Consultants are more expensive than employees, right?  Maybe not, if we do the math.  Often businesses opt to keep design work in house on the basis of perceived higher cost of contractors versus hiring permanent employees to do the work. If this perception is obtained by simply comparing average hourly wages of permanent employees versus contractors, the numbers are in favor of permanent employees.

    However, this simplistic accounting shrouds the overhead costs (corporate infrastructure, benefits, tools, taxes and fees, etc) associated with permanently employing individuals, and paints an inaccurate picture. The true cost of a permanent employee is roughly double that of the employee's salary, on average. This means that, on a per hour basis, the cost of hiring an employee is comparable to that of hiring a consultant. Because of this incomplete cost analysis, the benefits and potential savings of hiring contractors are often overlooked.

     Hiring a permanent employee straddles the employer with the responsibility of keeping him/her productive. An unproductive employee represents a sunk cost that is not easily resolved due to legal liabilities, such as unemployment compensation, that the employer takes on as part of the employment agreement. Alternatively, the employer can chose to layoff staff in the face of low utilization, like upon the completion of a project. Firing employees negatively impacts a company's reputation among job seekers and affects morale of the staff, which affects loyalty. These are non-issues with consulting employee as no such liabilities are assumed. The contractor can be relieved of, permanently or temporarily, his duties at a moment's notice, with no legal or social penalty to the employer, avoiding the sunk cost of idle employees. Contractors also provide their own tools, equipment, and facilities, which relieves those overhead costs to companies.

    A team of engineers working through a project accumulates valuable knowledge such as points of contact, technical nuances, and other critical project details. This undocumented information and tribal knowledge is a liability to the organization as it cannot be efficiently taught to new members and may be permanently lost in the case of departing members. Hiring a competent contract team helps avoid this liability as project status reports, technical specifications and challenges, and other related documents, which are often specified as project deliverables, capture this information and maintain a written project record

    Consider the case of having to develop a product from the ground up with little or no engineering staff. With a scope of work in hand, the consulting group can ramp up development quickly and start making progress on several fronts in parallel (hardware design, firmware, application development) with flexible burn rates depending on the client's needs, and can ramp down just as quickly. A comparable team of newly hired permanent engineers will need time to ramp up as onboarding (HR, tools, equipment, IT, etc) can be a cumbersome process. They will need to be fully utilized or else suffer the sunk cost, and will either need to be sustained with tasks beyond the life of the initial project they were hired for, or laid off.

    The value of hiring a team of consulting Engineers verses permanent employees is clear when the net cost of employees is fully considered.

-SD