5 Ways to Reduce IT Staff Augmentation Costs

By Smita Manjunath

Analyst, NPI

September 03, 2020

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Enterprises have long relied on IT staff augmentation as a way to scale the IT function. But amid the economic fallout of the global health pandemic, we’re seeing expanded utilization by our clients as they submit rate cards to NPI for price benchmark analysis. Uncertainty, tightened budgets and a need to fast-track certain IT initiatives (namely cloud-related and digital transformation) has created a situation uniquely suited for the advantages of IT staff augmentation.

IT staff augmentation works as a viable strategy in situations where companies need highly skilled and technically competent resources globally on a temporary basis and where managed services models are not a good fit. The benefits are numerous and include minimal/no recruitment costs, resource flexibility and a minimal impact on the existing operating model of an IT organization.

Like any subcategory of IT spend, there is little pricing transparency for IT outsourcing and staff augmentation services. What a vendor charges one company can be significantly more or less than what they charge another company with similar requirements. Diligence and proactive management is required to root out overspending risk and ensure companies only pay for the resources and skill levels required.

Best Practices for Keeping IT Staff Augmentation Spend in Check

  1. Performing price benchmark analysis on the resource rates can help you determine if the resource bill rates are competitive for specific roles, skillsets, experience levels and geographic locations. This type of data-driven insight helps the sourcing team to negotiate competitive resource rates and reduce the costs of engaging temporary workers.
  2. Standardizing roles based on responsibilities, skillset, experience levels, etc. is essential to accurate benchmarking. This is also true for T&M rate cards for various projects in the organization.
  3. Matching skills to requirements is crucial. Some areas of expertise command a premium in the market (for example Data Scientists or Cloud Architects) whereas others like Java professionals command a lower rate due to widespread availability of resources with this expertise. Enterprises should ensure that the identified resources have matching core skills to avoid overpaying.
  4. Establishing baseline rates for different experience levels is another way to standardize resource costs. It’s important to establish baseline rates for two to four tiers of experience levels for all roles and hire the resources with the correct experience levels required for the projects. Managers should also revisit the experience level requirements from time to time as the project requirements evolve.
  5. Pay attention to geography. Billing rates often vary based on geography. Companies should establish the requirements and feasibility for remote/nearshore/offshore work as a way to help optimize costs.

One final piece of advice – market and demand volatility means resource supply and costs are changing quickly. It’s important to have timely insight into what constitutes a fair price for the services you require. Likewise, careful pre-planning and insight-driven vendor negotiations will not only ensure you’re paying a fair price, but also go a long way in helping you avoid cost surprises as your IT staff needs evolve.