Graphic of Total Cost of Ownership

Whether it’s people or software, compare outsourcing to purchase or hiring using total cost of ownership (TCO).

One concept every business owner or manager should consider when looking to fill a need with software or human resources is the notion of total cost of ownership, or TCO.

This concept simply means that we have to look at more than the price tag when considering whether to hire someone, outsource human resources or purchase software to take care of a certain function.

This kind of cost/benefit analysis yields a more complete view of the situation by forcing us to consider more variables in the human resources outsourcing equation.

In other words, it might be more expensive to acquire an employee than to outsource the function. It could depend on the length of tenure for the job being performed. It could depend on the time and difficulty in finding someone who fits the role. The time to train and manage the employee is another consideration. In all of these cases, outsourcing is probably the winner because of time savings, if for no other reason.

Still other costs to consider are benefits, lost time due to illness, injury or vacation. A pool of qualified outsourced employees not only gets the work done but also never misses a day of work.

Too often as business owners, we look at the bottom line or the cost without considering the headaches, time commitment and hidden costs of having an employee in-house.

This doesn’t mean that human resources outsourcing is always the best choice for Wichita business owners, but it does mean that every decision, including HR decisions, should be made looking at things from a total cost of ownership (TCO) perspective.