Nonprofit Accounting Basics

Managing Information Technology - The Case for Outsourcing

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Updated: 
Feb 22, 2021
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The term “outsourcing” can have negative connotations, but for many nonprofit organizations it can be an effective tool to help move the organization forward. While there are many roles within a nonprofit organization that can be outsourced, information technology services provide a particularly robust opportunity for organizations to utilize outsourcing to improve organizational effectiveness and capacity.

Potential reasons to outsource IT services

  • Remain mission-focused

Outsourcing IT services to a third-party vendor or consultant allows the staff you have hired to focus on the job for which they were hired. All nonprofit organizations, both small & large, have basic back-office needs, including human resources, finance, and information technology. These functions provide necessary infrastructure to support programmatic work, yet they are technical and require specialized skillsets and training. For most small nonprofits, hiring full-time, qualified staff to fill these rolls is unnecessary (and perhaps even impossible) and devotes resources away from mission-serving work. Two common approaches to fill this gap are to either hire less-qualified but more affordable staff, requiring more management & supervision, or to spread back-office responsibilities among existing program staff, requiring training and reducing time available to be spent on other activities. An outsourcing approach allows organizations to utilize experienced professionals; thereby reducing time spent training and managing supporting services and increasing the capacity of management and staff to focus on advancing the mission of the organization.

  • Adaptability & flexibility

The world in which we operate is fast-paced and rapidly changing, and effective nonprofit organizations must be nimble and able to quickly pivot and respond to changing needs and priorities. Technology can be a tool that supports an organization’s ability to adapt and respond, or it can be an anchor that holds it back. Outsourcing provides flexibility to increase IT capacity quickly when new projects or opportunities arise while preserving the ability to reduce services when demands decrease without the need to hire and terminate employees. Additionally, outsourced IT firms can help organizations stay in tune with emerging trends and can provide guidance and training when new technology is adopted.

  • Cost savings & increased efficiency

When comparing the cost of outsourcing versus hiring in-house IT staff, it is important to consider factors beyond salaries & consulting fees. On first glance, an outsourcing arrangement may seem more expensive, with a much higher hourly rate than you would pay a staff person. However, outsourcing can reduce overhead costs via savings in personnel management, reduced need for office space and training, and allowing an organization to pay only for the capacity needed. In addition, IT firms often have access to discounts on software and hardware that individual organizations do not. Keep in mind that some cost savings may be long-term rather than short-term, requiring an initial investment in resources in order to develop future efficiencies.

Tips for a successful outsourced IT arrangement

  • Vendor Selection

Find a provider that understands your organization’s operations and structure. Check to see that their clients include nonprofit organizations similar in size and purpose to yours, and ask to check references. When speaking to other clients, be sure to include questions about the vendor’s ability to meet deliverables and timelines, billing (were estimates correct or are additional charges/overruns common?), and responsiveness. Does the vendor have proper controls in place to ensure regulatory compliance and data security? While fees are an important decision factor, the lowest cost option might turn into the highest cost if the vendor is unable to deliver successful service in a timely manner.

  • Contract Review & Negotiation

Understand the proposed fee structure and ensure that it meets your organization’s needs. Fixed-fee arrangements are can provide predictability for budgeting and managing cash flow, but be sure you understand what work is included and what would be an additional service to be billed extra. Hourly billing ensures that your organization only pays for the hours worked, but the organization retains risk of additional expenses if the hours estimated exceed the actual hours necessary to do the work. In addition to understanding the fee structure, it is important that the agreement clearly specifies expectations, responsibilities, and deliverables for both the vendor and the organization. Likewise, be clear on the contract start and end date, how modifications and changes will be handled, and termination provisions.

  • Managing the Outsourcing Relationship

Identify and track metrics to help you evaluate whether the outsourcing relationship is achieving the intended goals. Are you realizing the cost savings or efficiencies that had been expected? Maintain appropriate oversight of the vendor and ensure that you have proper internal controls in place to monitor procurement, inventory, capital assets, and IT security. Schedule regular check-ins with the vendor focused on managing the relationship, identifying issues, and anticipating changing organizational IT needs.

 

Outsourcing IT services is not a one-size-fits-all solution, nor is it without challenges and pitfalls. Loss of control can be difficult, and you may find your organization locked into certain systems or procedures that limit freedom to develop custom responses to every need, depending on the nature of the agreement with the vendor. However, because of the wide scope of IT services available and evolving organization needs, nonprofit organizations of all sizes can benefit by considering an outsourced provider as a solution to address technology needs.