Cost Benefit Analysis: How to Decide if Outsourcing is Worth It

Man performing a Cost Benefit Analysis

Written by Ashley Dameron

May 3, 2021

 

If you’re a multi-unit business leader, chances are you’ve heard of Business Process Outsourcing (BPO). You may even be familiar with the advantages it provides to growing companies. The problem is BPO has a reputation for being complicated, confusing, and expensive. (All myths, by the way).  Measuring a return on investment (ROI) on BPO can be tricky because business processes like Accounting and Payroll impact growth and savings indirectly, behind the scenes. . So how do you determine if outsourcing is worth the investment? We’re going to walk you through the process. It’s called a Cost-Benefit Analysis.

If you’ve considered BPO but you believe it’s an expensive investment, we recommend you read our article: 7 Myths of Outsourcing.

 Before we get started, ask yourself, “Is there a process within my organization that’s become cumbersome, distracting, or doesn’t offer a high value compared to other tasks being performed?” This could apply to a number of processes including Accounting, Reporting, Payroll, Benefits Administration, Data Entry, etc. If the answer is yes, then you’ve identified a candidate for outsourcing and you’re ready to perform a Cost Benefit Analysis. 

 

Performing a Cost-Benefit Analysis Step 1: Analyze Your Processes

The first step in determining if BPO is a worthy investment for your company is to analyze your existing processes. Look at key indicators such as are your processes efficient and up to date? Are you using cumbersome technology that complicates your workflow? How much are you paying your staff to complete these processes? In the end, does it make sense financially to continue performing these tasks in-house?

 

Performing a Cost-Benefit Analysis Step 2: Set Up Goals

Determine the goals you would like to achieve within these processes. Would you like to cut costs, streamline processes, or update your technology? You’ll compare these goals with the services provided by the BPO companies you’re considering. Will their services help you to achieve the goals you’ve set?

 

Performing a Cost-Benefit Analysis Step 3: Calculate Your In-House Spend Vs. BPO Services

What would it take to achieve your goals in-house? What expenses would be necessary to achieve the same services a BPO company could offer? Take into consideration all costs. How many staff would you need to hire and train, how much additional salary and benefits would you be paying out, or how much would you spend purchasing and upgrading new technology? What does the time spend look like to get where you want to be? Now compare your data with the promised services provided by the BPO company. What costs will be avoided by outsourcing? This is a key part of your cost-benefit analysis. Once you’ve calculated the in-house costs and compared to the total outsourcing costs, you will have a clearer picture of the time and cost savings opportunities.  

 

Performing a Cost-Benefit Analysis Step 4: Weigh the Benefits

The benefits side of a Cost Benefit Analysis should also be considered. Aside from the costs, what benefits will an outsourcing provider be able to deliver? Consider these benefits:

Invest in What Matters Most: When you outsource processes to a BPO provider, your company gains the ability to invest financial resources into core business priorities. For example; instead of paying a large HR staff to manage payroll and benefits administration, resources can be spent on employee training, improving the employee experience, or providing a more robust benefits package.

Knowledge Gained: Outsourcing companies are experts in their field. They bring a wealth of knowledge, experience, and industry insight to the relationship, guiding you towards best practices that help you achieve your goals.

Leading Technology: Outsourcing providers often have the ability to deliver access to software solutions and technology that would otherwise be expensive and impossible to obtain on your own. BPO companies have already invested in or built the technology and processes, so you don’t have to worry about a huge undertaking like payroll software or new POS systems.   

 

Attention to Detail

Once you’ve defined the processes you’d like to outsource, calculated the in-house costs that could be avoided by outsourcing, calculated the total costs of outsourcing, and subtracted the costs of outsourcing form in-house costs to determine savings, you can begin to make a confident decision. Weigh the pros and cons of each provider you’re considering, and verify that what you’re looking for will not be an additional charge based on tiered service levels.

Choosing a BPO provider is a long-term commitment and each company should be carefully considered before making a decision. Your BPO provider should be an extension of your team working with you to achieve a common goal. Read our article “Keys to a Successful Outsourcing Partnership” to learn more  about what a successful BPO relationship looks like.

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