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Know when to outsource and when to do it yourself
Companies and the government know it’s more cost effective to hire contractors to do certain kinds of work. It just doesn’t pay to attempt to do everything in-house, especially highly technical work and routine administrative jobs. Most of our IT staff and administrative help are contractors, and about half of my department’s positions are contracted out. It’s a good working arrangement for us because if we need additional help we ask for more contractors and when there’s less work the contractors move on to other jobs. Not always the best deal for them necessarily, but our contractors are compensated well and their kind of work is still in pretty high demand so ours always have someplace to go when they leave us.
So if it’s advantageous to outsource highly technical work and administrative jobs why do we insist on doing everything for ourselves at home? I’m speaking from experience because I’ve spent countless hours doing computer repairs, automobile maintenance, home improvements, landscaping, etc. when I should have hired a professional and used that time to get a little overtime or work on some other activity that would have helped me further my career.
Let’s say for the sake of argument our mutual friend Bob (who bears no resemblance to me whatsoever) makes $40/hour and gets straight-time for overtime. He has a list of things he needs done and he could either a) do it himself or b) pay people to do those things for him. If he chooses option B it would cost him:
- $30 to have the lawn mowed
- $30 additional to have the lawn fertilized
- $40 to have the car washed and cleaned out
- $30 to have the oil changed
- $30 to have the gutters cleaned out
- $50 to have his PC repaired
So Bob needs to spend $210 to outsource all his work
Bob has an opportunity to work 8 hours overtime on a Saturday but he has so much stuff to do around the house he turns it down. He wouldn’t mind working overtime on his Saturday off but he thinks it will cost him a fortune to have all that work done.
He could have made $320 before taxes but would have only had to spend $210 to outsource his work so he’s actually losing out on making $110.
But to make matters worse it takes him 4 hours to do the lawn because he runs out of 2 cycle oil and has to run out and buy some, then the weed eater spool gets jammed and has to be disassembled.
It takes him two hours to detail his car and make polite conversation with his neighbor who says “Hey, when you’re done there you can come over and do mine!” There’s apparently an unwritten rule in Suburbia which requires neighbors to extend this offer to anyone caught doing any sort of work in front of their house. This brings Bob up to a total of six hours spent so far.
He then puts the car up on jack stands to change the oil only to realize the Japanese engineers in their infinite wisdom put the oil filter in such a location as to require him to pull the engine or employ a swarm of nanobots to remove it. So he takes the car off the jack stands and heads off to Jiffy Lube (and pays $30). This of course is their busiest time of the day on the busiest day of the week so he spends an unproductive hour waiting to have his oil changed.
We’re now up to seven hours and his wife reminds him he hasn’t cleaned out the gutters and it’s supposed to rain cats and dogs that evening. He estimates the job will only take half an hour but quickly realizes he’s going to need a bigger ladder for the back of the house and has to borrow his neighbor’s extension ladder, to which the neighbor replies “Hey, when you’re done there…”
Meanwhile his wife sees an opportunity to make some extra money and breaks out the video camera to film him on the extension ladder cleaning out the gutters. That way if he falls she can send the video to “America’s Funniest Videos” for a chance at the $10,000 prize. Neighborhood children come over to watch and debate how many bones he would break if he fell from that height.
Eight hours have passed and he hasn’t fixed the computer yet, much to the consternation of his pre-teen daughter who wants to update her Facebook page and is having a severe case of Twitter withdrawals and begins speaking in 140 characters or less sentences (@ Dad, when R U going 2 B done???).
After two more hours he’s finally done with all his jobs for the day. He looks back on his busy and productive day and silently congratulates himself for saving all that money he would have otherwise wasted on having others do his work for him. And it only cost him 10 hours on his day off and $350 ($320 in lost overtime + $30 for the oil change). Luckily he didn’t break any bones, much to the disappointment of the neighborhood children and his wife.
Even if Bob didn’t get offered any overtime that Saturday it would have made sense to outsource some of the work. He didn’t have the tools to change his oil, and he wasn’t really equipped to clean out the gutters. A lawn maintenance company could also have mowed and fertilized his grass in a fraction of the time it would have taken him and gave his lawn those cool looking baseball field stripes. If computer repair and auto detailing are more his speed he could have spent the morning knocking out those chores which would have left the rest of the day to do whatever he wanted.
This isn’t exactly a frugal ideology but there are a number of more productive things he could have been doing with his time. Bob could have taken a Saturday class at a local college, worked on his own home business, or God forbid, spent actual quality time with his family. The point I’m getting at is most of us (including me) try to do too much at home and don’t consider the value of our personal time, or the implicit costs involved in attempting to do everything ourselves.
So how do you feel about outsourcing things in your personal life? Is this something you do on a regular basis or do you think it’s a waste of money?
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I stopped "outsourcing" my rain gutter cleaning when I found a brand new method of DIY gutter cleaning. I found this great new wet/dry vac attachment tool called a GutterClutterBuster and it attaches to the end of my 2-1/2" vac hose. I put it in the rain gutter, turned the vac on, and in no time it had vac up stagnant water, leaves, pine straw, roof gravel, you name it. And, in 1/2 the time it normally takes me. I stayed clean and safe on the ground as my 54 inch one-piece attachment for this tool got me up to my second floor gutters. Love it, and recommend doing it yourself and save lots of time, money, effort, and most of all your personal safety!
OK, I need a GutterClutterBuster!
David, with respect I think in this case I must dissent. Bob could earn $320 or he could save $210. I don't think this is comparing apples. The $210 is not "extra" money like the $320. Spending money comes off the bottom line; profit from a business perspective, savings from an individuals perspective. If my savings rate is 10% that means I need to make $1000 to be able to save $100. In this case, to cover $210 in additional expense you Bob would have to make $2,100 on Saturday to justify outsourcing and that's just to break even.
My recent post Good Debt, Bad Debt… Continued…
I understand your point, but my intent was a tongue-in-cheek example of implicit versus explicit costs. My economics textbook defines an implicit cost as "the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment." An explicit cost is "the monetary payment a firm must make to an outsider to obtain a resource."
So the $320 is the implicit cost of Bob's not working the overtime, and if he did pay the entire $210 his net benefit would only be $110 but there are also the non-monetary benefits of "goodwill" obtained from helping out at work (in the financial sense), lower stress (no roofs to fall from), shorter work day, etc. Plus this would be the exception, not the rule; this sort of situation wouldn't occur on a regular basis.
I'm super guilty of doing this, only I'll try to go to work AND do all these other things and make myself miserable in the process. I really need to draw the line somewhere and focus my energies are more productive pursuits.
Plus I wanted to highlight the inefficiencies of attempting to do everything in house, something I would never advocate doing at work but for some reason have no problem doing at home. I would never dream of doing a major software upgrade on my work PC, I would call the IT department. Yet this is something I routinely do at home and sometimes I pull it off without a hitch and others times I botch things royally (and it usually takes me 2-3 times longer).
And don't worry, I was referring to a Nissan
My recent post Ready to start your own business?
I'll have to check that out, sounds like something I could use. I was only using gutter cleaning as an example of a household chore that couldn't be postponed. I'll google the GutterClutterBuster and see where I can pick one up.
My recent post Ready to start your own business?
PART ONE
REALLY enjoyed reading this article. Now I can see where you were coming from with your comment on my post (hope you read the reply). A few comments…
At an informational session (Systems Engineering Masters) I attended last night, they talked about iteration. Not iterating over and over until you have the exact, perfect answer (infinite), but iterating to the point were you have enough data to make a decision. Every financial decision we make bears some risk/reward and we consciously, or otherwise, calculate before we proceed.
My recent post Convenience Tax: You’re Only Charging Yourself
PART ONE
REALLY enjoyed reading this article. Now I can see where you were coming from with your comment on my post (hope you read the reply). A few comments…
At an informational session (Systems Engineering Masters) I attended last night, they talked about iteration. Not iterating over and over until you have the exact, perfect answer (infinite), but iterating to the point were you have enough data to make a decision. Every financial decision we make bears some risk/reward and we consciously, or otherwise, calculate before we proceed.
My recent post Convenience Tax: You’re Only Charging Yourself
PART TWO
An honest question. Does outsourcing have a ceiling? In the example you gave, what if there was a third-party who would make all of those outsourcing arrangements for you for an additional $50? I've heard much criticism about "too many chiefs, not enough indians". If everyone begins to outsource every aspect of their job/life, what value do they offer and why couldn't they be cut from the equation?
A friend of mine brought up an interesting idea I'd like to have him guest post for me about. Effectively, you are already your own business. You currently work for yourself, and are outsourcing your services to your employer. Employment is at will, so there is nothing binding you to a single company (even if you've signed an agreement, it will expire). The only conflict with "traditional" outsourcing is that you have many more restrictions and clauses on your contract than a "normal" consultant/contractor would have.
My recent post Convenience Tax: You’re Only Charging Yourself
Thanks for the comments. I wanted to give examples of implicit and explicit costs in an extreme situation, i.e. Bob has a list of things that have to be done by Saturday, the same day he has an opportunity to work overtime. My guess is most of the people reading this don't do much outsourcing if any at all, and depending on the situation when we think we're saving money we could actually be costing ourselves money. Just food for thought, I don't anyone to get hung up over the details of the specific jobs Bob has to do.
My recent post The definition of FAILURE
I think one attractiveness of not delegating these mundane tasks is that if you DIY, you have 100% control over quality. This becomes more of a issue if you don't know a good company which to outsource the job to – which may be more of the case these days with job-related mobility forcing moves every few years for many, compared to staying in one locale for years on end. The Internet can alleviate some of that, but that assumes the person is savvy enough to know how to get to reviews of local businesses. But in any case, you know whether the job got done to your satisfaction if you do it yourself.
Secondly, I think some DIY projects are useful from a diversification of talents perspective. To be sure, I can get vegetables at a cheaper price at the supermarket, but growing them myself gives me a breadth of knowing some gardening that I wouldn't have were I to have spent that time increasing my depth of expertise in my vocation. I also think that there's a big risk of burnout from doing only one thing with most of your free time, unless you really, really love that one thing. If you happen to have that as your vocation, you're extremely fortunate; for most of us, that isn't the case.
Along with that, this recession has been a rude shock to many that putting all your eggs in one vocational basket can be a dangerous tactic, since some professions which previously seemed safe (such as real estate) can suffer massive job losses which require one to start over doing something else.
Thanks for taking the time to comment, and I have to say you're preaching to the choir despite what I wrote in this article. I've been the got-to-do-everything-all-by-myself kind of guy all my life and after 20 years I'm coming to the realization that maybe my time could be better spent elsewhere. You're right, it's good experience to know how to do a lot of these things but sometimes the little bit of money I save isn't worth the aggravation. But, as you point out, quality is an issue and usually I'm never satisfied with the work I have done. What I'm looking for is a logical balance between do everything myself and outsourcing work.
Alright David – hope you don't mind – your a big source for this post. I added two links back to your site. This article and your general page.
enjoy the post!
test. stupid comment love…
love/hate
My recent post Which Way Are You Outsourcing?
Awesome article, probably your best one yet. I think you really got the point I was trying to make and I like your idea of upsourcing and downsourcing, very inventive.
Outsourcing is can really benefit some companies and help you to save money and resources within you companies. A lot of people have a negative connotation about it, but outsourcing can really benefit many companies.
Pretty nice work.. Is it ok if I link back to this blog from my site? Pls let me know..