To Outsource or not to Outsource: Risk Factors

To Outsource or not to outsource - Risks Factors

Following the article “To Outsource or not to Outsource” we would like to draw your attention to the risk factors that can occur when working with a handpicked outsourcing vendor.

Hereafter we will review the key aspects you should take into consideration if you decide to make use of software outsourcing services :

So, here comes the list of risks typical for Outsourcing Software Development:

Cost-Reduction Expectations

One of the misconceptions of software outsourcing is the expectation it will save you a sight of money. Many people are sadly mistaken – the lower the price is, the better the saving will be. But this has nothing to do with the reality. The key factors here are cultural differences, the experience of the vendor, his technical security and optimality of internal business processes within the company of the vendor. Also, you can expect a decrease in costs on 15%-25% (as there will be fixed expenditures on knowledge transfer and equipment preparation) in the first 6-12 months and later on after the above-mentioned period is over you can easily count upon 35%-45% of economy.

Loss of Business Knowledge

The majority of IT companies focus on program development itself without understanding of the specifics of the business realm it will be used in later on. In some cases it will be a huge benefit and a saving of time if an outsourcing vendor can speak the language of your business. But one should not expect the vendor, chosen according to this approach, to be cheaper, as such companies add value to your business and can significantly accelerate the process of software development which eventually saves money/time.

Cultural and mental differences

Here in Iksanika we have enough clients who opted for Eastern Europe region after having bad experiences in working with Asian countries (such as India, Pakistan, etc.) as cultural differences cost clients much in terms of communication, working approach and, as a result, affected the quality of the performed work. Usually such differences extend the application development period which increases the price for these applications and the volume of undrawn profit because of the delay in application delivery.

Scope Creep

Very often companies who want to develop their own solutions but don’t have clear and precise specifications demand of vendors a fixed price for the solution development services. But if there is no a detailed description of the solution, the vendor can not in full estimate the project. That’s why, a vendor has to provide baseline and assumptions in the contract. That helps drive into a conclusion there are no, actually, real fixed-priced contracts. If the performed work depends on the initial appraisal, you will have to pay the difference if the scope of work changes. Sometimes this comes as a surprise for customers of outsourcing services, as they often insist on changes in the previously estimated and fixed work scope and then they expect the same price as it was initially. As a result, the budget for the project can increase on 6%-14% from the one approved in the beginning. To avoid such situations, the best is to make travaux preparatoires in a more detailed way before the work launches – the more detailed the description is, the more accurate the estimation.

Failure to Deliver on Time

It’s a mistake to think the best outsourcing partners owning the best practices and huge work experience always guarantee to deliver solutions on time. The thing is any outsourcing company had in its history precedents of delivering solutions with a delay, even the best of us. One should be aware of this fact and build outsourcing strategy accordingly – you have to evaluate how this delay will affect your business in general. Perhaps, it will be reasonable to keep an eye on another vendor in case of delay just to be safe or you can include the financial risk of the delay in payment to organize business processes after solution delivery phase.

Please, do not hesitate to contact us if you have any questions, or would like to get any clarifications or consulting.

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