Risks In IT Outsourcing And How To Avoid Them

by Noah Jackson

Outsourcing your in-house software development is a great way to improve your business efficiency, reduce the time-to-market of your application, and save operational costs; but …

Outsourcing your in-house software development is a great way to improve your business efficiency, reduce the time-to-market of your application, and save operational costs; but it can only provide you with those benefits if you do it correctly. 

There are numerous potential risks involved in the process of software outsourcing, and you need to know how to deal with them effectively so that your outsourcing project can yield the best result. 

In this article, we will walk you through all the risks that you may come across in your IT outsourcing project, as well as how you can cope with them. 

Common mistakes in outsourcing software development and how to avoid them

1. Unrealistic expectations:

“Hello, I need to build an app that is similar to the Amazon app, and my budget is US$10,000.”

That’s what unrealistic is. Having unrealistic expectations will set you up for failure because that will lead to two scenarios. One is no vendor will accept your project, and the other is you will have your money stolen by someone who nods to building an Amazon-like app for $10,000. 

Building a good application takes an equally good amount of time and money for every vendor, so you need to keep that in mind to not let your own unrealistic expectations prevent you from succeeding. 

How can you avoid this risk?

  • Make a proper list of all the features that you want to have in your software application. 
  • Discuss this with your vendor and seek their expert advice.
  • Ask your vendor to work out a reasonable amount of cost and time for your project.
  • Sit and discuss every aspect of this project (costs, deliverables, deadlines, etc.) with them and clear up any confusion.
  • Once you both agree on everything, go ahead with the development. 

This process typically requires lots of time and effort,  but it will reduce half the risks of software outsourcing. If your budget doesn’t allow for all the functionalities that you want to have, divide your project into smaller phases. 

2. Ever-changing specifications:

Developing an application is similar to building a house; it won’t be efficient to build a house halfway, then demolish it and build a new one just because you need to add a couple of windows. 

The same thing applies to software development. It’s going to be very costly for you to change specifications in the middle of your project, and it will also slow down the development progress. 

How can you avoid this risk?

  • Before you start your project, conduct market research and identify all the potential features you’ll need for your application.  
  • Discuss your list of features with your vendor and settle on all the features you’ll have.
  • If there are features you’re not sure about, develop an MVP (minimum viable product), show it to your users, and make changes as you get more feedback. 
  • Whatever you do, don’t interrupt your vendor when they are developing a feature halfway.

3. Failed communication:

Inadequate communication is one of the leading causes of unsuccessful outsourcing projects. After all, the vendor can’t deliver the right features if they fail to understand you, and you can’t have the right expectation of what they can do if you fail to understand them. This is why it’s very important for you to work with a vendor who shares a mutual language with you, and you both can understand each other well in that language. 

All software vendors have project managers who are in charge of individual projects, so you will mostly work with one for yours. The project manager will be your go-to person for everything that happens, and he/she will be responsible for assigning tasks and providing clear instructions for his/her team to carry out your project. Therefore, make sure that you can have an easy time communicating with the project manager you’re going to work with. 

How can you avoid the risk of failed communication?

  • Only work with a vendor who you find it easy to communicate with. 
  • Have frequent meetings with your vendor to stay updated.
  • Have all of the agreements/requirements between you and your vendor written out in trackable channels (such as email, chat tools) to avoid any confusion. 

4. Poor outcome:

For any project, the quality of the finished application is what eventually matters. It’s not uncommon that a client receives a broken application after they have trusted all the promises and guarantees their selected vendor made. Therefore, putting all your money into a vendor’s promise is not the best way to avoid this risk, but you will have to find out whether the vendor is truly capable on your own. 

How can you avoid the risk of receiving a broken application?

  • Test thoroughly and test early. To know how skilled your vendor is, prepare some coding tests and ask your vendor to take them in your vendor evaluation process. 
  • Break your project up. Divide your project into smaller modules and test the quality of each module carefully when one is completed. 
  • Check on your vendor. Ask for a detailed explanation of how the vendor handles quality assurance. Do they have an established process? Do they have any certification for software development (CMMi, ISO)?
  • Work with reliable vendors. Only outsource your software development to companies with a proven track record of working with recognizable clients, and if possible, ones in your industry.
  • Search for reviews. Look for reviews about the vendor on reputable review websites such as  Clutch.co, GoodFirms, g2.com

5. Cost overruns:

Cost savings is one of the top reasons for businesses to outsource their IT development. However, you can face cost overruns if you work with a bad vendor. This type of vendors tends to offer a very low initial hourly rate, which may be appealing, but they then take longer to complete very ordinary tasks and make more errors, which leads to a much higher final price tag in the end. 

How can you avoid the risk of cost overruns?

  • Define a clear scope of work at the beginning. Increased scope of work is one of the leading causes of project cost overruns. When you plan for one set of deliverables but, over time, you want to add more into the set, that will lead to cost overruns. 
  • Work with a reputable software outsourcing firm. Reputable vendors don’t charge you more for cost overruns that they are responsible for, and you’ll get a fixed cost for your project prior to development.
  • Make sure the total cost of development is formalized in your contract. Make sure that the contract you sign with the vendor has information about the total cost of development, as well as how to determine responsibilities in the event of cost overruns. 

Final words

To ensure success for your IT outsourcing project, you need to be fully aware of all the potential pitfalls and know how to avoid them. This way, you will be able to build a long-term partnership with your vendors and reap all the handsome rewards of IT outsourcing.

We hope this article has provided you with valuable tips on risks in IT outsourcing and how to deal with them. If you’re looking to outsource a project to Vietnam and not sure how to get started, fill out the box below and our Sales team will be in touch shortly to advise!

Read more: CMC Global: Vietnam’s Leading IT Outsourcing Vendor Software Development and ODC Setup