Firms look to optimise offshore spend

01 November 2009 |

With the economic collapse and the sudden downturn in IT budgets, Forrester Research says it has seen a large spike in the number of inquiries from clients asking about the best mix of onshore versus offshore staff at their global delivery model suppliers.

Firms are scrambling to react and tighten their belts, says Forrester, and are undertaking two primary strategies in the short term. The first is to renegotiate rates. As one of the few variable costs in firms’ IT budgets, there has been a mad dash to redo the rate card with contractors and offshore providers primarily – 80% of the 931 respondents to a recent Forrester services survey listed it as a critical priority. On average, firms are getting actual reductions in the range of 4% to 7% based on current rates, type of work and volume of spend. The second is a move to a fixed-price from a time-and-materials (T&M) pricing model. Given the scrutiny on budgets, there is a shift away from the traditional pricing approach of an hourly rate to a fixed-price model. Firms want the certainty of a fixed price.