IT outsourcing deals falter on cost savings
A large proportion of IT outsourcing deals are coming unstuck due to the importance placed on cost savings by many firms.
A report by Compass Management Consulting has found that 65 per cent of contracts worth over £20 million fall through before completing their full term, reports Computing.
The study revealed that the average contract is priced to offer savings of 18 per cent compared with in-house operations in the first year, before rising to an average of 36 per cent above in-house costs by the third year.
Simon Scarrott, the head of business development at Compass, commented: "Often a measure of success is cost reduction in year one, but the vendor is financing that and must recoup money in years two, three and four."
"Clients should do their due diligence better pre-contract and contacts should reflect that change is a given and build on it."
The figures are a reminder to firms that outsourcing IT applications should be done with a view to improving productivity and efficiency as well as saving money.
© Adfero Ltd
A report by Compass Management Consulting has found that 65 per cent of contracts worth over £20 million fall through before completing their full term, reports Computing.
The study revealed that the average contract is priced to offer savings of 18 per cent compared with in-house operations in the first year, before rising to an average of 36 per cent above in-house costs by the third year.
Simon Scarrott, the head of business development at Compass, commented: "Often a measure of success is cost reduction in year one, but the vendor is financing that and must recoup money in years two, three and four."
"Clients should do their due diligence better pre-contract and contacts should reflect that change is a given and build on it."
The figures are a reminder to firms that outsourcing IT applications should be done with a view to improving productivity and efficiency as well as saving money.
© Adfero Ltd