Today many consulting companies have multiple ways of paying their vendors. While a flat global rate is common, tiered rates based on skill sets, levels of experience, location-based, size of contracts etc. play a part in it.

Global rates work well for a large IT outsourcing engagement where companies pay a flat rates irrespective of where the resources are. They do agree to maintain a particular ratio of onsite and offshore to help drive the price advantage and monitor it closely to make sure no party is losing.

Smaller engagements call for tiered rates to benefit from getting the right resources matching the needs while bigger engagements where staff augmentation is the key abs it benefits to have a pool to choose from with some checks and balances on the quality of the resources.

Rates due fluctuate for a variety of reasons ranging from rising inflation on the other side of the globe, forex fluctuations, qualified and niche skill sets where the demand is more, location, experience levels etc. it is wise to lock down rates atleast for a year so as not to negotiate every time. Even though long-term contracts helps, it almost always provides for rate revisions every year.

I have had lots of inquiries on advantages of tiered vs. flat, and to be honest I always recommend using what is good in a given situation, Both have their own merits and demerits. Don’t get locked down in long-term contracts, allow for revisions, and negotiations. My personal preference is to have tiered rates – again just a few up to three is recommended, you don’t want more than three which leads to disputes as to where the resource could fall every time you are trying to hire.

Keep in mind rates differ widely depending on type of work. for example call center operators or KPO resources are paid much less than technology resources. Management resources or consulting one command a premium.

Negotiating is the key. Dont rush into signing contract wihtout thorough due diligence. Rates could swing due to various reasons. Read in between lines the contract to make sure there are no compromises for the rates to be lower.

Roping in a specialist consultant would be of immense help as well to get a second opinion if not first. Talking to other clients and making a reference check is a great idea.

Ultimately there is no cookie cutter rate recommendations, it is all based on specific scenarios.

This topic has been every on every employer’s mind in a IT outsourced environment, How do I get the best of the consultant pool? Span of control, better supervision over the pool, embedding employer representatives on the floor offshore, reporting weekly, monthly etc., fixing accountability and responsibility on deliverables with timelines, routine audits, and check points are some of the techniques.

Not all of these techniques work, what you put in place depends on nature of work and also the maturity of the consultant pool. The junior the pool, the more techniques need to be applied and less as the pool is mature and senior enough, Experience onsite as well helps understand the dynamics and expectations besides knowing the culture of the organization.

Having a good framework of checks and balances avoids surprises, removes inefficiencies to a good extent, assures predictability, and improves morale and motivation on both ends. The biggest frustration of employers that have consultants on their projects is the ability to control output a.k.a productivity. The dream of consultants being on par with their rank and file employees in terms of skillsets and efficiency is out of questions. In some cases a consultant is better than employer if these skills are niche and are needed temporarily. Having a toolbox of techniques to gain efficiencies in an outsourced environment is the key.

Remember consultant’s loyalty is always with the employer and not necessarily with the principal that employs him. Also note all of his personal evaluation is done by the employer based on their standards with little input at times on how the consultant is faring. The consultants are more interested in making sure they are toeing their employer’s line. Very few mature organizations have brought together both to reap the rewards.

Sharing best practices across the board, what is working and what is not in a particular setting is important so everyone with the organization gets benefit from a outsourced engagement and evolve a culture of benefiting from outsourced environment then seeing it as a burden.

Outsourcing is the contracting out of an internal business process to a third party organization. The practice of contracting a business process out to a third party rather than staffing it internally is common in the modern economy. The term “outsourcing” became popular in the United States near the turn of the 21st century. Outsourcing sometimes involves transferring employees and assets from one firm to another but not always.

The definition of outsourcing includes both foreign and domestic contracting, and sometimes includes offshoring, which means relocating a business function to another country. Financial savings from lower international labor rates is a big motivation for outsourcing/offshoring.

The opposite of outsourcing is called insourcing, which entails bringing processes handled by third party firms in-house, and is sometimes accomplished via vertical integration. However, a business can provide a contract service to another business without necessarily insourcing that business process

source : Wikipedia

Estimation is one of the hidden costs that eats into your outsourcing costs. More often poor hands offs of scope and requirements result in piquant situation like these. The classic case of missing out on key documentation, missing links in handoffs, lack of attention to details and then the blame game begins. It is extremely important to ensure adequate checks and balances be it via simple team communications using collaborations tools, IM, chat, few phone calls along the way as you progress on estimations thru deliverables be it small, large or medium size projects or just plain simple deliverables.

Be it managed services proposal, time and material, project or program the chances that your estimation is (+) or (-) 5% is almost ruled out. This impacts both sides depending on who went wrong with their strategy.

Check when was the last time you had a project execution right on target 10 (+) or (-). A greater majority of the projects you will see go off the tangent. Precisely due to the above factors. At times the culture of padding every step which exponentially increases the estimates is common. The idea is with so much padding you are going to be successful which is not often the case. Not going into details or following a scientific process to estimate is a risk. Not very project needs to go into a functional point estimation which could be overkill, use plain best practice methods to understand work packets, break down to component level or any lower level that wont fluctuate your estimations Create your own template if you don’t have one and be consistent, run it by a peer, get reviews done and plug in feedback.

Predictable outcomes always comes from good estimations, not to mention quality of the deliverable. Poor estimations run of risk of cutting corners to achieve the end goal.
Writing good estimation needs to be developed as a culture and getting to a point of having offshore teams deliver better estimations is a discipline that will pay huge dividends. It saves time, money and frustrations, helps improve team spirit and motivate teams to do better via customer satisfaction.