Business Processing Outsourcing (BPO) reduces costs and achieves economies of scale, but factors such as labor costs, government regulations, and contractual obligations can affect the cost. Companies conduct cost-benefit analyses to determine the most financially viable option.
Business Processing Outsourcing (BPO) is typically an option for companies to remove certain tasks from their operations. A primary reason for BPO is to reduce costs and attempt to achieve economies of scale. Many factors can affect the cost of BPO, however, including job availability and skills, government regulations, contractual obligations, and other issues.
Labor costs are often among the primary reasons a business engages in BPO. Therefore, the main factor influencing the cost of BPO is manpower. For example, a company might outsource its customer service function to a foreign country. The selected country will most likely have extremely low labor costs, particularly for unskilled workers. Shifting labor costs will make the BPO services you receive less attractive as overall costs rise.
Another factor affecting the cost of BPO is government regulation. Businesses in a heavily regulated country often face high taxes, compliance costs to meet regulatory standards and labor standards, or government-imposed burdens. These companies typically look for other locations where they can move some business. Other times, it is simply possible to outsource services to another firm. The goal is to typically find the lowest costs associated with government regulations and BPO.
Most BPO services and companies have contracts that determine the type and cost of the activities. Contracts can contain any number of factors that alter the cost base when outsourcing business processes. For example, a business might pay a flat fee for using the BPO service. A secondary charge may apply for the number of minutes each customer service agent spends on the phone. These and other factors will change the total cost paid for business process outsourcing.
Many companies conduct a basic cost benefit analysis to determine the factors that will affect the cost of BPO. This list compares the costs of completing the task in-house versus outsourcing the tasks to another business. This list is usually comprehensive and includes all major and minor factors influencing the process. The option with the lowest overall cost, both internally and externally, is typically the action taken. This analysis could also be a review to assure companies that BPO services are still financially viable.
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