9 Ways to Cut Outsourcing Consulting Costs

It's unlikely that IT executives would set up any major outsourcing deal without third-party consultation, but IT outsourcing consultants don't come cheap. Here are nine tips to help you reduce those expenses.

At a going rate of $350 per hour and up, IT outsourcing consultants don't come cheap. If IT leaders aren't careful, the cost of third-party assistance in setting up an IT services deal can quickly spiral out of control. And that's not even counting the attorneys' billable hours.

While it may be unlikely that IT executives would set up a major outsourcing deal without third party consultation—at the very least, to incorporate current market intelligence and pricing—there are ways to cap consulting costs.

"Although many larger consulting firms talk about their unique process and wealth of experience, the dirty little secret is that they are just skilled temporary labor," says Adam Strichman, founder of outsourcing consultancy Sanda Partners. "The moral of the story is that it can be done with fewer consultants, if you have internal people to dedicate to the effort 100 percent."

cutting costs, fees

Here are nine tips for reining in the consulting fees on your next outsourcing engagement.

1. Set Clear Expectations

"I have come into situations where people have milked the request for proposal (RFP) process and it is unfortunate," says Mark Ruckman, outsourcing consultant with Sanda Partners. "The customer and consultant need to be clear up front about expectations and timing before the RFP process begins, otherwise you will have scope creep and dissatisfaction." Expect a simple, straightforward deal to take about a month, mid-size deals two to take three months, and deals of $500 million or more to take four to nine months.

2. Lose the busy bodies

An outsourcing contract will require two to seven full-time professionals. Most IT shops can't afford to lose that many folks for long, so in come the consultants. However, only one or two of those are actually skilled IT services professionals, says Strichman. "The rest are just skilled busy bodies assembling financial information. The majority of what they do can be done by anyone." Consider taking care of that in-house. "Many people have dealt with IT outsourcing issues by now," Strichman says. "Even mid-sized companies usually have internal folks with a wealth of experience, if you can find them and redirect them."

3. Take Control

When Honorio Padron was an outsourcing customer, he was a fan of the "lift and shift" model. "Give it all to the consultants and then give it all to the outsourcers. But 80 percent of those deals have suboptimal performance," says Padron, now the global business services practice leader at the Hackett Group. "There aren't the right incentives or knowledge in place." Padron advises putting an internal employee in charge of the outsourcing selection process and making a subject matter expert from the business the project manager. "Just sprinkle the consultants into two areas—deal making and legal," says Padron.

4. Nix the Presentations

Beware the PowerPoint black hole. "Many organizations require layer upon layer of executive involvement [in an outsourcing deal], each requiring new presentations," says Strichman of Sanda Partners. "It is all too easy for the consultant to get drawn into this, which eats up enormous time."

5. Hire Your Own

IT leaders embarking on big outsourcing deals or engagements with multiple providers should consider hiring their own IT services experts full-time. "If you can find someone who has lived and breathed it, it can be expensive in the short term," says Scott Holland, principal in the IT transformation group at the Hackett Group. "But longer term, it will pay for itself in no time." Just make sure they have the opportunity to stay on top of trends in the marketplace, advises Padron.

6. Pick and Choose

Outsourcing consultants may tell you they can provide value only if they remain engaged for the entire process. If you want to keep a lid on costs, don't buy it, says Strichman of Sanda Partners. Tell them where you need help, what your budget is, "and they will do it," he says.

7. DIY First, Consult Later

"An interesting approach that hasn't been widely accepted by the market is to have the client negotiate their best deal with the sourcing provider, and then have the consultants come in and adjust the pricing and terms and uncover the pitfalls," says Ruckman of Sanda Partners. It will bring down consulting costs, but may extend the time to complete the deal.

8. Consider a Fixed Price Arrangement

Some consultancies—and even a few law firms—offer outsourcing advisory services at a fixed price. Unexpected issues will come up, and you'll have to pay more when they do. "But in the end, you will spend far less than the hourly rate game," says Strichman of Sanda Partners.

9. Choose Wisely

"Take the time to look at the value a consultant can bring and then to carefully choose the right consultant for the job," says Edward J. Hansen, partner at law firm Baker & McKenzie. "The right consultant may not be the least expensive consultant—or the most expensive for that matter—but has the potential to create value in ways that may not be fully understood without the years of experience that person brings to the table. If a consultant is providing good value during the selection process, the fees will be repaid exponentially in areas like transition cost avoidance and value realization."

Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.

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