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How to avoid the risks of software development outsourcing

37 percent of companies already outsourcing software development are planning to increase the amount they outsource. From reduced costs to greater scalability, businesses are beginning to recognise the benefits of outsourcing bespoke software in their bid to gain a competitive advantage.

But it’s not all plain sailing. Without the right due diligence, outsourcing can quickly become a horror story. For example, costs quickly rose from £650 thousand to £800 thousand for Cornwall council when it outsourced work to BT.

So, while there are clear advantages to software development outsourcing, there are also lessons to learn. If you aren’t careful, misplaced spend can actually lead to higher costs and a greater number of IT headaches.

Fortunately, it’s easy to spot the signs of a failing project and avoid the risks of software development outsourcing for good. Just think of the advice below like a lighthouse guiding you away from hidden rocks.

Risk 1: Work with compatible businesses

“The outsourced tech team has to align with the goals of the product and the business." Says CIO of First Data, Christopher Augustin.

It’s important to do your homework before working with a business. Misalignment is a catalyst for disagreements and outsourcing failures. When the other team is pulling in a different direction, it usually means that tasks, deadlines and communication are set to unravel.

Instead, work with a service provider that understands your business objectives, culture and preferred modes of working. Research the following to understand a prospective business:

  • Their portfolio of work
  • Testimonials (ideally, from similar businesses to yours)
  • In-depth reviews (ensure these are legitimate)
  • Their project management methodology and preferred tools

Risk 2: Avoid ballooning costs

When it’s done ineffectively, outsourcing software development leads to unforeseen costs. For example, one project took vendors 500 more hours and £15 thousand in additional, unforeseen costs to effectively evaluate outsourcers.

To avoid ballooning costs, it’s important to choose the best pricing model for your project. Models include:

  • Fixed price model (a guaranteed budget)
  • Time and material model (the cost equates to the time and materials used)
  • Cost-plus model (this adds a mark-up on top of costs)

The fixed priced model is the most straightforward way to prevent cost increases, but that doesn’t mean it’s always the best option to take. Here’s a guide on the pros and cons of each model.

What’s more, it’s important to write a detailed contract and clarify all KPIs and outcomes. This keeps the scope of the work well-defined and reduces the chance of unforeseen costs.

Risk 3: Prevent data breaches and theft

According to one study, 63 percent of data breaches are the direct result of bad outsourcing decisions. So, when working alongside another business, ensure you take the right steps to protect what’s valuable.

A non-disclosure agreement (NDA) is a powerful tool if you’re sharing code or intellectual property. Limiting access is also important - section off data within your business, and only share the information outsourced team needs to complete their work.

Finally, only work with businesses who have clear security policies and certifications. Scour their website and ask them directly about their security stance.

Don’t settle for risky business

Many businesses don’t realise the risks of outsourcing software development until it’s too late. They settle for sub-par developers who don’t take their unique business and industry needs into account. However, it doesn’t have to be that way.

Projects that keep you and your system requirements in mind are possible. Check out our bespoke software development page, to learn how you can build the software you’ve always wanted.