A STUDY OF COST SAVING INCURRED BY BARCLAYS BANK: SIGNIFICANT COST ADVANTAGE

COST ADVANTAGE

One of the biggest advantages of offshoring to India is cost savings. Barclays Bank PLC has been able to save about 30 to 40 percent for most services by offshoring processes to India. Cost savings in India can be accounted for by savings in the following three heads:

1. Labor: Indian professionals work at wages much lower than that in the UK.
2. Capital: Infrastructure costs in India are lower thus saving significantly on capital.
3. Labor management: The number of employees required during a project is not same throughout the course of the project. Hence, when a business process is carried out inhouse, companies have to pay the employees and maintain office space for them, even if these employees are not working on any project. Offshoring enables companies to do-away with the expenditure on bench labor.

After offshoring its operations to India, Barclays Bank PLC found a reduction of 25 percent on its labor cost. This lead to an increase of 150 percent in the Earnings Before Interest, T axes, Depreciation and Amortization (EBITDA).

There is a vast difference in the labor costs in UK and India in the IT industry as well. An IT professional with 1-2 years of experience in the UK charges 5,000 to 7,000 pounds per year. On the other hand, a professional with same experience level costs about 1,500 to 2,000 pounds per year in India, about 30 to 40 percent of that in the UK.

There also few disadvantages of outsourcing development in India. The main reason is business understanding. Normally new offshore centers are unable to understand the process of offshore outsourcing and fails before grow.

Risks in offshore software development in India as faced by Barclays Bank PLC are as follows:

1. Offshore software development industry in India is still new, young and largely unproven.
2. Stability of the Offshore Countries is another risk. In India and other countries stability is less these countries are always involved in politics and religious activities. This will directly affect Indian economy. India is also relatively unstable. If we see on past two years back the swine flu in Pune caused many precious lost days of development time.

Before outsourcing, companies must ensure that the offshore software development companies have business continuity and disaster recovery plans.

COST COMPARISON AND BENEFITS

We are considering 2 projects of similar man-days efforts. One is being carried out of Pune and another being taken care by a person from UK.

1. When the project is carried out from an outsourced location i.e. Pune
a. Efforts in man-days : 9 man-days
b. Efforts in hours : 9*8.5 = 76.5 hours
c. Billing per hour for an outsourced resource = 90 pounds
d. Total money spend (b * c) = 6885 pounds

2. When the project is carried out from an on-site location
a. Efforts in man-days : 9 man-days
b. Efforts in hours : 9*8.5 = 76.5 hours
c. Billing per hour for an on-shore resource = 250 pounds
d. Total money spend (b * c) = 19125 pounds Cost saving in terms of pounds = 12240 pounds

Cost saving in terms of percentage for this project = (19125 – 6885)/19125 = 64 %

Following is list of teams which are working for Barclays from an offshore location like Pune and the below figure represents the cost benefit of getting the work done out of India.
Table2A Study of Cost Saving incurred-2
Table 1.3 : Cost analysis

The above table explains that there are 200 occurrences of certificate renewal in a calendar year in Barclays. On an average each certificate renewal activity takes around 30 hour. It would have cost the bank 324000 pounds, had it been carried out of UK. Since it is carried out of India, it cost bank 174000 pounds. Therefore, carrying out certificate renewal activity from India saves bank 150000 pounds every year which is a phenomenon amount. Similarly, figures are given for all other activities carried out of India i.e. Incidents, Monitoring, RCA and Fixes, Small Change. The total sum saved by carrying out these activities out of Pune is 177775 pounds, which is a handsome amount.

The below graph depicts the table 1.1 and give a broader understanding of the results of carrying out non-critical work from Pune.
FigA Study of Cost Saving incurred-3