This blog post analyzes the costs and benefits of managing IT in-house versus using outsourced managed IT services.
In the following sections, we will uncover the often-overlooked expenses associated with in-house IT management, including a detailed breakdown of costs such as hiring, training, infrastructure, downtime, and security breaches.
Even in a short period of 6 months, outsourcing your IT services can save you $11,667 at the very least. These savings keep increasing and become especially significant as your business grows. For example for an organization of 100 people, outsourcing IT management results in a saving of $13,735 per month and a cumulative saving of $153,400 over one and half years. If you’d like to see the calculations, you can skip directly to the Cost-Benefit Analysis.
The goal of this blog post is to provide you with sufficient information to evaluate in-house and outsourced managed IT services, comparing apples to apples, so that you can choose a more cost-effective solution in the long run.
What Exactly Is DIY IT Management?
IT management refers to monitoring and administering IT systems to ensure they operate efficiently, helping people work better and reach business goals efficiently. Traditionally, IT management encompassed hardware, software, and networks, but its scope is constantly expanding. Today, it also includes applications, microservices, and technologies that reside on-premises, in the cloud, or on hybrid platforms.
IT management in a typical organization includes the following key responsibilities:
IT helpdesk and technical support,
Implementing and maintaining software, hardware, and systems,
IT security, network security, and cybersecurity
IT asset inventory and device lifecycle management,
Monitoring and controlling systems and security,
Monitoring compliance with regulatory and security standards, and
Budgeting and managing IT costs.
In addition to the above tasks, IT management is also responsible for keeping technology up-to-date with current changes, using technology to increase efficiency and profitability, and aligning technology with business goals and objectives.
Doing all of these things in-house is called (do it yourself) DIY IT Management.
Why Businesses Use DIY IT Management
Businesses often rely on what appears to them as compelling reasons to use DIY IT management. The following are the most common reasons for using DIY IT management:
1. A DIY approach solves the immediate problem
When a mission-critical issue arises, what matters most is to find a fix that works and to apply it as quickly as possible. DIY approaches are really good at coming up with spot solutions and remedying such situations. Moreover, they allow quick decision-making and implementation without third-party dependency.
2. DIY solutions are familiar
Everyone has their own favorite set of software, applications, and tools. So does the default IT person or the founder of the company. And when in a difficult situation, it is convenient to fall back on what is already known. So, the ad-hoc IT person will implement a solution based on their familiarity and preference. Given their familiarity with the tool of choice, they can quickly handle the problem at hand.
3. No existing service meets their exact needs
Many organizations believe that given their uniqueness, no existing system can meet their specific needs. So they build everything from scratch. Such purpose-built solutions may be great at efficiently and quickly handling the specific tasks they were designed for. They typically work well within the confines of small and well-contained systems. Additionally, in-house solutions give the business complete control over its IT systems and the ability to tailor solutions to their specific needs.
4. DIY = Free
IT budgets are always tight, and IT solutions, including software, applications, and tools are viewed as a cost center. So businesses always welcome in-house solutions put together using open-source software, free versions of applications, and shared licenses that appear to be free when considering the bottom line.
However, such expedient solutions, although convenient and practical, should only be used as a stopgap and not long-term solutions. We will see in the following sections how such DIY IT management solutions, over time, end up costing the business exponentially more than the initial savings on labor and outsourcing fees.
Costs of DIY IT Management
Although DIY IT management appears to be free, the reality is that it has a real, hard cost in terms of the hours employees use to implement the DIY solution. Additionally, there is an implicit cost that often goes unnoticed. Your ad-hoc IT person is likely an employee who wears multiple hats and will have to stop their work to build, implement, and maintain the DIY solution. So there is an opportunity cost to consider. The more important the work of your makeshift IT person, the higher the opportunity cost.
When you hire a full-time IT person, in addition to the hiring, training, salary, and incentives, you need to consider coverage during vacations. And even if your hire is an absolute rockstar, they cannot possibly effectively manage all aspects of IT. In such situations, it is common to fall into the “familiar tools” and the “expedient solutions trap” because a single IT person will always be firefighting, moving from one critical issue to another.
Hidden Costs of DIY IT Management
Businesses frequently adopt what appears at the moment to be compelling solutions. They may start with open-source components, custom scripts, and specialized applications to build DIY management solutions. But as the IT infrastructure grows and becomes more complex, such DIY solutions, which typically are piecemeal measures taken over a period of time, become untenable as the cost of maintaining and operating such compound systems mounts.
Here are the hidden costs of DIY IT management:
Time and Productivity Loss
Maintaining and operating systems made up of heterogeneous components requires a significant amount of time. The responsibility of dealing with such systems is typically handled by an engineer, programmer, or one of the founders. So, such issues take valuable time away from their primary roles, resulting in an overall drop in business productivity.
Skill Gaps and Training Costs
Maintaining and operating DIY systems also requires continuous need for training and keeping up with the latest technology trends. In a dynamic technological environment- API documentation changes, automation breaks down, new components are added, applications become obsolete, and add-ons lose support, so those responsible for the system need to update their knowledge of the system components, learn new applications, write new scripts, and research and find substitute components.
This again adds significant costs in terms of the time spent on training and research.
Security Risks
DIY systems that are assembled piecemeal typically lack security in their architecture due to a potential lack of specialized security knowledge or a comprehensive view of the organization’s security posture. This makes such systems inherently vulnerable to cyberattacks and data breaches.
Downtime
As the size and complexity of the IT infrastructure increases, DIY IT management becomes less and less efficient. Lack of specialized knowledge, incompatibility of components with newer technologies, and changes in business processes result in increased resolution time for IT issues and consequently longer downtime.
Long-term Costs
DIY IT management systems made up of disparate components are more likely to need replacements and regular maintenance. The component costs are typically low and hence do not raise any alarm. However, although significant, the cost of the hours spent on maintenance, replacements, and testing usually goes unnoticed.
Technical Debt
Technical debt is a concept that represents the future cost incurred by opting for an easy or inexpensive solution, instead of a more effective but time-consuming and costly approach. In essence, technical debt is the price you pay for maintaining or supporting suboptimal technology.
Similar to financial debt, where you borrow money and repay it with interest, technical debt allows you to achieve immediate goals but necessitates higher remediation costs later on. And just like financial debt, technical debt is often necessary since it enables rapid project advancement, helping you attain critical business objectives.
Like monetary debt, technical debt accrues interest over time and the longer you delay addressing it, the greater the cost of remediation. Therefore, if you decide to adopt expedient IT management solutions, it is crucial to not let them linger for too long.
Cost-Benefit Analysis
When trying to calculate the impact of IT services, there are a number of variables that make the calculation extremely difficult. The impact of improved productivity, hours saved, downtime prevented, opportunity cost, etc. is difficult to quantify. However, we can start by calculating the explicit costs and see how internal IT compares to outsourced IT services.
Let’s perform some calculations to compare the cost of IT for an imaginary startup located in the San Francisco Bay Area.
Assumptions:
The startup has 40 employees;
The hardware, software, and applications are the same for in-house IT team and managed IT service providers;
The IT staffing ratio is 1 IT person for every 45 employees;
Average IT hours required per employee per month = 46 minutes ≈ 0.76 hours;
The average cost of outsourced IT service per hour = $250
Calculations:
Outsourced IT Costs
Average monthly IT hours required = 0.76 * 40 ≈ 30
Cost of external IT = 30 * $250 = $7,500
However, the hours requirement for the external IT service will be higher in the first month owing to onboarding and time to familiarize with your IT systems. Typically, in the first month, the hours required can be 50% higher than the average.
Considering a 6-month period, the cost of outsourced IT service = (1.5 + 5) * $7,500 = $46,250
In-house IT Costs
Estimated base salary of an entry-level IT technician in San Francisco, CA = $5,602 per month.
Total employer cost including benefits, taxes, etc. = $8,142.4 (Common benefits include visa sponsorship, health, dental, and vision insurance, paid time off, food, tuition and certification reimbursements, etc. )
Recruiting cost = $4,700
Training and onboarding cost = $1,420
One-time cost of device = $1,500
The monthly cost of software and SaaS applications = $240
Total cost of in-house IT, over 6 months = $57,917
So after 6 months, outsourcing your IT services can save you ($57,917 - $46,250) = $11,667.
This difference will keep increasing over time when you factor in an average annual wage increase of 4.6%.
Here are a couple of graphs showing the cost comparison and savings:
The savings resulting from outsourcing IT management increase further when you consider the administrative and HR hours, including payroll, performance management, appraisals, training and development planning, coverage during time off, etc.
For businesses in the growth and expansion stages, outsourcing makes even more sense. As the business grows, you will have to hire more IT staff to maintain the staffing ratio of 1:45. The second hire will likely be an IT manager or senior IT consultant, the third hire will likely be a network engineer, and the fourth will likely be a systems engineer. So the cost of an internal IT team will not increase linearly. On the other hand, the cost of outsourcing will decrease as you will likely get better hourly rates with higher usage.
Let’s take for example a business that scales rapidly from 10 to 100 employees in 19 months, maintaining an IT staffing ratio of 1:45. The cumulative saving in that period will be $153,400.
Here’s a graph that shows this comparison for growing businesses:
In the chart above, the spikes in “monthly internal cost” are a result of the hiring, training, onboarding, and device procurement costs.
All things remaining the same, solely from an explicit cost perspective, outsourcing IT management is a prudent choice for businesses. The case becomes even more convincing when you factor in implicit costs such as improved productivity, hours saved, downtime prevented, opportunity cost, etc.
Conclusion
The increasing importance of technology has resulted in IT becoming the backbone of business strategy for almost all businesses. As IT departments are becoming the fulcrum for business success, they are being tasked with ever more responsibilities. This puts startups and small businesses in a conundrum since they typically do not have sufficient resources to invest in creating an IT department.
That’s where outsourcing comes in clutch. While DIY IT management does the job in the short term, for long-term success businesses need robust IT systems that can scale and effectively manage their current and future technology needs. Not only do managed IT services provide effective and efficient IT management, but also they do it cost-effectively, as can be seen from the calculations above.
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About The Author
Hari SubediMarketing Manager at Jones IT
Hari is an online marketing professional with a focus on content marketing. He writes on topics related to IT, Security, and Small Business. He is also the founder and managing director of Girivar Kft., a business services company located in Budapest, Hungary.