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Paul Laudeman forwarded a link to an article on outsourcing, IT job strategies: What the risks of outsourcing mean for IT workers. It seems like a fairly balanced look at the effects of outsourcing.

“Outsourcing is currently viewed as a promising way to cut costs since the biggest ongoing IT expense is payroll for skilled workers.

But the costs of coordination, communication, and administration are typically higher when a company outsources, especially when the new workers are half a world away and disconnected from the business and corporate culture that they serve. people3 estimates management costs alone can be 4.5 to 15 percent higher.”

It even includes some real, factual data (well, as factual as a survey can be).

“According to reports, a survey released Monday by people3, a Gartner research company, revealed:

• 20 per cent of companies that farmed out IT work did not achieve any cost reductions
• 9.2 per cent experienced an increase in costs
• Just 21.1 per cent reported a cost savings greater than 20 percent

people3 also noted outsourcing  companies faced higher costs associated with the transition period, disruption in work processes, increased turnover of IT staff with critical knowledge and skills, and lower employee morale.”

That works out to 29.2 percent saved no money or actually lost money, 21.1 saw cost savings of more than 20 percent, and the remaining 49 percent saw modest cost reductions.

Despite the potential cost savings, some companies have some compelling reasons not to outsource (I wrote about something similar in July 2003 about the future of American programmers).

“IT managers in government, defense and globally-competitive firms have expressed similar concerns. These organizations must weigh carefully the potential problems if they place vital data in the hands of workers who, for all practical purposes, lie outside the reach of the laws and business practices to which they are accustomed.”