Hourly rate or total cost

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Hourly rate or total cost

Last week, I searched online for IT outsourcing advice to see what I would find.  It was an eye-opening experience to learn the topic is dominated by one thing – hourly rates.

Considering an overwhelming focus on hourly rates, I want to pass along my experience and expertise that identifies much bigger concerns.  At the end of the day, the total cost of outsourcing matters much more than hourly rate.

You have probably heard the famous quote by Benjamin Franklin, “Time is money”.  There is no better example than a job that takes 5x or longer1 where you pay for each hour until the job is done.  The longer it takes, the more money it costs.  How do so many smart people miss this?

Keep in mind, my career began in software development, where I have extensive practical experience with enterprise software.  I’ve been in the trenches delivering software products for many years and I know my way around IT teams.  I have seen this play out more times than I can count – a low hourly rate that trumps productivity and quality, and then causes time delays in getting the job done.  Total costs then explode.

I don’t get it…

Why then do organizations continue to fixate on hourly rates instead of speed and total cost?  One thought comes to mind: If the organization does not have a culture that encourages change and improvement to IT applications and services, then it will stick with the status quo.  But enlightened organizations will naturally learn that total cost is what matters.

1I have seen productivity differences as high as 15x – 20x.

Hi, my name is Theresa Smith.  I’m a senior partner, product manager, and technology delivery lead.  I have spent the last fifteen years leading product vision and initiatives using Strong Center Design. I build products that solve meaningful problems that people use around the world. Find more of my material on my personal blog, Strong Centers.