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The Secondary Costs of Outsourcing

When choosing your outsource partner keep in mind all costs, not just their day rate. Every hour you spend reviewing, communicating, and revising work has a dollar value. When added up, a low day rate can have very high costs.

Paul Culp, Blogger

February 21, 2012

10 Min Read

I started my first game art outsourcing studio in 2000. We were one of the first large-scale art outsource companies in the United States. This was back when the term outsourcing was associated with other industries like vehicles and electronics, not video games. Developers didn’t outsource like they do now. They either brought in contract artists temporarily or leaned on other game developers to lend their art teams when they were in-between projects. Outsourcing was not the ubiquitous term it is today.

Back then our biggest job was teaching game developers what outsourcing could do for them. Our pitch was that developers didn’t have to staff up quickly, carry those employees through lean times, or spend all their time managing a giant team of artists. Obviously it was a sensible decision, considering 90% of all developers outsource now.

Now, we no longer have to make that pitch. Developers already know the benefits of outsourcing. They do it all the time. The challenge we face today is convincing them to keep that work in the United States instead of sending it to a company in China. Convincing developers to keep this work local is a much harder sell. To start, let’s change the term for outsourcing locally so we are all on the same page. We’ll call it localsourcing. It’s got a sexy ring to it.

Sending that work to China is cheaper than localsourcing. The day or hourly rates for an outsourcing company in China can be 25% to 50% less than a stateside studio. Exchange rates and cost of living play a factor in this, but central to this is the fact that China is still a communist country and they aren’t as subject to playing by market rules within their own country. Worker’s salaries aren’t necessarily dictated by the market. They’re simply dictated.

Causality aside, the common consensus is that outsourcing game art to China is cheaper than localsourcing. I am here to tell you firmly, “not necessarily.”

There are costs associated with outsourcing that are not directly related to the asset you are purchasing called secondary costs. Secondary costs are the costs that are not built into the price of your product, such as your time, transportation, materials, etc. If the grocery store 30 miles away sells toilet paper for 50 cents less than the one down the street is it cheaper to drive 60 miles there and back for a cost savings of 50 cents? No, of course not. You already know the gas alone negates any savings. You also factor in the wear and tear on your car and most importantly, at least from my side of the street, your time. What is your time worth?

Since this is a game industry blog and not a fecal hygiene blog let’s bring it closer to home. An outsourcing firm in Shanghai agrees to build you one castle for $160, which you both agree is 8 hours of work. Done deal. You’ve got a budget of $160 and you need a castle. They want your $160 and they can build you a castle. It’s a win for all.

This number is for example purposes only. No studio, in China or the US, or anywhere in the world would take on a job for $160. That I know of, at least.

Before you get started, you need to provide them with everything they need to build a castle that works for your game. Since they are an asset factory, designed to create assets to exact specs, you need to give them a specific polygon limit, plenty of photos of castles, concept art if you have it, a description of what the castle needs to look like and its purpose, where the entrance is located, how many parapets it has – all very important information. You pack it up in a zip file and send it off in an email. All in all, you’ve spent about 4 hours of your time on this castle, so far.

Since the company is in Shanghai, and you sent the package at 1:30 pm you need to wait till 5 or 6pm till they get into work and receive your package.  About 5:30pm you get an email saying they got the package and they will take a look at it. You write them back, letting them know you are looking forward to seeing their work and to please let you know if they have any questions. That’s another 20 minutes. It’s now 6pm and you’ve got a date with Season one of Battlestar Galactica.

You get in the next morning and there is an email waiting for you from Shanghai. They looked at your specs and your reference and they have a couple questions for you before they can start working. You answer their questions best you can, then go about your day. Since they are in Shanghai, you don’t expect to hear back from them till about 5pm or so. 6pm rolls around and another email pops up from Shanghai thanking you for all your help and information and they will get started on your castle right away. You email them back letting them know it was your pleasure and to not hesitate if they have any more questions. This is another 20 minute exchange and now it’s time to go home and see what those tricky Cylons are up to.

The next morning you get in and there is a castle model waiting for your review. You unzip it, eagerly looking forward to finally filling that blank spot in your terrain with a majestic Arthurian fortress. It’s going to be beautiful. You can’t wait. Unfortunately, the castle doesn’t look all that hot. The folks in Shanghai tried to use your photo reference as a stone texture. Plus the polycount is twice what you specified. You take a few snapshots of it, draw some paintover notes in Photoshop stating all the things that are wrong with it and write up a review making sure you ask why the castle is twice the poly limit you originally specified. You send the email off at noon. You just spent about 3 hours total retrieving and reviewing your castle, and you still have a blank spot in your terrain where a castle should be. The tension in your neck is turning into a migraine. Is it time for Battlestar yet? No, it’s only 12:30pm.

Around 6:30pm you get an email from Shanghai. The whole thing was a misunderstanding. They thought the photo reference you sent was supposed to be used for the texture. There was a misunderstanding with the poly limit. They are very sorry and will fix this right away. You understand, these things happen. The whole exchange takes about 30 more minutes and you decide to grab a six pack on the way home. You’ve earned an IPA with season two.

The next morning you receive your zip file as promised and inside is a jumble of amorphous polygons that looks like it may have once been a castle, before it was sieged by a dozen catapults and a bad optimizing spell. Again, you write up a review, trying to be as clear as possible, spending extra time building a sheet with the concept and a screen capture side-by-side. All in all, the whole ordeal took about one hour of your time.

6pm arrives with an email in tow, asking you if you have time for a phone call. You agree. If you have to write another in depth email review you just might lose it. They call. You all talk it over. It appears their artist just ran the optimize tool till he got it down to half the polygons and sent it off without fixing the mapping or apparently even looking at it. They are very sorry. So are you. It’s 8pm now and you have just spent 2 hours trying to communicate over the phone with the Producer in Shanghai. You are eager to get home. You remember there is half a bottle of Makers Mark on top of the fridge left over from Thanksgiving. You end the call and head home to the comforts of whiskey and Captain Adama’s stoic grace. Things are looking up.

Your elation is short-lived. The next morning finds you staring at the worst looking castle you have seen since the hand-made cardboard one from your high school play on Don Quixote. When the work is still far off after the third revision you do what every Outsource Manager and Art Director has done since the beginning. You pull it in-house. Defeated once and for all, you walk down the long cubicle hall to the artist’s quad and ask your buddy Jeff if he would please build you a castle. You beg. You offer a six pack of Stella and your genuine Macfarlane Metallica action figures in trade. He finally agrees when you throw in your Evangelion series on VHS.  8 hours later you have the best looking castle in the history of video games. Jeff is awesome.

So how much did that castle cost you? $160?  Not even close. You paid the Shanghai firm $160, but I just counted about 12 hours of your time and 8 more hours for Jeff who ended up building you a pretty sweet looking castle. Not to mention the beer, action figures and VHS collection. Of course it is tricky calculating what your time is worth, but if we go with the industry average of $10k per man month (which isn’t necessarily what you make, but what many publishers pay developers per head per month) then you paid about $500 of your own time and $750 of Jeff’s time in the making of that castle, plus accessories. Now you can add the $160 you paid to the Shanghai firm. That castle ran you upwards of $1,360. Again, not including your bartering items. It’s also not putting any value on the total, absolute drop in your quality of life due to frustration, headaches and lack of time spent doing what you love, like watching Battlestar Galactica.

These are the secondary costs of outsourcing, which is something many people - especially the ones allocating the budgets - often overlook when deciding on which studio to partner up with. And by no means is this limited to overseas studios. A local studio of inexperienced artists can rack up those secondary costs just as fast as any overseas studio if you’re not careful. It’s understandable choosing to go with a studio that charges less. We do it all the time in our daily lives from tires to phones – we are seduced by the promise that we can receive better quality for less money. Unless you are an Outsourcing Manager or an Art Director and have spent many hours reviewing work from a sub quality outsourcing firm you can’t possibly know the kinds of issues that pop up on a daily basis. Imagine if that castle was a whole level’s worth of assets, or a set of characters. Since outsourcing in games is relatively young, these issues have only existed, or just recently come to light in the last couple years as more and more developers trade war stories and compare notes. These costs have to be considered. Now more than ever. A missed ship date can be the equivalent of throwing your game, and people’s jobs out of a moving truck.

Whether you outsource or localsource your art, keep in mind the secondary costs. How much extra are you willing to pay? Not all your budget is going towards the assets you are purchasing. Often, much of your budget is going to secondary costs, so choose a studio that is least likely to accrue those secondary costs. Time zone, language, quality, and experience are all key factors in accruing or avoiding secondary costs. If a studio has a higher day rate, but can keep secondary costs at a minimum by managing the project and communicating well, it is worth paying extra for.

The CG for Battlestar Galactica was done in Canada by the way. Same time zone as the studio that hired them. It’s good work. Just saying.

Paul Culp is the Studio Director for Oregon-based video game Art and Animation firm, SuperGenius. www.supergenius-studio.com

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