This continues a series of columns from practitioners I respect. The category "Real Deal" describes them well.
This time it is Lisa Lovas, a seasoned executive, who has more than 20 years of experience in sales and executive management and sales leadership positions for IBM, Aon Corporation and Affiliated Computer Services (ACS). She has a proven track record in IT consulting services and processes, HR transformation, complex outsourcing contract negotiation.
Here she argues it is a myth that offshore testing is “cheap”
“Offshoring? Nearshoring? Business Process Outsourcing? You can’t just look at labor cost differentials. Key factors influence the “true’ cost or “fully loaded cost” of using an offshore center.
According to a recent article in CFO magazine, “A lot of people who jumped on offshoring for the cost purposes never truly understood the market. They got some savings, but generally not as much as they thought. There were unexpected outlays, error rates that rose too high or more frequent trips to India and elsewhere-that affected underlying cost assumptions. Toss in wage inflation overseas and wage deflation at home and suddenly the calculus shifts again.”
During the 90’s with the emerging outsourcing market, HRO,FAO and major application development efforts, large organizations such as ACS, EDS, IBM and others used the common process of “baselining” costs to compare savings when outsourcing. Wage arbitrage provided an immediate impact, but long-term gains came through process improvement.
In the Quality Assurance world some of the same “soft’’ dollar factors hold true. Differences work ethic, poor project management and high turnover, can derail even the most well planned QA test effort, especially when a software production deadline is not met. Although the hourly cost is lower in some cases, the increase in the total number of hours as well as resources to get the job done add to higher costs. And then consider the fact that most offshore efforts require both on-site and remote coordination, at both client and offshore center, you are looking at coordination costs that are equivalent to 8 or even more extra software execution resources. Specifically, at one large financial services client this year, we were able to achieve a 3 to 1 ratio of offshore testers to Questcon’s onshore testers, all due to extra layers of coordination and project management time.
Other factors we have experienced that have to be considered as part of a “fully loaded cost” are as follows:
Onsite Proximity
Onshoring makes sense with complex projects with issues that need to be seen and discussed as a team. This is especially true in projects that use more recent agile development methodologies.
Communication Clarity
Being Onshore means more communication clarity. There is also a better understanding because the locals understand tax and compliance issues and often have more familiarity with local business process nuances.
Geo Political Instability and Wage inflation
Financial Fraud, terrorist and currency fluctuations are some of the complications we have seen with teams in international locations.
It’s all Dollars and Sense
So what do the numbers show? Our largest on-shore test center client found that for manual testing Questcon beat the rate of both their captive providers in China and India, at a “fully loaded cost” average of 20 dollars per hour for a test center resource executing 900 scripts. In fact, due to the quality of Questcon resources, and the elimination of communication and coordination barriers, Questcon in fact executed 3 times more scripts per week than the clients own internal testing resources, price for price savings of 66%.
In “THE NEW CALCULUS” the recent article featured in CFO by Josh Hyatt, clients are looking at not just cost savings, but other factors that drive Outsourcing, such as gaining access to new technology and skills, as well as transforming processes. This is never more prevalent than now in the QA marketplace through what I call Saas for QA, as companies such as HP partner with us at Questcon to offer what used to be pricey enterprise HP test software licensees on a rental or project basis.
At one of our clients 1000 Virtual User days for Performance test software was $284,000, one time use rental from Questcon, was $ 7,000. Most clients, particularly in performance testing engagements find renting the licenses for a load test to represent 80% savings on average, using Questcon test center services.
As with everything else, companies are finding the right balance of fiscal strategy and geographical balance in talent. It’s all in the “baseline” if the fully loaded costs are evident.
Lisa Lovas can be reached at [email protected]
