Due to excellent skills and sufficient capacities in low-wage countries like India, an
increased business trend to IT offshoring has become visible. Especially the reduction of companies’ IT budgets, as a result of the worldwide economic downturn, has fortified the offshoring trend. However, in many cases, offshoring projects have produced disappointing results. While potential cost savings are close to 50 percent, in some projects, no cost saving at all is realized. In this case, an insufficient cost analysis often turns out to be crucial for the false estimation of expected savings.
One reason for an insufficient profitability analysis of IT offshoring projects is that the
costs relevant for such a project are not systematically considered. In this paper, relevant cost factors are identified, analyzed, and structured in a classification framework, in an attempt to facilitate the profitability analysis of offshoring projects.
In the first part of the paper, a total cost approach, applied by Siemens Corporate
Technology, is presented. In the second part, based on a comprehensive literature
research and practical experiences from offshoring projects, relevant cost factors for the profitability analysis of IT offshoring projects are identified, analyzed and structured in a framework.
Keywords: IT, Outsourcing, Offshoring, Nearshoring, Economics, Cost Analysis