How do you use cost-benefit analysis tools and frameworks to evaluate IT outsourcing options and scenarios?

1 Define the scope and objectives

Before you start comparing the costs and benefits of IT outsourcing, you need to define the scope and objectives of your project or function. What are the specific tasks, deliverables, and outcomes that you want to outsource? What are the quality, performance, and security standards that you expect from the outsourcing provider? What are the timelines, milestones, and budgets that you have to follow? By clarifying the scope and objectives of your IT outsourcing, you can set the criteria and parameters for your cost-benefit analysis.

2 Identify the alternatives and scenarios

When conducting a cost-benefit analysis, you need to identify the alternatives and scenarios you want to compare. This could mean comparing outsourcing to a single provider versus multiple providers, or outsourcing to a domestic provider versus an offshore one. Additionally, you may have to decide between a fixed-price contract and a time-and-materials contract, or between a long-term partnership and a short-term project. Furthermore, selecting between a full-service provider and a specialized one is also an option. For each option, you should consider the potential scenarios that could affect the costs and benefits of IT outsourcing. These scenarios include changes in demand, risks of delays or errors in the process, opportunities for innovation or improvement in the relationship, and impacts on the organization's internal staff, processes, and systems.

4 Compare and rank the options

Once you have estimated the costs and benefits of each option, you need to compare and rank them according to your criteria and preferences. To do this, you can use various frameworks and tools such as a decision matrix, which lists the options and their scores on different criteria; a decision tree which shows the options and their outcomes based on different events or probabilities; a SWOT analysis which analyzes the strengths, weaknesses, opportunities, and threats of each option; a PEST analysis which examines the political, economic, social, and technological factors that affect each option; or a balanced scorecard that evaluates the options according to four perspectives: financial, customer, internal process, and learning and growth.

5 Communicate and justify the decision

Finally, you need to communicate and justify your decision based on your cost-benefit analysis. Present your findings and recommendations to the relevant stakeholders, such as senior management, staff, customers, suppliers, etc. Explain the rationale and evidence behind your decision, as well as the risks and uncertainties involved. Additionally, address any concerns or objections that may arise from your decision. Various tools and techniques can be used to communicate and justify your decision such as an executive summary, a report, a presentation, a dashboard or feedback. An executive summary provides a brief overview of the cost-benefit analysis and decision while a report is a detailed document that explains it. A presentation is a visual and verbal showcase of the cost-benefit analysis and decision while a dashboard is a graphical display that summarizes it. Finally, feedback is a useful process for soliciting and responding to the opinions and suggestions of stakeholders.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?