Reduced cost of ownership

Outsourcing selected applications and infrastructure, in particular in hosting, is usually based on the basis that it delivers a reduced cost of ownership. In house solutions require management and it’s not part-time management. In order to ensure the security of the infrastructure, the functionality in terms of business assurance criteria, a degree of skill and management is required.

IT staff are often delegated to tasks called on by in house hosting that could otherwise be handled more efficiently and effectively in a dedicated, managed environment. In other words, IT staff, a high investment for any business, are best used for business development activities within the core mission of the enterprise.

A number of studies including one done by the US based research group Intermedia Group, found that companies paid an average of 87% more when they managed their hosting requirements in-house instead of outsourcing. Once addressed from an effective use of capital perspective, the argument in favour of in-house management of hosting solutions as offering greater flexibility is dwarfed by the reduced cost of ownership outcome and the capex implications, i.e no capital outlay.

Any organisation considering critical application management and hosting solutions would undertake at the very least a basic feasibility study and business case. This will establish the costs, in particular the issue of reduced cost of ownership and savings as a set of outcomes. From the perspective of capex, an outsourced solution in relation to hosting requires no capital outlay.

Efficient capital management is about optimising the use of capital. In the outsourced model capital costs convert to an operating expense. This impacts directly on an organisation’s benchmark financial performance in relation to return on assets and return on investment, the ROI.

Management of critical applications and hosting solutions require both technology and financial outcomes. Reduced cost of ownership remains a key driver and can deliver, in some instances significant savings against the alternative of in house solutions.

Security and business assurance factors loom large for many decision-makers in an environment where website functionality is mission critical.

Business assurance, in particular as it relates to service level agreements between a managed hosting service provider and its customers, would in a ‘mission critical’ situation need to cover a comprehensive range of issues important to individual customers and generally include availability, job response times and fault resolution times.

Business assurance in terms of downtime can become a great distraction in an in-house environment and can represent as inefficiencies in management availability. Reduced costs of ownership is an important driver but the issue of business assurance is mission critical where down time on websites can mean negative customer experiences, time wasted in communication with customers, loss of revenue and increased operating costs.

Primary benefits of outsourced solutions

A primary benefit of outsourcing an organisation’s critical application management and hosting requirements is reduced costs of ownership. Indeed it is often cited as the main reason for outsourcing selected applications and infrastructure. The fact is that most companies will pay more when they manage their hosting requirements in-house instead of outsourcing. But access to highly skilled staff, risk mitigation and security loom large on every business manager’s or business owner’s mind. For sure the capex equation (reducing capital outlay and converting costs to operating expenses) is a driver but some organisations simply have not ticked the necessary boxes when it comes to risk mitigation, security and access to highly skilled staff.

Because an outsourced service provider offers managed hosting solutions across multiple clients with multiple and varied needs, their investment is solely in technology and expertise. Whereas an in-house solution would normally treat IT as a “cost”, a specialty and dedicated hosting service provider focuses on the issue of having and providing access to highly skill staff. The hosting company's staff will have extensive expertise in hosting, and therefore will know what they are doing. This is not always the case for in house solutions.

A service provider will generally ensure that their highly skilled staff remain so; delivering training on an ongoing basis. Many sites they manage would be extremely challenging e-commerce sites and enterprise application environments. Thus a client can be assured that the depth of competence is there as ‘best practice. This capacity to acccess highly skilled staff can be readily assessed by studying the service customer list.

Risk mitigation

Application management needs are dynamic and ever evolving. Ensuring that a business has state-of-the-art technology solutions in is hosting environment, as case in point, needs to be treated as a risk factor. Risk mitigation can most effectively be delivered by an outsourced solution where a dedicated managed serviced at a service provider, ensures minimal delays in deployment of new technology. The need to attract and maintain customers relies on presenting state-of-the-art technology and solutions.

Most leading service providers offer a business not only a reduced cost of ownership while offering access to highly skilled staff, but also an advantage in terms of the normal time it takes for an in-house team to deploy technology enhancements. Moreover the service provider will offer economically scalable solutions to meet the changing needs of the business.

The mitigation and management of risks include both technology advancements and security risks. Security risks - loss of data, corruption, illegal access and protection of IT - - present as risk mitigation issues to management. Outsourced solutions such as dedicated servers with appropriate back-up, protect the IT, and the business. A service provider with a range of customers will have developed security requirements for the most complex customers.