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Hardware Down, Humans Up

Some key drivers of IT outsourcing costs are becoming less expensive, but that's not true of the people behind them.
Alix Stuart, CFO Magazine
February 1, 2003

Thanks to better, faster, and cheaper technology, some of the key drivers of IT outsourcing costs have dropped dramatically. The average company is paying 80 percent less for mainframe usage than it was five years ago and 72 percent less for servers, according to data drawn from customers of Compass Group, a global benchmarking firm.

The people behind that progress, though, are becoming more expensive every year, with the average cost per IT worker increasing nearly 12 percent over the past five years. For instance, putting a real person on the other end of the help-desk phone line has become a lot more costly — nearly 16 percent more so between 2001 and 2002 alone.

As a result, some companies are "transferring work to geographies where labor can be bought much more cheaply," says Neil Barton, director of global consulting services at Compass, with software development leading the way in offshore outsourcing. "While these contracts take much more management effort, the attraction of the lower labor costs is often hard to resist."

Average Monthly Mainframe Cost per MIPS (millions of instructions per second)

Average Annual Cost per Server

Average Annual Cost per IT Person

Cost per Help-Desk Call

Source: Compass