When you outsource IT, stop paying them by the hour!

To help ensure your IT projects are finished on time and in budget, pay IT outsourcing a flat fee. Do you realize that when you pay outsourced IT companies by the hour, unless you put some other restraints in place, you basically reward them for taking longer?

For real—you can find companies that will work with you for a flat rate. They are rare, but they are often the best IT companies to work with. They are sharing the responsibility with you to get the systems up and running quickly. If they drag out a project, they are losing money right along with you. I think that is fair. IF they finish sooner, you both win, and they’ve earned their money.

Some executives tell me, “We found a new IT company that only charges $50 per hour instead of our old company that was $150 per hour. Aren’t we smart?” I explain that the hourly rate is irrelevant without knowing how long they take to accomplish a task. You would much rather pay $150 to a company that solves a problem in an hour than pay another company $150 for 3 hours of work to solve the same issue, especially if they gave you an estimate of $50 to being with.

The most important part is defining the scope clearly from the beginning. Planning is usually a good thing anyway!

I work with my clients on a flat fee basis.

When you outsource, I strongly encourage you to find an IT company that will work with you for a flat fee per project as well! Your projects will be more on time and in budget.


3 Comments

  • Mike Foster January 18, 2010 at 1:11 pm - Reply

    One person wrote in saying:

    Amen! We met when you did a presentation a couple years ago. We switched everything to flat fee in 2007. We’ve had 2 years of 40+% growth since then!

  • Mike Foster January 18, 2010 at 1:16 pm - Reply

    A response from an IT professional:

    Another good feed, however, please don’t push outsourcing to much. I need my job!!

    All is well here, everything is working great. It was a huge technical mess, but is now cleaned up. Your guidance was much appreciated!

    (Me, Mike, again below)
    Yes, I agree – I want all of you IT professionals to keep your jobs for sure! Just like a good cardiac surgeon brings in a brain surgeon when necessary, I realize you will outsource too. The flat fee arrangement helps ensure the project scope is clearly defined in the beginning and everyone is held more accountable.

    I use a flat fee when organizations hire me, and one of the organizations I visited since starting this thread is getting a huge bargain – I had no idea what a disaster their network was in! I will enjoy helping them move to IT usability at the fee I originally quoted.

  • Chia Sueda November 2, 2010 at 7:17 pm - Reply

    Haha, I really liked your blog, it is in my bookmarks. I think my site you will like it too.

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