It can be defined as the procurements of products or services from external vendor, supplier, or manufacturer. Outsourcing is a strategic approach that makes project procurement management a more tactical approach. Outsourcing can offer greater budget flexibility and control.
Outsourcing lets organizations pay for only the services theyneed, when they need them. It also reduces the need to hire and train specialized staff, brings in fresh engineering expertise, and reduces capital and operating expenses. Example, an individual home owner, for instance, who needs his house painted.
He could go out and buy paint brushes, rollers, scaffolding, ladders and insurance and then, take the risk that he can do a good enough job -- and not fall off the scaffolding! He'll also be stuck with the expense of purchasing all that equipment for a task that he only needs to do once every few years.
Or, he could just hire a painting contractor. The decision to outsource works in the same way.
Types of outsourcing relationships
1. Full In sourcing
In this approach all products and services would be retained internally. The project team is responsible for all the project’s processes and scope.
2. Selective In sourcing
This approach provides greater flexibility to choose which project process deliverables should be outsourced and which should be kept internal. Although low cost is one advantage for outsourcing and off shoring, the objective should be to increase flexibility & quality.
3. Full Outsourcing
This approach is followed if organization or project acquires all products or services from external sources. Managing Outsourcing Relationships:
Outsourcing activities that should not be outsourced
Selecting the wrong vendor
Writing a poor contract
Overlooking personal issues
Losing control over outsourced activity
Overlooking the hidden costs of outsourcing
Failing to plan and exit strategy
Advantages of Outsourcing
1. Swiftness and Expertise:
Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise, most of the times better than the ones at the outsourcing organization. Effectively the tasks can be completed faster and with better quality output. It allows the client to focus on its core business.
2. Concentrating on core process rather than the supporting ones:
Outsourcing the supporting processes gives the organization more time to strengthen their core business process
One of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is aspecialist, they plan your risk-mitigating factors better
4. Reduced Operational and Recruitment costs:
Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing.
Disadvantages of Outsourcing
1. Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party
2. Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the commonproblem areas include stretcheddelivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner
3. Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat
4. Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks
With all these pros and cons of outsourcing to be considered before actually approaching a service provider, it is always advisable to specifically determine the importance of the tasks which are to be outsourced. It is always beneficial for anorganization to consider the advantages and disadvantages of offshoring before actually outsourcing it.