Methodological approach to evaluate economic effect of outsourcing under public management

Abstract

The purpose of this article is to investigate outsourcing under public management. We studied the essence of the outsourcing and analysed models of its life-cycle. The term "public outsourcing" was introduced as the element of first stage of outsourcing life-cycle. Economic effect of the outsourcing under public management was measured as the difference between growth of the Earnings before interest and tax (ЕВІТ) and expenses on contracting of the outsourcer. The latter includes expenses on government control, represented by public management. The notion of outsourcing is studied, and the notion of public outsourcing is introduced. The model of public outsourcing life-cycle is developed. Authors defined value of contracting the outsourcer, including initial expenses and associated expenses on monthly basis. Specific emphasis was given to expenses to oversee of outsourcer’s activities. Proposed methodology for assessment of the economic effect of outsourcing is unique as it applies expenses for organising of public control; this particular feature of methodology is represented by the public outsourcing. An application of such methodology allows to properly answer the question if enterprise under public management should contract an outsourcer. Results presented in the article are valuable to support decision-making while defining advisability of contracting an outsourcer. For example, actual expenditures on the outsourcer contracting for the next planned period could equal zero, which signifies successful cooperation with the outsourcer. We approbated the methodology at the PJSC "Central Mining and Concentration Company", the main activities of which consist of iron ore mining, processing, and production of iron ore concentrate and ore pellets.