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In House vs Outsourcing: Cost Comparison

In this post, we will explore the cost comparison between an in house vs outsourcing. 

Which option is more cost effective?

To answer that question, we need to look at the total cost of ownership over a period of time. This includes everything from labor costs to your expectations. 

If you are looking for someone to take care of your IT problems, then read on.

in house vs outsourcing

As technology evolves, the demand for IT engineers increases. You want to stay ahead of what is coming next, and IT professionals are in charge of that task. You need people with their knowledge and skillset to be able to do so effectively. 

There are 5 factors you need to think about when hiring an IT professional for your company.

Recruiting and onboarding cost – Going with HR recruitment firm saves a lot of your time. But the cost fee would be a month of your new hire's salary.

To save cost, you may want to pay money to advertise your job. But bearing in mind that you will spend time reading resumes, checking references, and interviewing people. Remember that the time you spend is money.

Salary – You need to find the right IT professional. You can do this by looking at their skillset. Only with the right skillset, then they might be able to help you with your office IT infra complexity.

If you have a complex server setup, you would not want a beginner desktop engineer to handle the support. Likewise, it is not a good idea to get a server engineer to do things like fixing problems with computers. On top of that, you need to factor in the additional CPF employer 17% of salary.

Benefits – In addition to the salary of your IT team, your company pays for benefits. For example, a new laptop or dental checkup. They are usually about 20%-30% of their salary.

Training - There are two types of training. The first is on-the-job, which comes from the company and internal staff teaches them how to do their job. 

The second type of training is to teach someone new skills that they have not yet learned. If you want your new hire to stay, you need to provide relevant training to your IT guy. You may want to factor in at least 1 training per year that probably cost at a minimum rate of $1k.

Hospitalization and Medical Leave – Everyone will fall sick, and some will even take up the full 14 medical leaves. Sometimes they go on vacation for two weeks.

What will happen if your IT guy is out of the office? During the absence, you have to get a stand-in. This is a problem and can be risky for your business. Be prepared to factor in another $350 to $800 per day when you get an external stand-in.

How about an example of a small business? 

Let's assume that a company has 25 staff and it hires 1 more. The new person will be in charge of managing the office infrastructure and solving IT issues. This engineer is an entry-level desktop guy that is resourceful. 

We are taking the bare minimum cost to have a new hire. Assuming this new hire is Singaporean, fit and willing to work in SME. The basic minimum cost incurred in managing the IT issues would be around $39k per year. Here's the breakdown of the cost. 

Item

Details

Minimum Cost

(per year)

Recruiting and onboarding cost

To save cost, you post a job in job portals for a much smaller fee. But you have to do all the screening of resumes and interviews by yourself. 

$ 138

Salary

According to payscale, the average salary of an entry-level IT professional is $30,679/year. That's excluding the employer CPF contribution, which probably adds up another $5400 per year. 

$ 36,079

Benefits

Basic benefits to attract new talents. They  should include $50 for claims like mobile phone & meals, and $500 for health insurance. 

$ 550

Training

For a desktop engineer, the next advancement would be a course on cloud deployment.

$ 1000

Hospitalization and Medical Leave

Assuming your new hire takes only 3 medical leaves per year, and your stand-in engineer costs $350 per day. 

$ 1050


TOTAL

$ 38,817

Quick Compare

Now, assuming you sign up with a IT vendor to do the maintenance for your office at $800 per month. That makes $9,600 per year. At a 5% hike, every year the cost of doing in-house would touch around $167k in 4 years. So, if you takes the IT outsourcing route, you probably save around 77%.


In-house

Monthly IT Support

First Year

$ 38,817

$ 9,600

Second Year

$ 40,758

$ 9,600

Third Year

$ 42,796

$ 9,600

Fourth Year

$ 44,936

$ 9,600

Total

$ 167,307

$ 38,400

Savings

-

$ 128,907

In Percentage

-

77%

The Bottom Line

Outsourcing IT support is a great option if you have a limited budget but are still looking for quality service. At the start, you would need to roll up your sleeves to do some work together with a remote engineer. For example, restarting routers or re-plugging cables. If you are okay with such an arrangement, then outsourcing can be a good option.

On the other hand, having full-time staff is also great if you have a bigger budget. When your business needs delicate attention, you may need to hire full-time staff. They will help you when standard vendors can't. For example, providing premium service to VIP or attending internal meetings.

It boils down to your budget, your requirements and expectations. So what type of IT service do you need? Let us know in the comments below!

Did I Miss Out Anything?

Now I’d like to turn it over to you:

What's the experience with hiring or outsourcing do you have so far? 

Or maybe you have a question about something you read.

Either way, let me know by leaving a comment below right now.

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