How to Mitigate the Risks of Outsourcing Software Development

July 5th 2023

It's true that there are some pitfalls to outsourcing the development process. But many of these are down to mistakes made in implementation and partner choice, rather than because of outsourcing as a general principle.

In this blog, we’ll explore the biggest risks of outsourcing software development and how each of them can be mitigated. We’ll cover each risk in turn and give you some key strategies for overcoming them with the help of the right outsourcing company.

Potential risks of outsourcing software development

  • Unexpected Costs 
  • Barriers to Communication 
  • Security and Privacy Issues 
  • Loss of Control
  • Missing specialist experience
  • Lack of alignment 

No change is ever completely free of risk. This is especially true in the world of technology where data, systems and applications are so valuable, and when innovating with data and intellectual property is vital for growth and profitability. The following represent the biggest risks of outsourcing to watch out for:

1. Unexpected costs

Outsourcing has become a commonly used approach for businesses striving to reduce costs and increase effectiveness. In fact, 70% of companies share that cost reduction is the number one reason for outsourcing. This is mainly related to the lower costs associated with hiring an outsourced team compared to in-house.  

A good outsourcing company will be clear and up-front about what they will do for you and how much they will charge, helping you make a significant cost saving. 

A good way to avoid this setback is to define project requirements from the beginning. This could involve drafting a robust project plan outlining the project scope, deliverables and timelines. Checking the fee structure and payment policies of an outsourcing partner before signing any contract is also critical. You can request a detailed list of all expenses associated with the project from start till end.

2. Barriers to communication

Outsourced teams may be located all over the world and will most likely be working remotely. While this can help you expand your expertise and skillsets beyond geographical borders, it can pose some practical issues if different time zones and understanding of languages get in the way.

Building a rapport with an outsourcing team is vital for developing strong and clear communication channels, and for ensuring that they understand your vision. This should start with the project manager being proactive in getting to know the team, right from the initial interview stage. Setting up regular communication can help keep track of the project’s progress and results.

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3. Security and privacy issues

Outsourcing your software development to a third party organisation means providing them with access to sensitive data and assets. This can result in a number of security and privacy issues.  An outsourcing company may well have the same robust approach to protecting sensitive data and intellectual property as you, but this isn’t guaranteed. If they don’t have the right certifications for compliance, such as GDPR, SOX, ISO9001 and ISO27001, the risk of your valuable information falling into the wrong hands is much greater. According to Deloitte, only 35% of businesses that outsource enforce data risk and security protocols in their outsourcing contracts.

All reputable outsourcing companies will have built up a strong track record of case studies and references, ideally within your specific sector, that highlights their secure approach to work. You should investigate these thoroughly and call on their senior leaders to discuss their expertise and experience, as well as the types of technologies they use in the development process. 

Signing an NDA (Non-Disclosure Agreement) is another way to protect your data and intellectual property especially against data misuse. 

4. Loss of control

One of the greatest risks of outsourcing software development when hiring an external team is the loss or lack of control. The best outsourcing teams are in high demand, and so are likely to be working on multiple different development projects simultaneously. This means that you won’t necessarily get their undivided attention, and control over development and timescales will be theirs, rather than yours.

Because of this, it’s vital that you understand exactly how an outsourcing company operates, and ask searching questions about how your relationship will work in practice. 

For example: 
How many clients will they typically work with at any one time? 
How quickly will they respond to your requests? 
How available are they outside of normal working hours? 

Selecting the right channels and engaging in regular communication with the outsourcing company could also ensure you have better control over the project. 

5. Lack of specialist expertise

For the best results, your development projects need detailed know-how in relevant technology, as well as broad knowledge of industry trends and regulations. Many outsourced teams will be able to deliver this, but some companies may overstate their know-how in their keenness to win your business, which may leave you without the skills you need.

Theoretically, even the best outsourced team in the world is useless to you if their background is in a completely different sector. You should evaluate the industry-specific expertise of the people involved and ensure they have a strong command of the language your business uses day-to-day by thoroughly checking their portfolio of projects.

6. Lack of alignment 

For any project manager, getting your vision across to an outsourcing company is often as important as the development project itself. If the remote team isn’t clear on the scope of the project, the details of the technology involved or the overall objective, it can be difficult to ensure you get the results you want from the development process.

Regular catch-up video calls should be conducted throughout the development process so that your outsourced team is fully engaged with the subject matter and remains aligned to your overall objective. This gives you the best chance of maintaining their focus on your project in the longer term.

Key benefits of outsourcing

As long as you get your due diligence right, you can partner with a remote team in full confidence. This also allows you to make the most of all of the benefits of outsourcing, including:

Wider access to talent: McKinsey research research suggests that 87% of organizations are either struggling with skills gaps now, or will do so within the next five years. An outsourcing company can help you plug that gap by accessing experience and expertise from all over the world

Time savings for your in-house team: freeing up permanently employed staff to work on core business activities is the most commonly cited reason to hire an outsourced team, according to Fortunly. This can help you innovate with new development projects without disrupting or delaying usual day-to-day operations

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Better efficiency and productivity: Clutch has found that almost a quarter of small businesses that outsource do so to improve the efficiency of their development process. With deeper expertise and experience working for you, inefficiencies can be trimmed out and you can get better software to market faster

Lower costs: one of the most direct benefits of outsourcing is the ability to generate cost savings from your development process - on average, businesses save as much as 15%. This scale of saving can make a major difference to your bottom line, or free up funds to be redeployed elsewhere within your business

Greater scalability: using an outsourcing company allows you to right-size your skills base to your development needs. You can collaborate with an outsourced team when you need particular work doing, and not pay over the odds for their skills at the times when they aren’t required

Sidestep the risks of outsourcing software development with Ciklum

When you partner with the right outsourcing company, you can enjoy all the benefits of outsourcing without being exposed to any of the risks. And ensuring you get expert, stress-free support with your development projects is at the heart of everything we do at Ciklum.

We employ over 4000 skilled staff across the globe, from developers and consultants to data engineers, scientists and architects. They can work closely with you to understand your goals and help you innovate - an approach which has helped us become a Niche Player in the Gartner Magic Quadrant for Custom Software Development Services.

When you work with our outsourced team, you get the best in the business, that will work the way you work. Get in touch with our team today to discuss your specific use cases.

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