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Cost of in-sourcing

14.05.2019
Cost of in-sourcing

Let's take a common business case, your business has the need to develop a new software application, website or app, there are 2 ways this can be accomplished you can either outsource the project or look at completing the project within your business. As we most decisions there are a variety of pros and cons that will influence your decision, in this article we take a look at one of those considerations and often the one that consciously or sub-consciously has the biggest impact on your decision COST.

The cost of development when engaging through an agency is driven by the project the more complex a project is the more expensive it is which is pretty straight forward, and those costs can vary from a basic site to the complex. 

Most of the time when a business is considering in-housing the development of a solution it is because they have gone to an agency they have quoted a price the FD has screamed and now you are looking at other options, so lets breakdown the costs involved with developing a solution in-house.

So lets breakdown the costs involved in building your development team, during this breakdown there will be several assumptions made, many averages taken and all with an aim of providing you with a realistic picture of the costs and not an inflated view to further my point.

A typical development team will consist of 2 developers and a project lead, the 2 developers are key because they are there to check each other work in a QA approval process that ensures the quality of work.

Cost Break Down

.NET Software Developer (UK Average)

£45,000pa 

Project Manager (UK Average)

£45,000pa

Remembering my previous statement that you will need 2 developers and Project Manager this brings the cost £135,000pa.

Unfortunately, this isn't the only cost involved when you hire people into the business lets dive further into this.

Salary for the development team £135,000.00

Employers NIC (13.8%) £18630

Pension (3%) £4050

Equipment cost (PC, Desk, Chair) £4500

Bonus (5%) £6750

 

Update cost £168,930

It is important to note that the above costs exclude several more costs that a business will incur for any employee, due to the complicated nature of accurately applying cost against these items I have kept these apart. Equally, it is important to consider what you and your business could be adding to your overheads so here is a short list of additional things to consider;

  • Administration costs (payroll/HR) 
  • Management cost (line manager)
  • Onboarding process
  • Electricity, 
  • Coffee /Tea
  • Team building (Christmas parties/ Friday drinks/ etc)

Depending on your business this list could be significantly longer.

Although you’ll be paying your employees every week (or every month) they won’t actually be working every day as they’ll be entitled to, Holiday Pay, Sick Pay, Maternity/Paternity Pay.

Most businesses don't have a list of developers ready to join the business at moments notice if anything many organisations struggle to find the right talent in what is a highly competitive candidate-driven market, ask any recruiter.

If you don't have internal recruiters you will likely have to go to an agency, and in all honestly with this being a specialist role you may still have to go to a recruiter to find the right candidate. Recruiters fees greatly vary, from your high street CV shifting service of 10% against annual salary through to a specialist at 25%. 

Taking an average of 15% as a recruitment fee this will add another £20,250 to the cost. 

This gives an Updated total of £189,180, (assuming you have a slim benefits package).

 

What does this all mean?

If you in-house your development team you will have a first-year cost to your business of £189,000, this cost comes with no guarantees, no case studies, no reference and with the only person responsible with the success of the project as you.

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