ABSTRACT
This chapter explains the financial factors involved in outsourcing and covers how those cost reductions are achieved. However there is more than just cost reduction to the financial factors in outsourcing. It can have cash flow and balance sheet impacts and can also help with understanding the costs of various services as well as sometimes helping to bring cost causation in line with revenue - the latter being a useful way of smoothing out profit fluctuations. By aggregating the volumes of a number of clients, outsourcers can get better pricing through higher volume. This can be through raw materials, equipment, software, service supply, etc. Outsourcers specialising in a certain area can benefit from specialist financing packages that recognise the unique nature of the investment being financed. A UK company may not be able to afford to retain people on their books who speak Russian, Greek and Arabic for the rare occasions that they may need those language skills.
