OFFSHORING LABOR COSTS

I've had more than one client make serious and costly errors regarding labor costs on projects (or major portions) that were offshored, primarily to India. This post isn't a slam on offshoring or Indian or Chinese or Eastern European labor. It's more a post about how labor costs should be treated in project regardless of where the labor originates from or where the services are performed.

The big problem? Only focusing on what the labor costs and not how much of it is used. More than one client goes crazy about $10-15 per hour labor costs in an offshore situation (compared to $30-45 per here in the US), signs up, then gets a bill for about 2-to-3-times the hours it would have taken to have the work performed locally. Some deal, eh?

These clients forgot or ignored that all labor costs are, at a minimum, two-dimensional: Labor Rate X Hours of Work Performed. As such, it doesn't make a whole lot of sense to engage cheap labor that requires many more hours to perform tasks than more expensive labor that may be geographically closer. The additional management costs involved when engaging offshored resources is not accounted for here, but should be.

Offshored labor resources have a definite place on projects, but engaging them solely on the basis of per-hour costs is a mistake; the entire labor cost projection has to be made to get the real costs to projects.