The Advantages and Disadvantages of Outsourcing Project Management

In chapter 12, Outsourcing “Managing Interorganizational Relations” the text references some of the advantages and disadvantages of outsourcing project work. Below are the abbreviated points the text makes:

For the advantages they mention:

1. Cost reduction. Companies can secure competitive prices for contracted services,

especially if the work can be outsourced offshore.

2. Faster project completion. Not only can work be done more cheaply, but it can

also be done faster. Competitive pricing means more resources for the dollar.

For example, you can hire three Indian software engineers for the price of one

American software engineer.

3. High level of expertise. A high level of expertise and technology can be brought

to bear on the project. A company no longer has to keep up with technological

advances. Instead, it can focus on developing its core competencies and hire

firms with the know-how to work on relevant segments of the project.

4. Flexibility. Organizations are no longer constrained by their own resources but

can pursue a wide range of projects by combining their resources with talents

of other companies.

For the disadvantages they mention:

1. Coordination breakdowns. Coordination of professionals from different organizations

can be challenging, especially if the project work requires close collaboration

and mutual adjustment. Breakdowns are exacerbated by physical

separation with people working in different buildings, different cities, if not different

countries.

2. Loss of control. There is potential loss of control over the project. The core

team depends on other organizations that they have no direct authority over.

While long-term survival of participating organizations depends on performance,

a project may falter when one partner fails to deliver.

3. Conflict. Projects are more prone to interpersonal conflict since the different

participants do not share the same values, priorities, and culture. Trust, which

is essential to project success, can be difficult to forge when interactions are limited

and people come from different organizations.

4. Security issues. Depending on the nature of the project, trade and business secrets

may be revealed. This can be problematic if the contractor also works for

your competitor. Confidentiality is another concern and companies have to be

very careful when outsourcing processes like payroll, medical transcriptions,

and insurance information.

I liked the comparison and contrast of both the benefits and the costs of outsourcing. In my industry we have outsourced much of, if not all of, our IT support for network issues. I understand the company wanting to reduce cost and such, but there is the much bigger issue, the loss of our internal high level expertise. When we have network issues at our local plant database we have to go to our outsourced IT folks who hardly speak English and take two to three hours to resolve the problem, each time there is a problem. It frustrates me but I understand, why we use them. We want to focus on our core competencies, and IT is not one of them. Does your company use outsourcing? If so do you feel it helps your company focus on the issues they need to concentrate on enchaining?

8 thoughts on “The Advantages and Disadvantages of Outsourcing Project Management

  1. My company has tried both approaches and landed somewhere in the middle. Historically, we outsourced all project management efforts, but only found succes with IT related projects. Our operational projects were less successful because the PM did not have enough knowledge of our business to be fully effective. As we learned from our mistakes, we decided to hire a full-tim PM for operations and continue to outsource projects in our IT function.

  2. I worked at a large insurance brokerage firm as my first job out of college. They were in the midst of finding ways to outsource anything they possibly could, except selling of insurance of course.
    They started with outsourcing some insurance policy review work where instead of paying a trained professional about $15/hr + benefits to review the insurance policies for accuracies in the US, they were paying $6.50/hr with no benefits to an outsourcing company in India. With the success of that project, they started moving their accounting work offshore as well.
    I agree with you that even though there was a lot of frustration, it was tolerated by all of us and senior management because they knew our goal was to save money and also to focus on selling and not the admin work.
    It did become a huge challenge for the project team initially as many employees complained that instead of helping, this was adding additional work on their plate as they had to correct errors that the off-shore team was making but after the initial transition period, complaints seemed to stop and everyone moved on.
    Project team at that point moved on to the next project they could send off-shore.
    As far as I’ve heard recently, they’ve stopped sending more work off-shore but what they did send there is working well and the company is saving significant costs.

  3. As a previous consultant, I was on a lot of projects in which tasks such as procure to pay, customer service, and IT infrastructure was outsourced to companies abroad because of its cheaper costs. For some services that do not require a lot of technical expertise and or complicated customer service functions, the outsourced labor was effective. Outsourced labor allowed my clients to have functional capabilities 24/7 at a margin of the cost if they were to perform it themselves. It is important for companies to address risk management and security issues as they consider outsourcing as a potential option. The outsourced work must also not hinder any business operations and/or result in poor customer satisfaction. An assessment must be conducted prior to ensure the outsourced work is a viable option.

  4. I think outsourcing is a great option for for projects that require little to no day-to-day monitoring with most of the communication conducted through skype or email. Programming and platform builds/support i think are two functions that are always good to outsource due to the availability of talented outsourced programmers. When it comes to aspects pf a project such as sales/marketing that possibly require daily iterations and meetings i think its best to keep it in house as those would be almost impossible to manage with an outsourced party.

  5. Opportunities
    • We can agree a fixed cost.
    • A fresh and objective perspective.
    • They’re easier to hire and fire.
    • Frees up own resources.
    • We can avoid undesirable jobs.
    • We can learn from them.
    • Using them may impress our client.
    • Performance penalties can apply.
    • We avoid capital investment.
    • Competitive pricing.
    • We can be selective.
    • They want future contracts.
    Threats
    • Their ability may be over-rated.
    • Our schedule becomes less flexible.
    • Procurement takes time and money.
    • Security and confidentiality concerns.
    • Own staff demotivated.
    • Conflict and coordination issues.
    • Our organisation is deskilled.
    • We aren’t given priority attention.
    • We have less control over their work.
    • Scope creep may proliferate.
    • They are vulnerable to the market.
    • They learn at our expense.

  6. Thank you for sharing comprehensive knowledge. There are great benefits of outsourcing because it helps you to save your revenue and time. There are many businesses who like to outsource their projects just to save their time and put their efforts on performing other different activities.

  7. When looking for outsourcing opportunities, an organization should look at potential areas and each component within that area to determine if part or all of that function should be outsourced. In this case, choosing a right 3pl providers can be a profitable deal.

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