NZ may just be expensive for outsourcing: IRD

Inland Revenue appears not to be greatly out of line with other tax administrations or organisations on the kind or relative volume of outsourcing work.

Inland Revenue appears not to be greatly out of line with other tax administrations or organisations on the kind or relative volume of outsourcing work.

A benchmarking study of IT spending undertaken by IRD suggests that the proportion of expenditure on outsourcing was the only factor “on the wrong side of the average”, says IT manager Colin MacDonald.

The organisations in the study — which looked at 23 organisations in total including 15 tax bodies — ranged from having almost no outsourcing to sending out almost all their IT work. IRD was nearer the middle in terms of the proportion of work outsourced than in terms of money spent.

“We have a fair degree of in-sourced work,” MacDonald says. “We do pretty much all of our development work, but outsource most of our operations.”

This might appear to lead to the inescapable conclusion that IRD is paying too much for its outsourcing.

“That’s the easy answer,” MacDonald says. It may be that IRD is paying over the odds, “or it may be that New Zealand is just a relatively expensive country in which to do outsourcing”, he says. After all, he reflects, we are a small nation and the economies of scale which make outsourcing worthwhile in larger nations might not work so well here.

Surely a cost difference would have shown up in the comparison with local companies as contrasted with those from overseas? MacDonald says he’s not sure the sample size of local companies was large enough to draw meaningful conclusions on that front. “There might only have been two local companies.” He declines, however to be more definite on the local/overseas split of the organisations used for comparison, which included tax bodies, banks and other government departments.

Some statistics are favourable: Inland Revenue is one of the more efficient users of mainframe processing power in terms of Mips and disk storage in relation to the number of customers serviced. Each IRD customer accounts on average for only 2MB of storage, with an average of 4MB for the other companies. The processing power is just over half the average. IRD also shows a lower overall IT spend per employee and per customer. “We are running an efficient and effective IT shop,” MacDonald says.

The figures from the survey will be further studied with the help of external organisations such as Gartner, to pin down in particular what is causing the high outsourcing spend.

Results will not emerge before the end of the year, MacDonald says, but IRD wants to take care over the further analysis.

“We don’t want to jump to the wrong conclusion, and produce a solution for the wrong problem.”

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