out of work as a result.

Displaced IT professionals who returned to school in 2002 to learn IT skills that do relate to today's marketplace won't start graduating until 2006, he said.

"That's agreeing that, in 2002, American IT workers started to go back to basic programming languages, data architecting, architecting portals and understanding all the underpinnings of IT, which you need to know to do a portal," he said.

Savings Game

Perhaps the biggest lure of offshore outsourcing is the perceived cost savings, especially in application development, because programmers offshore are paid far lower hourly wages than their U.S. counterparts.

But lower wages don't necessarily translate into savings, said Joseph Feiman, a vice president and research director at Gartner Group.

"The major problem we see in those decision-makers that look at outsourcing is they think if billing rates charged by, let's say an offshore Indian company, are three times lower than the cost of labor here, then the savings by outsourcing would be three times," he said.

Gartner advises enterprises to consider how other costs could eat into the savings generated by lower billing rates, said Feiman. Gartner developed a model to analyze the total cost of outsourcing based on billing rates, communication and effectiveness.

The communication parameter is a numerical measurement of the cultural difference and geographic distance between the customer and external service provider (ESP), whether the ESP is hundreds of miles away or thousands of miles away, Feiman said. The effectiveness parameter is a measure of the ESP's expertise in technology, project management and business domain.

"Once the ESP is offshore, in addition to the cultural distance, you have geographical distance, time zone differences and the necessity to collaborate only by electronic media," he said. "It's very difficult to build trust with someone you've never seen in your life. You cannot make a judgment whether to outsource just based on billing rates. You have to adjust any cost estimate by that communication factor and by effectiveness."

On the other hand, Indian ESPs can be highly qualified and knowledgeable, he added. Many of them have reached the highest rating -- level five -- in Carnegie Mellon University's Software Engineering Institute's Capability Maturity Model Integration (CMMI) measurement scale for IT service providers.

Texas Payoff

In Texas, the Texas Health and Human Services Commission's HIPAA Compliance Office was under the gun to meet a requirement that all health-care provider remittance claims be converted from paper forms to a specific electronic data interchange format.

To meet the scheduled deadline, a java application to serve approximately 2,500 pharmacies and eight service bureaus had to be designed, coded, tested and implemented in 10 weeks, according to Brad Ring, a product delivery manager in the Texas Department of Human Services' (DHS) project management office, which managed and implemented the project.

Texas selected Infinite Computer Solutions (ICS), which has offices in Dallas, to devise the application, Ring said. ICS won the contract for several reasons: The CMMI level-five certified vendor produced a bid that met the established evaluation criteria at a significantly lower cost than competing bidders, and it could meet the tight deadline.

"We felt because of the time frame, we would not be able to recruit people within this area or within central Texas who had the skills necessary and could pull it all together to make it work within this very aggressive time frame," Ring said. "This was a federally mandated deadline, and there's a federal sanction of $2,500 per day for every day that it [the application] wasn't put in. We were highly motivated to make sure it was done on time."

A Matter of Appearance

The Texas DHS Project Management Office confronted

Shane Peterson  |  Associate Editor