CIO — Insourcing—the process of bringing back in-house IT work that had been outsourced—is in style. Bob Mathers, principal consultant with Compass Management Consulting, points to recent high-profile IT and business process outsourcing initiatives that were brought back inside Chrysler, Delta Air Lines (DAL), Barclays and AT&T as evidence of the insourcing trend.

"We expect more organizations to seriously consider repatriation," Mathers says.

Mathers credits the increased interest in insourcing in part to a maturing outsourcing market. "Clients and vendors are becoming smarter and more sophisticated about what services lend themselves best to outsourcing," he says.

Insourcing is also a sign of the economic times, according to Adam Strichman, an independent outsourcing consultant based in Mechanicsville, Va. "A lot of companies are looking at their options," Strichman says. "Executives move on and new management must find creative ways to try to save money. If it is in, they look at pushing it out. If it is out, maybe they look at bringing it back in."

But bringing IT back in house can be as complex as transitioning services to an outsourcing provider. And sometimes, insourcing is even costlier than outsourcing. Termination fees, facility build-outs, shared assets, application migration, personnel training and transitions, new hiring, and software license transfers can quickly add up.

The decision to insource should not be made lightly. It requires a thorough assessment of current and future objectives and options.

"You've got to understand the gap between your current capabilities and what you'll need to do it right and understand whether you've got the wherewithal to close that gap in a reasonable period of time," says Mathers.

1. What are my goals?

A good place to start is to ask yourself what you hope to achieve by insourcing, says Ruckman. Cost savings? Improved service? Faster innovation? Once you've identified your goals, assess your existing costs, service, quality, process efficiency, and personnel requirements against competitive market standards. Keep questioning your assumptions to make sure they're realistic, says Ruckman. "A good business case will take at least two to three months and involve 20 to 30 reviews," he says.

2. Do I have a solid business case?

Complete a detailed calculation of insourcing costs. Organizations often underestimate the time and effort involved in bringing IT operations back in house, says Mathers. Some insourcing expenses include hosting facilities, separation of shared assets, application migration, staff training and transfer, new hires, and hardware and software investments.

Legal issues can be particularly challenging, Mathers says, like working through employment contracts, maintenance agreements, and software licenses.

"The transfer costs [for software licenses] are shockingly high," Ruckman notes.

As a general rule of thumb, Ruckman says you can plan to spend at least five to ten percent of your monthly outsourcing costs on transition until you are fully insourced in a low complexity transfer and as much as 15 to 25 percent on high complexity situations.

Also calculate your ongoing cost for in-house support. "Again, businesses underestimate the internal staffing and expertise requirements to manage the operation," Mathers says.

It can be especially difficult to evaluate in-house skills, quantify the new resources you'll need, and factor in the cost of recruiting and relocating qualified staff. Replacing skilled offshore staff is especially difficult.

3. What are my termination rights and responsibilities?

Factor in fees for early termination if your contract is not near its end. "Most contracts have prohibitive contract clauses regarding termination so early, and rightly so," says Strichman. "The vendor usually makes seven-figure investments to transition environments, and it is costly to undo that so soon."

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