Outsourcing Savings Calculator
The Outsourcing Savings Calculator is a powerful tool to estimate potential cost savings when outsourcing business functions. It simplifies the process of determining how much you can save by outsourcing work to more cost-effective locations or service providers.
Formula
The formula for calculating outsourcing savings is:
Savings = 251 × 8 × Number of Employees × Average Hourly Rate × Outsourcing Savings Rate (%)
Where:
- 251 represents the average number of working days per year.
- 8 is the number of working hours in a day.
- E (Number of Employees) is the count of individuals whose work will be outsourced.
- AHR (Average Hourly Rate) is the hourly wage of employees.
- OSR (Outsourcing Savings Rate) is the percentage of cost saved through outsourcing.
How to Use
- Enter the number of employees whose work is to be outsourced.
- Input their average hourly rate.
- Provide the outsourcing savings rate as a percentage.
- Click the "Calculate" button to compute the total annual savings.
- The result will display the estimated savings.
Example
Consider a scenario where:
- Number of Employees = 10
- Average Hourly Rate = $25
- Outsourcing Savings Rate = 30%
Using the formula:
Savings = 251 × 8 × 10 × $25 × 0.30 = $150,600
The total annual savings from outsourcing would be $150,600.
FAQs
1. What is an outsourcing savings calculator?
It’s a tool used to calculate potential cost reductions from outsourcing specific business processes.
2. Why should I use this calculator?
To estimate the financial benefits of outsourcing and make informed decisions.
3. What does the number 251 signify in the formula?
It represents the average number of working days in a year, excluding weekends and public holidays.
4. What is the outsourcing savings rate?
It’s the percentage of cost savings achieved through outsourcing.
5. Can this calculator be used for partial outsourcing?
Yes, input the data proportionate to the outsourced workload.
6. How accurate is this calculator?
The results are estimates and depend on the accuracy of your input values.
7. Can this calculator be used for different industries?
Yes, it can be used across industries where outsourcing is applicable.
8. How can I determine my outsourcing savings rate?
It depends on cost comparisons between in-house operations and outsourced services.
9. Does outsourcing always result in savings?
Not always. It depends on factors like the type of work, outsourcing provider, and location.
10. Can I use this for international outsourcing?
Yes, adjust the average hourly rate and savings rate accordingly.
11. What are the main benefits of outsourcing?
Cost reduction, increased efficiency, and access to specialized skills.
12. Can this calculator account for non-monetary benefits of outsourcing?
No, it focuses on financial savings only.
13. Is this calculator applicable for small businesses?
Yes, it’s suitable for businesses of all sizes.
14. Can I modify the formula to include other variables?
Yes, you can customize it based on specific business needs.
15. Is outsourcing suitable for all roles?
Not necessarily. Critical roles requiring close supervision may not be ideal for outsourcing.
16. How does the average hourly rate impact savings?
Higher hourly rates result in greater potential savings.
17. Are there risks involved in outsourcing?
Yes, risks include quality issues, communication challenges, and dependency on external providers.
18. What are common functions outsourced by businesses?
Customer support, IT services, payroll, and manufacturing are commonly outsourced.
19. Does outsourcing impact employee morale?
It can, especially if the workforce perceives outsourcing as a threat to job security.
20. How often should I use this calculator?
Use it whenever evaluating a new outsourcing opportunity or reviewing existing contracts.
Conclusion
The Outsourcing Savings Calculator simplifies the process of evaluating potential cost reductions. By using this tool, businesses can make data-driven decisions about outsourcing, optimize their operations, and achieve significant savings while focusing on core activities.