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Risks Associated with Offshoring Software Development and How to Avoid Them

Vikrant Bhalodia

Introduction

Offshoring or offshore outsourcing means handing over the responsibility of a few operations/services of your business to a third-party company located in a different time zone. In today’s world of globalization with IT industry witnessing swift advancements, it has become inevitable for enterprises to take help from offshore companies and make use of their skill set which they lack in their in-house team.

Offshoring Software Development is an efficient and cost-effective way to hire top-notch expert developers living in the other part of the world and utilize their expertise to build software solutions for your business. Some of the biggest enterprises like Apple, Ford, Cisco, etc are taking the offshoring route for their development projects because of the potential advantages of offshore software development.

However, associating with a third-party company, located in another country and relying on it with all your business data, processes and operations can’t be risk-free. Consider the following critical risk factors before making an outsourcing decision for your business.

Common Offshore Development Risks

Cost-effective benefits serve as the driving force for enterprises and make them opt outsourcing for their software development projects. However, not the entire cost of the project is evident at the time of the agreement and sometimes later during the development stage of the project, hidden costs surface.

Project’s cost usually comprises of explicit and implicit costs. Explicit costs incorporate labor costs, charges of hardware and software tools and the expenditures on the office environment. Explicit costs are quite obvious to both clients and vendors at the time of the agreement, but these are implicit costs which often give a shocking surprise to enterprises by surfacing in the midst of development. These include project management outlays, communication charges, the variable cost of dealing with outsourcing content and unforeseen changes in the project that demand immediate modifications.

These expenses are extremely difficult to estimate beforehand, therefore often by the end of the project the actual cost turns out to be much higher than the estimated cost. Therefore, most of the enterprises are now considering fixed rates to avoid extra charges.

Security and data privacy risks always remain one of the top concerns of enterprises working with an offshore company. This becomes even more critical when the client deals with personal data of consumers like their identity, contact information, email addresses, and credit card numbers because there are chances that the offshore company’s data or IP address may not be secured. And in case of a fallible security system, there are great chances of data loss, thefts, and leaks which may bring the downfall of the client.

Poor communication happens to be one of the key reasons behind failed outsourced projects. Seamless communication between client and developer is essential to meet the expectations attached to the outsourced project. But usually, the client ignores the fact that the vendor is sitting in another country, probably in another continent, where he may understand the English but English is not his native language and therefore he lacks proficiency in it. This language barrier and not considering the cultural and local contexts of the remote team hinder the communication between the client and vendor which eventually affect the final project.

Offshoring software development projects seem pretty lucrative to enterprises because of the low cost but this low cost brings the risks of poor work quality along. Despite all the claims and best intentions, there’s no guarantee that the vendor will deliver according to the client’s expectations. Most of the times inexperienced employees, poor communication, misunderstanding about the project and poor team management result in low-quality output.

When you are working with an offshore company, you can’t rule out the chances of misunderstanding because of the language and location barriers. Wrong decision about the right vendor and not explicitly communicating about the goal of the project result in the unnecessary delay of the project.

Client should overtly explain his company’s vision, processes, and preferences to the vendor. Moreover, he should provide a product requirement document to the vendor, so that, the service provider has a clear idea about the expectations the company has from him and his team. Moreover, it’s best to clarify the audience-centric requirements of the project, so that the developer will provide a user-friendly interface in light of the demands.

Clients who work with offshore companies often face the issue of poor management. Competency of the employees working in any company largely depends upon the company’s recruitment process and its management style, however, with an offshore company, the vendor is located in another country which makes it practically impossible to monitor and manage the employees. This lack of supervision, professional personnel, and poor management reflect in the compromised output.

Different countries have different rules of governance and laws about data protection and intellectual property and when two countries are involved in the client-vendor relationship, there is a possibility that laws and legal rules collide. With a growing trend of outsourcing key business processes, the legal issues pertaining to them are also on the rise.

No global legal rules have been devised about the outsourcing, therefore it’s essential for clients to discuss all the applicable laws and legal aspects of the outsourced project with their offshore service provider before finalizing the contract.

Organizational structure of the workplace varies with the region; for instance, in the US the organizational structure is straightforward and flat whereas different countries, especially Asian countries follow hierarchical social and organizational structure. This difference affects the functioning and thought the process of the employees; such as hierarchical workplace structure restricts the creativity, soft skills and independent thought of its employees. Though not all offshore service providers follow this regressive organizational structure, you can’t rule out the fact and its best to address the issue early on.

Mitigating Risks With Offshore Outsourcing

Though the risks attached with Offshoring Software Development might be deterring you from contacting a third-party service provider if done right, outsourcing software development will prove to be highly beneficial for your business; you will be able to reduce operational costs, utilize the external skills and scale your business up. Take a look at the recommendations that will guide you on how to mitigate risks with software outsourcing.

Even though outsourcing development projects are very much in demand due to its significant advantages but this doesn’t necessarily mean that you should follow the trend.

First determine what your business’s current requirements are; whether it’s optimization of core business processes, software product development, service quality improvement or cost reduction. Then evaluate your resources like, skills and expertise of the employees, budget, man-hours, in-house developers, hardware and software tools, etc and determine what you lack that is restricting you from implementing your ideas and fulfilling your business’s requirements.

Carefully calculate and gather your business’s metrics and then decide whether outsourcing will bring any value to your business or not. Moreover, timing to outsource projects is also very critical; in case of a startup or major restructuring of the business, outsourcing may not prove to be as much beneficial as it will look on paper.

Know your destination before embarking on the journey of outsourcing. If after thorough consideration, you have decided to outsource one of your business’s software development projects then first evaluate your in-house skills and outsource the rest of the aspects of the project to an offshore company.

Client should be clear about the long-term and short-term requirements of the project and then list out the requirements and expectations for the offshore service provider. A right vendor usually asks plenty of questions about the business, its goals, future software products, and scope of the project to better understand the nature of the project and devise the development methodology accordingly. Client should have a clear idea about all these, only then he’ll be able to provide essential information to the vendor. Vendor, on the other hand, will utilize this information to estimate the size, cost, time frame and methodology of the project.

Moreover, it’s always advised to keep the unique activities, strategic initiatives and core functions of the business to itself; never outsource them and take help of the in-house development team. It recommended to outsource non-core competencies of your business.

Choosing the right offshore vendor is not as simple as it looks. You can’t randomly pick any service provider because your entire project will be at stake. Carefully pick a vendor that has the ability to deliver high-quality service with minimum management and supervision. Ideal service provider is the one who has ample knowledge about your industry and whose skills meet the technical requirements of your business.

Start by shortlisting promising outsourcing development companies; once you’ve selected 5 companies, carry out a comparison between them. Compare their range of services, perks they offer, their expertise domains, their services models, and the cooperation approaches they follow.

After that keenly analyze their profiles, portfolio of their previously completed projects, client’s feedback on their profiles and clutch reviews. These all will give you an explicit idea about their skills and experience and you will be in a better position to decide which service provider will be best for your business project. Meetings with the representatives of these companies will further clarify about their skillset, ability to cater to your problem and their commitment towards their job.

Though cost reduction happens to be a key benefit of outsourcing, this shouldn’t be the main focus of clients who are looking for offshore service providers. Cheaper is not always better and most of the times, the vendors that offer cheap rates lack in the skill set which eventually reflects in the low-quality outcome and delayed projects. Companies should focus more on the intellectual capital than on the low-cost; vendors that charge you more usually have experienced and skilled developers in their team that are determined to deliver high-quality work within the given time frame.

Companies should devise a comprehensive written contract that explicitly contains all the necessary details about the project because the contract that’s void of a clear scope of work has disastrous outcomes. This is essential to avoid management, technical and communication issues in the future.

Formulate a comprehensive Statement of Work to which every team member agrees. Then link this statement of work with the contract. Don’t presume that your overseas partner is responsible for a certain part or aspect of the project, instead clearly state that in the contract.

Moreover, the contract should include clauses about the untimely exit from the project; whether it’s the vendor who wants to leave the project because of internal problems or its the client who wants to back out from the arrangement, there should be explicit articles containing details about who should bear the expenses of the canceled project in case of early exit.

Before you begin an outsourcing engagement with a remote team, keep your in-house team on board. Update them about all the structural and management changes your organization is going to adopt, provide them details about their extended team which will be in a different time zone and ensures that all employees understand and accept this shift.

Address the concerns of your in-house team members; clarify your motives behind adopting outsourcing strategy, its potential benefits and educate them on how to work with a remote team. Be supportive towards your in-house employees, because there are chances that they’ll show resistance towards this new form of engagement and through your cooperation, they’ll better acquaint themselves with the remote team. Educate them about the communication tools you’ll use in the development process, discuss collaborative software and project management tools with them and encourage them to be friendly towards their offshore team members.

Effective communication is the key to a successful outsourced project; for a productive client-vendor relationship, companies should keep on communicating and informing their service providers about the evolving goals and processes of their businesses.

Enterprises should start with establishing communication channels with their remote team; as a wide variety communication tools like messengers, audio calls, and video conferencing options are available, mutually decide about which channel you and your offshore team will use to communicate.

There is nothing like over-communication in this sort of client-vendor relationship; therefore discuss as much as you want. Plan daily and weekly meetings send bi-weekly emails, and regular one-on-ones to discuss updates of the project, ideas, and accomplishments. This is also essential to know about blockers and bottlenecks and devise strategies to deal with them. A follow-up email after every conference call is an effective way to run by again all the vital information discussed earlier.

Managing a remote team of developers is quite a challenging task and for this companies need to fully participate in the management process. Enterprises often hire managers who take the responsibility of managing the remote team, communicate with them and provide the necessary instructions and guidelines about the project. Effective management requires companies to stay informed about the progress of the project, provide feedback, and conduct regular meetings with the remote team. However, companies or their managers should steer clear of the micromanagement; they should listen to the ideas and suggestions of the service providers and acknowledge their expertise.

Data security is the key concern of the companies dealing with consumer’s data and when these companies work with offshore service providers, the risk of data breach become even higher. Therefore all such enterprises should sign a non-disclosure agreement and security protocols with the offshore team before finalizing the partnership. Learn about the security policies of the offshore company and ask about their security certifications; in case of doubt stay away from working with such team to avoid possible data infringements in the future.

In business relationships, things become more mechanical and clients often overlook the fact that developing personal relationships with the vendors (no matter what their geological location is) will motivate them to give their best. Personal relationships bring trust and respect in the business arrangement; this inspires and engages the remote development team and they’ll go an extra mile to deliver according to the expectations of the client.

Companies should follow open door policy in their workplace as this encourages employees and offshore teams to come forward and raise their concerns; this will bring clarity in their work and unnecessary misunderstandings and conflicts will be avoided.

To build a personal relationship with the offshore team members, you should understand a bit about their culture, communicate about their interests, personal lives, habits and share few details about yourself.

Wrapping up

Obstacles and difficulties always come in the way of all sort of business processes, so as they exist on the way to productive outsourcing. Potential risks associated with offshoring software development may be distressing, but if smartly managed, the benefits of outsourcing will surely exceed the risks. Understand the risks associated with offshoring and mitigate them with the help of the above-mentioned tips. Develop a productive client-vendor relationship with help of regular communication and a solid management strategy and reap the benefits of offshoring.

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