Typical breakeven poInt for a Captive Offshore Software Development Group

We comes across many customers with various ideas, who also have their own IT team.

Software Outsourcing is an art. You basically need to ramp up and down, based on project needs. No harm in sending work to India. At times big MNC's resort to having their own Captive Offshore Development Group.

What would be the Typical breakeven point for a Captive Offshore Software Development Group?

Will it all depends. If you have an order book and a project list that gives you sufficient comfort that you will be able to offer employees a good job with career development potential, then you can take on permanent hires rather than contractors straightaway.

On the other hand, if the nature of the software projects being worked on is such that the skill sets required vary greatly from project to project, then it may be better to develop a business around a network of consultants that you know and trust, where you pull in the right people for the right job on an ad hoc basis.

I'd imagine one that a lot of Small/Medium operators would be wrestling with....

Unfortunately, I don't believe there's a fixed formula. There are too many factors (current profitability/ costs of staffing a centre/ staff profile of offshore talent/tolerance for risk etc) to provide a definitive answer.

I would strongly reccomend them to have them plan out the two ( or three) business scenarios over the next 3 years and compare the forecasted outcomes. I think the answer would become apparent.

- Assess their real motivation for change (increased profitability/ scalability etc)

Assuming a motivator of profitability,

- Create a revenue forecast based on current & ongoing growth (with respect to the offshore sourcing)
- risk profile of sustained growth (diversification of clients, repeat business etc)

offset these with:

- TCO of each employee (full time) vs contractor rates (which I assume attract a premium)
- What other costs are required to staff a centre (e.g company/training/management overheads). There will be fixed component + incremental $ for each employee
- What value do you get from a full time employee vs a contractor in an offshore situation?
- What must you offer as a full time employee to the offshore talent? There could be some hidden premiums...

Scenario 1: All contract

Scenario 2: All full time

Scenario 3: Hybrid (reduce risk of people on bench/answer resource demand spikes

- run the numbers across the FTE scenarios you outlined and see where it lands. This ideally would put them in a more informed position to assess their situation and ideally make a call.

Generally, profitability will temporarily suffer while taking up the cost of the center overhead. This should be factored. Dont be afraid to drop a project, midway, if it is going no where. Money saved is money earn't!