Factors that Impact Outsourced Applications Contract

The rise of global sourcing has significantly impacted Application Outsourcing (AO) in recent years. Buyers of AO services need to obtain a global view of the sourcing economy and understand its overarching influences.

Top factors that have been outlined in this article i.e. economic forces, labor market factors, scope variables, and rate analysis, provide a framework for buyers to use to proactively design, negotiate, and manage AO contracts. Additionally, this article quantifies those factors that have made the most impact on scope and price of applications outsourcing.

Economic Forces

Economic forces influence outsourcing rates during negotiations and throughout the duration of the relationship.

  • Exchange Rates
  • Inflation
  • Economic Growth/Gross Domestic Product

Labor Market Factors
Labor market factors influence labor rates within a specific country, and in larger countries, like India, they can affect rates on a regional level within the country. Buyers and vendors should stay abreast of these labor market factors to effectively negotiate, manage, and deliver AO solutions.

Scope Variables

While the largest cost components of labor rates are staff compensation and labor-related costs (e.g., taxes and benefits), additional scope variables affecting labor rate pricing are as follows:

  • Billable Hours
  • Data Communications
  • Desktop Computing Hardware
  • Voice Telecommunications
  • Facilities and Office Supplies
  • Travel

Rate Analysis

Primary price drivers for applications outsourcing are: country, standard market roles, and years of experience (YOE): Country; Standard Market Roles; Country Years of experience (YOE).

Dynamic market conditions for application outsourcing services require buyers and vendors to monitor labor market factors, contracts, and service delivery to optimize the cost/delivery performance. In order to meet initial deal objectives, AO efforts continue to result in complex business transactions requiring continual oversight by customers.