Benefits of Outsourcing Labor in the Modern Technology Era

Dash Data has been working with clients in many industries now ranging from automotive shops to private equity firms, even a couple publicly traded companies. Something we’ve noticed is a reluctance to outsource what appears on the surface as simple or remedial work.

There are definitely justifications for keeping certain types of labor in house be it security concerns, or something more basic such as affordability or cost concerns. We are going to address a few considerations while debating to outsource any kind of labor, or keep a project in house.

Direct Cost– how much will this project cost the company? Outsourced labor on the surface has a high cost associated with it. The main reason many data entry type jobs have moved overseas is to bring the labor rates down on work that can be accomplished remote. When dealing with highly secure documents, frequently that is not a viable option. Sometimes documents can’t leave the premises, or requires someone with a certain level of training before the document can be handled- think HIPAA or FINRA compliance. In this type of instance, the cost of outsourced labor is going to increase significantly as it will require domestic, local, and/or certified personnel.

At this point, managers and project leads may not have enough budget to address the problem at hand with extra help from outside. We have seen major players in various industries consider having high level staff spend a week or more scanning, shredding, or organizing paper. Think of financial analysts, floor managers, developers, or operational staff dedicating a few hours a day to house clean.

If you are the individual tasked with a project like this or know someone who is, here are some additional considerations with regards to cost to the company:

Staff Time Costs Money– once you add up benefits, taxes, and salary, even lower level workers can be worth upwards of $50/hour. Mid or high level employee hourly costs increase dramatically.

Opportunity Cost– what is the individual’s normal job responsibility? How much does it cost the company to have that person NOT doing their job? Let’s say you have a sales rep that is asked to clean out old client files 2 hours per day for 1 week. If that individual’s quota is $250,000 per quarter, those 10 hours cost the company as much as $5,000 in lost productivity on top of the direct cost of employing the individual. If you borrow that employee for a full week, you’re now looking at around $20,000 in lost productivity.

Motivation– if you repurpose staff for a short time to handle an organizational job, are they going to be motivated to complete the work? Are there incentives for consistency on their task or to complete it early? Are they doing it just because they’ve been told to? If you have staff working on low-level tasks they will get bored, be unmotivated, and likely not accomplish the task in a timely or accurate fashion. Lost documents can cost as much as $220 per document to reproduce- ouch.

Consistency – if you repurpose staff that are experts in a different field, what will the quality of work look like? If you use staff from different departments, what will the end result be? Even when a clearly defined plan is in place, inconsistent results will occur if multiple staff that were originally hired as analysts, sales people, support staff, or any other non-organizational type of background are working on temporary organizational projects. Lost documents or different filing systems can be very costly as previously mentioned.

Once all considerations and opportunity costs have been addressed, a business owner or decision maker can make the informed decision as to whether the sticker price of outsourced labor really is too high, or if the value behind it is actually 10x the true cost to your company.