Reduce testing cost by QA outsourcing

There are all manner of outsourcing firms who can provide you with impressive powerpoint presentations showing how you can cut your QA costs by 30% or more by outsourcing the work. I would caution you to consider the source however.

Of course Outsourcing firms will produce evidence showing why their service is a valuable cost savings, they will even have little problem letting the managers and executives who decided to use them generate the metrics that show how much of a cost savings it was to outsource. In the case of the Outsourcing firm, it is little more than marketing speak trying to generate new business, expecting them to say any different would be like expecting a Cigarette company executive to go on Television and say "Of course Cigarettes kill people but as long as they are willing to buy them we'll be happy to take their money". As far as their Customers, well admitting that a decision to outsource was a failure would effectively end most executive's or manager's careers so they have little incentive to look too critically at the numbers.

So how much is the cost savings?

That depends on a LOT of factors. First, how much do your inhouse testers cost? Not just their salaries but their total cost.

In the US and UK the total cost of an employee is considered to be around double their salary (that varies some based on the level of benefits offered, location, and other similar factors) and QA testers earn between $45,000 and $90,000 a year depending on experience level, industry, and location. This would mean that on average a Tester in the US should have an employment cost somewhere around $60 - $75 per hour. Only you would have any clue what your costs would be, I'm just including that as a reference point.

The Bill Rates for Outsourced testers ranges from $25 - $40 per hour in places like India and China up to as much as $60 an hour for outsourced testers in industrialized countries (and it can be MUCH higher than that in some locations of if you require specialized knowledge, I've personally seen them as high as $150 per hour).

On top of that bill rate from the outsourcing firm there are additional costs that would work out to an extra $5 - $10 per hour to cover the legal expenses of negotiating the contract with them, the necessary network infrastructure work to allow the outsourcing vendor's network interface with yours securely and so on.

So, a reasonable projection is that in most cases Outsourcing IT work will cost around Half of what it cost to do the work in house on a per hour basis (at least for companies based in the US).

We're not at the end of the caluclation yet though. See that is a Per Hour cost. It assumes that the Outsourced testers are able to work exactly as efficiently as your inhouse testers and with the same skill. While the question of tester skills is highly random from company to company the question of efficiency is actually fairly static. Simply moving your testers into a different building within the same complex creates enough inefficiency to make testing projects take 25 to 50% longer than they would have if they sat next to the developers. Adding in different corporate cultures or even worse national cultures, language barriers, time zone differientals, etc. and the man hour increase is closer to an additional 100% to as much as 200%.

So a 50% reduction in cost per man hour but it takes you 2 to 3 times as many man hours says that Outsourcing is anything from a break even to a money loosing proposition until you factor in variability in skill levels between your existing test staff and the staff at whoever you outsource to. If you have very weak testers and are unable to recruit better ones the it may be that outsourcing will produce a small cost savings of maybe 10 to 20% of your testing costs.

I have yet to encounter an Outsourced testing situation where it actually saved money. Many VP's, Director's, and Manager's claimed it did on the basis of reduced per hour labor costs but never one that was a net positive to the company once all of the outsourcing costs were factored in.


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mike said...

I think the key thing with outsourcing is that you don't want to ruin the quality of the work you distribute. I use a virtual offices supplier to take care of all the admin stuff whilst I get on with the actual work.

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