IT outsourcing can bring a wealth of financial benefits to a business, but according to one online technology expect, many firms are struggling to understand how their contracts work.

Sunny Gupta from CFO.com says that there is currently much confusion in the sector over things such as conditions and negotiated terms.

“A lack of transparency, and inadequate integration between cost and utilization reporting can cause your vendor costs to spiral out of control, ultimately jeopardizing the outsourcing relationship,” he wrote in a recent blog.

Mr Gupta believes that this has split execs into two distinct categories.

One the one hand you have proactive directors who see it as their duty to look over every minute detail of the contract so that they can fathom exactly what they are getting for their money.

And on the other hand, there are reactive directors, who only analyse their contracts when they come up for renewal or if an urgent issue prompts them into action.

According to Mr Gupta there are several questions which a company director must ask themselves when they are considering their IT outsourcing arrangements.

These include; Are we being as efficient as possible with this contract? Do we know if this contract is still cost-effective? Are we sure we are being billed at the correct rate? How many resources have been consumed? And have the services we’re paying for actually been performed?

He says that many companies are overstretching on their agreements with outsourcing vendors because they simply do not understand the limits set out when the contract was signed.

“Like a cell-phone customer who racks up a massive bill because he has inadvertently surpassed his monthly quota of minutes, an outsourcing customer who lacks visibility into his or her server utilisation is at risk for a similar unpleasant surprise when the bill arrives and there’s a significant overage charge that could have been avoided,” Mr Gupta stated.

So the advice is simple; understand the contract you sign and look for outsourcing suppliers who work in clear and simple terms.