
As what I have learned from Economics last trimester, the Law of Diminishing Marginal Return can be explained as, if other lands are good at producing rice and others are good at producing corn, if those lands which are good in producing the latter will be forced to develop the former one, such should employ a lot of resources which would not be efficient to produce at least the same quantity but most probably with inferior quality. Same is true with every organization which has its own core competence. As the saying goes that “Self-efficiency breeds inefficiency”, instead of spending much of our resources in learning what we are not proficient of, we may consider outsourcing as one of the solutions. In such case, outsourcing will allow companies to focus on their core competence while delegating other tasks like IT to expert organizations offering such services with proven systems and well trained individual.
Information Technology is a specialized field and requires a large amount of investment and therefore most companies nowadays prefer outsourcing of such services. IT outsourcing compared with establishing in-house department offers a numerous advantages such as lower cost, specificity of project and timeliness. With this, the company will not be required to invest on servers and equipment, will not go through a learning curve stage of personnel and will be more secured since most providers have several sites for backup. Also, the company will be spared from major employer-employee responsibilities mandated by law such as employee benefits. And since outsourcing is project-based, all objectives set and agreed are expected to be delivered without tedious monitoring necessary on the part of the company since implementation is already entrusted to the provider.
However, as an accountant, to consider a project useful, income should always exceed cost. With all the prolific benefits the IT outsourcing offers, we must also consider risk that may negate those advantages and some of these are the following
1. Actual Cost
In investing, we should not only regard the stated price but should also consider other necessary cost in acquiring a product or service such as cost during meetings with the provider, communication expense and other related expenses before choosing a scheme that would really be beneficial to the company.
2. Time Factor
Since outsourcing of IT department means engaging an outside party from the organization, urgent need for IT will not be handled immediately since we are only depending on the availability of the provider. Hence, the company should not only consider the short-term financial impact of a project but should also consider the effects of delays in the long-run if frequent flaws will not be dealt immediately.
3. System Familiarity
To handle a problem, one must be familiar on how a company’s system works for it to develop an effective solution. However in IT outsourcing, the provider should be first given ample time to familiarize the system unlike in-house IT wherein they are the ones who develop, runs, monitor and therefore capable to troubleshoot any flaws on the system they made.
4. Data security
Confidential files are not absolutely secured in the hands of a third-party provider since sensitive data maybe be generated or copied from our storage without the company’s knowledge unlike with in-house personnel wherein loyalty is already established.
5. Monitoring and Control
The company should always be knowledgeable to all the transactions happening within its environment. However, when IT services are left with an outside party, there is a possibility that some matters concerning the company may not be disclosed. Also, when problem arises, the solution lies only on the provider since the company may not be fully acquainted of the system employed thus losing control over its activities.
Every organization has specific IT requirements, with different risks to handle and therefore with different strategies in dealing with these issues. To curtail the aforementioned risks in dealing with IT outsourcing, the following stipulations should be included in the contract to be agreed with the service provider:
- That no other charges shall be billed in excess of the 10% of the total contract price.
- That fare, accommodation and per diem shall be included in the contract price.
- That the service provider shall response to the service need of the company within the first 5hours, otherwise, penalty shall be charged.
- Confidentiality statement shall be signed by the service provider.
- That clear terms and conditions stating the rights and obligations of both parties at a specific timetable shall be stated.
As additional precautionary procedure, the company may do research or inquiries regarding reliable IT provider. On this event, the company will be oriented with the provider’s existing clients and may set an appointment with them to ensure quality service.