Outsourcing Project Management: Cost Structure Comparison

We are still deciding about outsourcing project management and now we want to focus on the cost when compared to hiring a project manager.

(This article is the final part of a set of articles about outsourcing project management) 

Cost Calculation

Photo courtesy of ©iStockphoto.com/denisenko

In the following analysis we are not taking into account neither the direct cost of hiring (such as employment agencies fees or referral bonuses to other employees), nor the indirect cost of hiring (such as cost of interviewing or lost revenue). These should be pretty similar to the direct and indirect costs of engaging an external partner.

The cost structure of an employed project manager could be as follows:

  • Salary (including all the taxes)
  • Equipment (computer and other hardware, software licences, maintenance and support)
  • Mobile phone costs (device, subscription, data plan)
  • Education and literature
  • Cost of a company car program
  • Bonuses and rewards

With recent rise in demand for good project managers (especially the certified ones), these costs rise as well. In addition, all of these are more or less constant and do not change dramatically either if project manager is highly utilized, or not at all.

On the other hand, cost structure of an outsourced project manager is usually much, much simpler:

  • Contracted price (fixed price or time&material)

This is pretty easy to adjust in response to a higher or lower amount of required work.

For instance, if one of organization’s projects gets cancelled, for whichever reason, it is easy to reduce the hours worked (and the corresponding price) of the outsourced project manager. Very different than with the employed project manager.

If organization has a need for a full-time project manager, then the cost of an outsourced project manager would probably be higher. But still, organizations need to evaluate all the other factors that we mentioned in the previous articles.

In this case a less costly alternative might be to hire a project administrator AND outsource to an external part-time project manager. Then there is the benefit of a constant presence of the employed administrator as well as the experience and knowledge of the outsourced project manager.

In conclusion, there are a lot of factors that can influence the organization’s decision, and this is exactly the point of these articles, to raise the awareness of the advantages and disadvantages of both models.

One size does not fit all, and organizations would be better off to analyze all these before they come to a decision.

Does your organization deal with this situation? And how? I’d be happy to learn from you privately, or use the form below to share it with the world! 

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