Hiring vs. Outsourcing IT
Department
Team 2
Chad Hargrove
Gene Neeley III
Ian Reyes
Audrey Robbins
Project Goal

Decide Whether to Hire a Fulltime
Network Administrator or Outsource
Project Scenario
Small engineering consulting firm
(<50 employees)
 IS/IT department is not a core aspect
of the company
 Should we hire a network
administrator or outsource?

Fulltime Employee
Network Administrator that maintains
our internal computer network
 Two Fulltime employees
 Offered salary, health/life insurance,
paid vacation and sick time

IT Outsourcing

Outsourcing is an agreement by
which an organization contracts for
the provision of IT/IS services from
another firm
– Data center management
– Network and communications
infrastructure management
– User Support
Assumptions
Fulltime Employee
Salary - $60,000 per year
 Bonus - $2,000 per year
 Insurance Benefits
 Office Space - 250 sq.ft./person @
$20/sq.ft.
 Equipment

– Desktop Computer with software
Fulltime Employee Cont.

Equipment cont.
– PDA
– Cell Phone
Payroll Taxes
 Recruiting Costs
 Training Costs
 Administrative Costs

Outsourcing
5-year contract
 Includes:

– Technical expertise in network
administration
– Network storage
– Data backup
– Unlimited technical support
Analysis Details
 Present
worth of 5-year cash
flow
– To compare the cost (in today’s
dollars) with future cost, taking time
value of money into consideration
– Fixed output situation, goal is to
minimize present worth of cost
– 5 year analysis period
Present Worth Analysis

Hired Employee
Year 1
Year 2
Year 3
Year 4
Year 5
NPV
Cost of Hiring
$183,248
$163,591
$168,167
$172,880
$177,735
$781,745
Present Worth Analysis cont.

Outsourcing
Year 1
Year 2
Year 3
Year 4
Year 5
NPV
Cost of Outsourcing
$124,950
$120,000
$120,000
$120,000
$120,000
$546,589
Comparative Results
Employees
Outsourcing
$200,000
$150,000
Cost $100,000
Hired Employees
$50,000
Outsourced
$1
2
3
4
5
Year
NPV = $781,745
NPV = $546,589
Sensitivity Analysis
Employees
Outsourcing
NPV of Outsourcing
NPV of Hiring
$900,000
$900,000
$850,000
$800,000
$700,000
$750,000
NPV
NPV
$800,000
$700,000
$650,000
$600,000
$500,000
$600,000
$400,000
$550,000
$300,000
$500,000
$50,000
$55,000
$60,000
Annual Salary
$65,000
$8,000
$10,000
$12,000
Monthly Fee
$15,000
Sensitivity Analysis Cont.
Special Projects
Advantages
Employees


Eliminates delay of calling
external company
Can create/maintain a
more specialized network
Outsourcing



Lowers Cost
Access all of your
applications and data from
any computer on web
Innovation without the risk
Disadvantages
Employees


More costly
Less technical expertise
Outsourcing


Depends on internet
connection
Technical support hours
may vary from the
company outsourcing
Final Recommendation
Our recommendation is
to select the outsourcing
alternative in this case.
Resources
www.monster.com
 www.provaliant.com/whitepapers/wp
_cost_employee.html
 www.externalit.com

Questions?