increasing year on year whereas outsourcing cost maybe well stable or on a decreasing path with every passing year. If the Total cost of ownership of the application support team in a long run is much more as compared to the support requirements than going in for a outsourced support makes sense. Also over a period of time the application will need patches and upgrades. Remember, it requires significant knowledge transfer as well once you decide to outsource the support and there are quality/delivery issues that you might face. So the decision should be based on lowering the TCO and the NET benefit achieved by outsourcing.
Third scenario is of 3rd party application systems like Oracle EBS or Microsoft CRM. In such case support from these vendors can prove to be very costly. On the other hand you might be able to find offshore/outsourcing companies supporting your 3rd party applications at a much lower cost which maintaining service levels and quality standards. So one should select the provider who has expertise and experience in supporting 3rd party application products on a consistent basis and has good reference customers.
The overall choice surely has to be based on the NET VALUE ACHIEVED by outsourcing.
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