As a new Project Manager, you're most likely wondering why any business chooses to outsource their project tasks.
Businesses choose to outsource some or all their work for a variety of reasons. This can include trying to save money, building a more competitive company, or to reduce the need to hire permanent employees.
Here, we share the most important reasons why organizations outsource and how each entity can benefit.
Reduce Operating Costs
The biggest motivation for most companies to outsource work is to save money. Reducing costs may be necessary for a few reasons such as trying to be more competitive, increased costs of materials, or needing to downsize.
Choosing to outsource work can reduce operating costs and help a business be more profitable.
Reduce Staff Training Costs
A big cost that all companies face is the cost of staff wages, benefits, and training. Using an outsourcing company eliminates the expense of training new staff as the provider will have skilled workers ready to start on day one.
Free Up Staff And Capital
As businesses grow there may be a need for more personnel or experienced staff may be needed for other projects. This can mean a business is temporarily short-staffed until they recruit and train new staff.
To avoid this situation many companies outsource work as it frees up staff to be used elsewhere and the outsource provider has skilled workers that can fill in immediately.
In other situations, businesses use outsourcing as it frees up capital. The extra money can then be invested back into other areas of the business to encourage further growth.
Restructuring
As businesses evolve and grow there may be a need to restructure. Restructuring could see current staff move to other areas within the business or into leadership roles.
Instead of spending time and money hiring external candidates to fill those roles, many businesses now prefer outsourcing those positions. Outsourcing can provide businesses with experts and talented staff that can fill those necessary roles immediately.
Increase Productivity And Efficiency
Companies are always looking for ways to improve efficiency and productivity. In some cases, this can be achieved by outsourcing work to a company that has greater capabilities.
For example, a company that manufactures laptops may find certain components can be made quicker by an external company. By outsourcing this work, the laptop company is now more efficient and producing more.
Reduced Risk
Sometimes a project may be deemed especially risky. In cases like this, it can make sense to outsource the work as this reduces the financial risk to the business.
Meeting Compliance Requirements
Companies that are required to meet compliance requirements may choose to outsource their compliance team. The benefit of doing this is that it reduces the stress existing workers might feel. There are risks that need to be balanced between the outsource provider and the company's needs. However, with proper oversight, this arrangement can work well.
Reduced Wage Bill
In many cases, outsourced workers can do the same work for less than an in-house worker. Businesses can save significant amounts as they don't need to pay higher wages to hire permanent staff.
Possible Tax Benefits
Depending on the type of business and the work that is outsourced, there can be tax benefits to the business. This will vary based on the structure of the company and what work is being outsourced.
Changing Systems
There are times when a company will change its computer system or other in-house systems for things such as manufacturing. In these cases, it can often be worthwhile to outsource the work of installing the new system and training existing staff. Outsourcing this work on a temporary basis can help prevent interruptions to the business.
Improve Competitiveness
A company may have a period that sees its market share drop. Outsourcing work can help rebuild competitiveness as it helps saves costs and provides skilled workers that can step in. One example is choosing to outsource the Sales department and get skilled sales staff at a lower cost.
Specialty Functions Or Services
Sometimes there are certain functions or services that can be outsourced as it is more cost-effective. This could include using professional catering companies to run a staff cafeteria or outsourcing to an IT company to manage the business's IT needs.
Companies that need to save money and be more competitive should consider outsourcing as a solution. When in doubt, we encourage you to seek the expertise of a seasoned business management consultant. Kuah Communications, Pty. Ltd is here for you! Let's connect and learn more about your goals. Book a discovery call with us!
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