Question

Major companies, such as Citigroup, had wholly owned offshore service centers. Those types of company-owned offshore centers are called captive models. Captive offshoring models reduce the risk of offshoring. A recent study from the Everest Research Institute estimated the costs of third-party offshoring and captive offshoring. The estimates are shown in the accompanying table. Create a spreadsheet that totals the average cost of each model for each cost item. For example, average the annual salary based on the range for third parties and also for captives. Then calculate the total cost of ownership (TCO) of each model. The difference is the cost of risk. Full-time equivalents (FTE) are used to standardize labor costs since workers may be part time or full time. For example, two part-time workers equal one FTE. The estimates are given in terms of FTE, so the conversion is already done. Based on your results, how much does the captive offshoring model allow for risk? The answer is the difference between the TCOs of the two models. Third-Party Offshoring Mode Captive Offshoring Model Office space: Annual rental cost per square foot (assume 10,000 square feet of office space) $11 to $13 $14 to $16 Base salary costs of workers (assume 1,000 FTEs) $7,770 to $8,200 $9,500 to $10,300 General management staff for every 1,000 FTEs 12 to 14 16 to 18 General management salary $55,000 to $65,000 $70,000 to $90,000 Travel and housing costs per FTE $280 to $320 $900 to $1,060

Answer 1

Solution: The excel solution to given problem is shown below Third aryofshoring mode $7770 to $8200 550to $65000 Mid point vaues Captive ofshoingmode 12$14 to $16 985 $9500 to $10300 1316to18 60000 $70 to $90000 00$900 to $1060 13662 Mid point values lofficespace Annualrentalcostper squarefoot ļs11 to$13 Base salary costs of workers Generalmanagement sefor very 900 100FTES 12to14 General management salary 80000 980 181824 Trawel andhosingcots pr 80to $320 Average Difference value 4520.4 The difference value obtained is 4520.4

Office space Annual rental cost per square foot Base salary costs of workers General management staff for every 1000 FTEs General management salary Travel and housing costs per FTE Averag Third party offshoring mode $11 to $13 $7770 to $8200 12 to 14 $55000 to 65000 $280 to $320 Mid point values 12 7985 13 60000 300 AVERAGE(D6:D10) Captive offshoring model $14 to $16 $9500 to $10300 16 to 18 $70000 to $90000 $900 to $1060 Mid point values 15 9900 17 80000 980 AVERAGE(F6:F10) Difference value F11 D11