Outsourcing and Project Management

An Overview of the Need, the Opportunity, and the Necessity for Small Business.

By Michael Connolly

Having lunch with a knowledgeable friend on the patio of local restaurant in Shanghai, our conversation turned to the question of how investors evaluate small companies looking for investment opportunities. Of course, there are a myriad of factors, but one which kind of surprised me was his comment about outsourcing.

He said, "You know, VC's (Venture Capitalists) are now looking favorably on companies with a lean headcount and who are doing a significant portion of their operations via outsourcing." "Really," I said "I would expect that the investor would want to see some continuity that having trained employees offers?" "Maybe so", he said. "However, often, they would rather see a sparkling bottom line with a small payroll and not be liable for the risk that overstaffing brings". Good point.

I examined our own experience with outsourcing and felt that it was a mixed blessing. It is great to get a project done quickly and not have the payroll to cover when the project is done. However, outsourcing does not mean that there is no responsibility on the part of the buyer of services to see that the project is being developed and handled properly. In our experience, it is even more important to have a structured approach to managing projects and to be able to communicate that clearly to the service provider.

I could see, in our own operations, that if had done a better job of finding service providers, developing clear specifications for the work, and managing their progress, some of our projects might have gone much different and been more profitable for us.

The question is: Do the advantages of outsourcing outweigh the disadvantages? When utilized and managed well, there are significant advantages. My knowledgeable friend uses outsourcing extensively and is able to get a tremendous amount done with very little staff. He put it to me this way ( to paraphrase ).

* Outsourcing saves us money. Bottom line, we have our project completed and even though we might pay more for the project, with the right providers, we have completed projects without the ongoing employee expenses. This saves us a lot of money very quickly.

* Outsourcing helps us share the risk. When we pay another company or individual to develop a project for us, we negotiate based on the value of the project. The provider assumes the risk to assemble the necessary people and expertise to accomplish the project. For instance, we outsource a software development project. Rather than hire and train a few programmers to do the job for us, we hire a company or contractor who has the necessary expertise. Much cheaper in the long run.

* Business runs in cycles often, and outsourcing helps us with our peak loads. We can do several projects at once (assuming we are managing them) and it also allows us to grow our expertise in our core business much faster.

* For us, the value of an employee to our company often depends on how much they can get done. With a good project management methodology, our employees have an opportunity to learn a valuable and much needed skill. Most important, they leverage the effort and work of other experts to get things done in a timely manner.

For example, for a software development project, we would not need to hire a 3 programmers, but we would need to have at least one good project manager to make sure the work gets done. Also, if we offload our tedious tasks or tasks for which we do not have expertise to contractors, it frees up our internal staff for more interesting business development and growth oriented projects.

Part of effective management of contractors and service providers is having a good system in place.

First is to specify in detail the scope and desired outcome of the project in a written manner. Specifications are the key to having successful outsourcing and the key to negotiating expectations of value vs price of the service. If you don't spec it out, you probably will not see it in your final result.

Next have a system to manage the partners. Online Outsourcing networks, such at MyTino.com can help manage the project and act as an intermediary to make sure that work is completed before final payment is made.

Have someone trained in structured project management skills manage your projects. If you only have one or two things you need done, this might not require a full time employee. However, having someone on staff who can manage the step by step of a project through to completion is extremely desirable. The more you outsource, the more desirable having this in house skill becomes. It is time consuming to train someone to be a good project manager, but it would probably be less time consuming and certainly less expensive than failing to produce a project you have invested your time and money into.

myTino is a global platform for online work collaboration and services trading which serves as a reliable outsourcing information portal and a secure transaction platform equipped with member certification functionality for both Buyers (overseas companies and individuals) and Providers (talents in various fields). On myTino, Buyers can post Ads and Request for Proposals (RFPs) to find and hire the right Providers for their projects. Likewise, Providers can search Ads and RFPs to find work opportunities and bid for projects online.