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Outsourcing Cost Benefit Calculator

Work out outsourcing cost benefit instantly with clear inputs, formula shown and shareable results.

About Outsourcing Cost Benefit Calculator

Outsourcing savings must be net of retained governance cost, which is routinely underestimated at 8-15% of the contract value, and the one-off transition cost must be paid back within the contract term. Ignoring either produces business cases that never materialise.

Formulas

Outsourced annual total

Total = Outsourced fee + Retained management cost

Payback

Payback years = Transition cost / Annual saving

Worked example

With the default values below, Outsourcing Cost Benefit Calculator returns Annual saving of $3,200,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Current internal annual cost
28,000,000
Outsourced annual fee
22,000,000
One-off transition cost
6,500,000
Retained management and governance cost
2,800,000

Results

Annual saving
$3,200,000.00
Total annual cost of outsourcing
$24,800,000.00
Payback on transition cost
2.03
Three-year net benefit
$3,100,000.00

Step by step

  1. 1Values used
  2. 2Outsourced annual total
  3. 3Payback
  4. 4Annual saving= 3,200,000.00
  5. 5Total annual cost of outsourcing= 24,800,000.00
  6. 6Payback on transition cost= 2.03
  7. 7Three-year net benefit= 3,100,000.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation or tax into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why is retained cost so often missed?

Because the roles are new — contract management, service assurance, demand management — and do not appear in the current organisation chart.

What if payback exceeds the contract term?

Then the deal only works if you assume renewal on similar terms, which hands the supplier considerable leverage at renewal.

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