Outsourcing has become undeniably popular in all spheres of business these days. It sounds sweet and promising, especially with its cost-optimization benefit. However, organizations such as startups and SMEs need to be aware of unforeseen factors. 

No one likes the ‘ta-da’ moment when it comes to unexpected situations, especially when running an organization. Unprecedented problems in your outsourcing project, particularly the financial ones, may lead you to failure and cause negative impacts. While the tangible benefit might be just the tip of the iceberg, the real question is: Are you fully aware of all the hidden outsourcing costs in your IoT projects?

The ‘real’ outsourcing cost

Over the past few decades, outsourcing has shown no signs of slowing down. The global market size of IT outsourcing services is expected to grow at a compound annual growth rate (CAGR) of 7.7% in 2027, according to Grandview Research. 

While the most common benefit that companies have always been talking about outsourcing is cutting costs, that might not be the truth if you don’t calculate the outsourcing cost in your IoT project right. According to CIO Online, one of the biggest mistakes in an outsourcing project is that companies fail to calculate the total cost, which includes all the hidden costs that are likely to present.

Underlying costs: what are they?

As outsourcing is a dynamic journey, some changes might occur along the way, and such changes can come with increased costs. If you want to make the best out of your IoT projects, beware of the hidden outsourcing costs that stem from unexpected situations.

In different stages of your IoT project, unforeseen expenses will underlie beneath the iceberg. Here are the possible hidden outsourcing costs, categorized into relevant stages, that your organization might face during their IoT projects.

Source: MITSloan

1. General hidden cost

Beyond phase-specific costs, certain hidden expenses can emerge at any point during the project lifecycle. These often stem from underestimations or external changes affecting the project. Recognizing and planning for these costs is essential for comprehensive project management.

• Internal Resource Underestimation: Overlooking the time and effort of internal teams.
  
• Technological Obsolescence: Investing in soon-to-be outdated tech.
  
• Regulatory Compliance: Adjusting to new laws or standards unexpectedly.

2. Vendor due diligence phase

Getting the right partner that matches the needs and expectations of your IoT project is not a cakewalk. During the outsourcing due diligence phase, unforeseen expenses may include:

• Travel expenses: If you need a representative to go on-site and do the checking
  
• Intermediaries fees: The cost of hiring a third-party to assess the vendors for you
  
• Consultancy charges

To mitigate hidden costs during the vendor due diligence phase, integrating potential expenses such as travel and consultancy fees directly into vendor contracts proves beneficial. Additionally, opting for virtual meetings over in-person visits can significantly slash travel expenses.

3. Beginning of the IoT project

The beginning of an IoT project is foundational, requiring the acquisition of new technologies and skills. It’s a period marked by optimism but also by the potential for unforeseen expenses.

Identifying these hidden costs early can prevent budget overruns and ensure the project’s smooth initiation.

• Training Costs: Money spent on new technology training.
  
• Technology Purchase: Buying new software or hardware.
  
• Integration Issues: Extra costs for blending new tech with existing systems.

Therefore, closely monitor your IoT project from the start to make sure that everything is under control:

• Clearly outline the project’s scope, including objectives, deliverables, and timelines. A well-defined scope helps in identifying the necessary technologies and skills upfront, reducing the need for costly adjustments later.
  
• Conduct a thorough risk assessment to identify potential challenges in technology adoption, knowledge gaps, and integration issues. Planning for these risks early can minimize costly disruptions.

4. During the project

As projects progress, changes and additional requirements often emerge, leading to extra charges that weren’t initially planned. Being vigilant about these potential hidden costs helps maintain financial control and avoids surprises that can derail project timelines and budgets.

• Scope creep: Incremental increases in project scope without equivalent increases in budget, leading to additional work and costs.
  
• Over-reliance on vendors: Costs arising from becoming too dependent on specific vendors for technology or services, potentially leading to higher prices due to lack of competition or negotiation leverage.
  
• Non-standard requirements: Customizations or non-standard requirements that were not identified during the contract negotiations but emerge as necessary during the project execution.

Dealing with additional charges arising from project modifications necessitates a formal change control process. This process, which evaluates the impact of changes and mandates formal approval, plays a crucial role in managing scope creep efficiently.

Furthermore, selecting vendors who are flexible and transparent about customization and additional charges ensures that unforeseen costs can be navigated and managed more effectively.

5. The end of the project

Wrapping up a project efficiently is as crucial as its initiation. Ensuring knowledge retention and smooth transition prevents future operational hiccups and additional costs.

Unanticipated costs here can impact the long-term success and sustainability of the project outcomes.

• Knowledge Transfer: Costs from ineffective knowledge sharing.
  
• Documentation: Resources spent on creating project handovers.
  
• Support Post-Deployment: Unplanned expenses for after-project support.

Ensuring a seamless project conclusion calls for a strategic approach to knowledge transfer and post-deployment support. Creating a detailed knowledge transfer plan, replete with comprehensive documentation and handover materials, is paramount for operational continuity.

Moreover, securing post-deployment support within the initial contract can forestall additional post-completion costs, ensuring that any emerging issues are addressed promptly without incurring extra charges.

Final thoughts

It may puzzle you whether these hidden costs can drain all the cost-related benefits from outsourcing. The short answer is no. Instead, as long as you are well-prepared, such outsourcing costs act as a long-term investment and keep your organization future-proof in this dynamic and unprecedented world, regardless of your current state. Understanding what the potential hidden outsourcing costs which are not contemplated in your contract are and preparing a detailed plan to accommodate that is vital.By partnering with a reliable partner such as Sunbytes, you can rest assured that we meticulously plan the journey, including the ‘hidden costs’ in your IoT project and take your business to new heights. Reach out to Sunbytes now and get started on your IoT journey today!