Total Cost of Ownership and Cost of Capital in Outsourcing Decisions

By Anna Maria Moisello and Pietro Gottardo.

Published by Organizational Cultures: An International Journal

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Article: Print $US10.00
Article: Electronic $US5.00

The outsourcing decision plays a strategic role for competing in a global environment and it implies a systemic assessment of its impact on firm performance. We focus on the problem of the construction of cost information required by the decision-making process to better compare outsourcing and the internal production choice. The aim of this paper is to develop a full costing model which highlights the explicit and implicit costs of the two alternatives, taking into account the various levels of management complexity they involve. We therefore present an activity-based costing model to compare the total cost of ownership of outsourcing with the cost of internal production, taking into account the cost of the capital required for performing the activities. This paper contributes to the advancement of costing methodologies applicable to outsourcing decisions, proposing a model suitable for any type of outsourcing and useful in different phases of the process.

Keywords: Outsourcing, Total Cost of Ownership, Cost of Capital

Organizational Cultures: An International Journal, Volume 13, Issue 1, pp.21-34. Article: Print (Spiral Bound). Article: Electronic (PDF File; 643.488KB).

Dr. Anna Maria Moisello

Researcher, Department of Economics and Management, University of Pavia, Pavia, Italy

Dr. Moisello graduated in Economics at the University of Pavia (Italy), with a Ph.D. in Business and Administration achieved at the Bocconi University of Milan. Her current position is Assistant Professor in Business and Administration; her main research interests are in management accounting and control. Current teaching includes Business and Administration and Managerial Accounting at the Department of Economics and Management of the University of Pavia.

Prof. Pietro Gottardo

Associate Professor, Department of Economics and Management, University of Pavia, Pavia, Italy

Professor Gottardo graduated in Economics at the University of Pavia (Italy). He has a Ph.D. in Financial Markets achieved at the University of Bergamo. His current position is Associate Professor in Corporate Finance. His main research interests are risk management, markets microstructure, and asset pricing. Current teaching includes Corporate Finance and Financial Modeling at the Department of Economics and Management of the University of Pavia.