How to lower the total cost of engagement with outsourcing development
How to lower the total cost of engagement with outsourcing development

Total Cost of Engagement is a concept very helpful for companies looking to outsource development. Learn more and find out how to lower your TCE!

Unexpected costs are among the main reasons companies fail at outsourcing software development. As a result, it is vital to rely on a solid plan that correctly estimates the expenses to be encountered on this kind of arrangement. However, it is a common mistake to take for granted the particularities of outsourcing.

Unlike what happens in the traditional hiring model, this approach involves costs beyond regular person/hour fees. After all, we are talking about professionals coming from different countries, which implicates natural communication barriers and, sometimes, a lot of traveling. So, how to ensure this endeavor is cost-effective?

Understanding the Total Cost of Engagement is undoubtedly part of the answer. TCE helps you determine a proper budget for your strategy and avoid any unnecessary risks when choosing your partners. Besides, it gives you insights into how to spend your money efficiently. In this text, we will explore this concept and explain how you can lower your TCE. Enjoy your reading!

What is Total Cost of Engagement (TCE)?

The opportunity to reduce labor-related fees while maintaining a proper level of quality is what makes most companies invest in outsourcing. Currently, finding an experienced developer in the internal market is a challenging and extensive task. Besides, the employer has to deal with wages, worker benefits, and the costs of managing an office space.

Outsourcing is a way to reduce those challenges, but it also brings its own expenses. First of all, it is crucial to set realistic expectations: good professionals will always require reasonable payment, even in more cost-effective markets. But, as we mentioned a few paragraphs back, working with third-party contractors creates other kinds of costs.

TCE is a concept that gives CEOs a holistic view of the expenses generated by an outsourcing strategy. Instead of considering only hourly rates paid to software engineers, it includes, for example, airline ticket prices. After all, traveling is a common activity when you are working with partners overseas.

Another component of TCE is management overhead. This is especially critical in offshore arrangements, in which companies have to deal with huge time zone differences. It becomes difficult to set adequate internal communications without impacting the employee's schedule, often leading to overtime payments.

The Total Cost of Engagement also takes into account the expenses of transferring knowledge to new personnel. Because of cultural differences, the onboarding may be more challenging than expected, as well as the training sessions. A good way to solve this is finding a company that conducts the whole hiring process for you.

Nevertheless, an outsourcing experience may indeed result in productivity loss. In the beginning, it may be hard to ensure a positive and productive work environment, mainly if you are dealing with remote developers in entirely different time zones.

There are also the external risks. Economic and geo-political changes may impact the rates in a region, modify the offer of labor, or set limiting tariffs and regulations. Constantly monitoring those aspects is paramount for avoiding unexpected setbacks.

As you can see, many factors contribute to high TCEs, which may cause some hesitation to adopt the outsourcing model. However, in the next topic, we will detail how you can design your strategy in a way that keeps your Total Cost of Engagement low. Keep reading!

How can you lower your TCE?

If you pay attention to the elements that impact the TCE, you will notice that many of them are related to the distance between the company and the outsourcing country. Common sources of labor, such as India and China, are in time zones that make communication with US partners quite difficult, even with all the technology available.

Besides, distant geographical locations imply long and costly flights. Flying regularly to Beijing or New Delhi demands a robust budget, which we know is not always available. Still, the truth is that if you cannot meet with your outsourced team in person, you may find it considerably harder to ensure mindset alignment.

However, it is essential to realize that the APAC countries are far from being the only — or even the best — choice. More and more companies are turning their attention to closer regions.

Outsourcing to nearshore countries such as those located in Latin America is one of the ways to lower your TCE. The supply of talent is huge in countries like Brazil, Chile, and Mexico, and you are only a few hours of flight away from them. Besides, the time zone differences are basically irrelevant, which makes communication and collaboration a lot easier.

However, when taking this step, it is vital to make sure you are investing in a region with the proper infrastructure to provide experienced and qualified talents. The ideal is finding a trusted partner with the needed expertise and structure to recruit and select adequate professionals. In this way, you also prevent your TCE from costs present in any hiring process.

Additionally, make sure you take measures to protect your project's data. When hiring an outsourcing company, look to establish an SLA that sets data protection standards. This will avoid any unforeseen expenses generated by leaks or problems with your code. It will also make sure your partner fulfills their part of the deal.

In the end, the secret to optimizing your TCE is building trusting partnerships and ensuring effective investments. It is a process that may take time, but that will surely provide more convincing results for your business.

Total Cost of Investment is a concept that helps startups estimate the costs involved in an outsourcing strategy. It takes into account complex expenses, usually not considered in traditional hiring models. If you want to optimize your financial management and achieve a lower TCE, it is vital to make smart decisions about where and how to look for outsourced developers.

Outsourcing development has the potential to bring many benefits to your business, but it also hides a few pitfalls. Wondering how to overcome them? Check out this post!

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