How to Mitigate Software Development Outsourcing Risks?

In today's fast-paced world, where software development is a staple in any thriving business, building your dedicated team of engineers is not only complex but, at times, not even required. Outsourcing can be your golden ticket, an efficient solution that leverages global talent.

With this in mind, we're thrilled to unveil a comprehensive series of articles dedicated to the art and science of software development outsourcing. This series is specifically designed to guide you in nurturing potent partnerships and mitigating potential risks tied to outsourcing. Each article in the series presents a unique perspective and provides actionable insights.

You're currently reading the first installment of our series, which delves into the exciting world of outsourcing risks and their mitigations. This article emphasizes the critical aspects of successful outsourcing relationships: due diligence, clear requirement definition, effective communication, strategic KPIs, rigorous quality assurance, and efficient dispute resolution.

Hold onto your seats as our next piece, "Strategic Partnerships as a Method for Successful IT Outsourcing" is just around the corner!

This article will explore the rewarding journey of building strategic partnerships in software development outsourcing, unveiling its many advantages and practical steps.

Last but certainly not least, our third article, "Scaling Tech Teams with Outsourcing", is set to take you on a deep dive into the intricacies of the outsourcing process. This piece aims to empower you with a keen understanding of common pitfalls in outsourcing and best practices for effectively scaling your tech teams. Featuring sections on the "Most Common Mistakes" and "Best Practices in Scaling Tech Teams with Outsourcing," this article will equip you with valuable insights to navigate the outsourcing landscape smoothly.

While our first two articles set the stage with a broad overview of outsourcing, the third article zooms in on the outsourcing process itself. It goes beyond the basics, offering practical advice and tried-and-tested strategies for businesses keen on reaping the benefits of tech outsourcing.

Stay tuned for this exciting series to enlighten, engage, and empower you in your outsourcing endeavors. Let's embark on this exciting journey together!

The Risks of software development outsourcing

• Quality issues and lack of control

One common concern is the perceived inability to continually monitor and validate the work being done by external vendors. While this apprehension is often more rooted in fear than fact, it can fuel a sense of losing control over the product in development.

In reality, you as a client are typically able to review and verify the team's work, and it's not unusual for someone from your side to be involved in the development process handled by an external team. Despite this, the fear of limited transparency and a reduced insight into the process persists.

This apprehension of losing control can have significant repercussions on the decision-making process and, in the worst-case scenarios, can pose a threat to the business. Quality not only influences the usability, performance, and security of the software but also shapes client-vendor relationships. Therefore, addressing these fears and ensuring a transparent workflow is integral to fostering trust and maintaining control over the quality of the output.

• Communication challenges

As we know from previous articles, communication is essential to successful cooperation. And in the case of software outsourcing, it can be challenging because of different time zones and cultural and language differences. All those things can lead to misunderstandings, delays, and errors in the product.

• Cost overruns

On the one hand, outsourcing is an excellent way of reducing the overall cost, but that only applies to doing good cooperation. In other cases (especially if communication is lacking), the costs can exceed the expected value.

• Intellectual property issues

Outsourcing software development can expose companies to intellectual property (IP) risks, including the loss of confidential data or the theft of proprietary technology.

• Compliance risks

This usually applies to larger clients (typically corporate). When dealing with external vendors, you often work with a contractor that operates in a different country, which can lead to compliance risks like data privacy protection, employment laws, or even tax laws.

• Cultural differences

The last one to mention is the cultural differences. If uncontrolled, they can lead to conflicts, misunderstandings, and other challenges, which may be difficult to diffuse when they go too far.

How to mitigate the risks of software development outsourcing

Now that we have covered the basic risks, let’s look at the best ways to mitigate them.

• Proper due diligence

When choosing a partner, many things mentioned above can be mitigated at the earliest stage possible. We’ve already written a very good piece on How to Find the Leading Software Outsourcing Company?, so I’ll just mention it (not to prolong this article too much).

The primary things to do is check the reputation (references), portfolio, and (if needed, especially for corporate clients) certifications. Another thing that should be done, but very often it’s omitted, is checking the legal status of the vendor, their credit score, and if they can comply with laws and regulations in your country.

• Defining your requirements right

This is extremely important. I’ve seen many cooperation go wrong mainly because the expectation and requirements were not described or sometimes not even fully understood. So the first order of business when talking with the selected vendor is you have to define the scope, features, quality standards that need to be followed, expected timeline, and communication rules. Writing those things down as an annex to the contract is a perfect idea.

A wise man once said that the contract is not for the good times. It’s for the bad times. We wish you the best of luck, but it’s always safer to have those basic rules written down. What’s important here is that the vendor should understand and agree upon all those rules (ideally, they should also propose their rules, deriving from their experience).

• Effective communication

I cannot stress this enough - proper communication is the key. So from day zero, you should feel that your vendor also understands it. This will help to agree upon ground rules like communication channels, accountability, and responsibility, setting up recurring status updates, progress, budget reports, and feedback/planning sessions. All those tricks will help you maintain good knowledge about what’s happening within your project and be able to react quickly to any problems that arise.

• Metrics and KPIs

This is a great addition to communication and requirements analysis. You should establish KPIs regarding quality, progress, and overall process effectiveness. Setting those beforehand and later on discussing them in status meetings and (what’s also essential) adjusting them to the phases of the projects and business requirements is significantly lowering most of the risks that can arise. It’s also a great way to spot problems as they appear or, in some cases, even before.

• Quality assurance

Ensuring that some quality assurance processes are in place is the key to controlling quality. I mean things like code reviews, testing scenarios, and validation mechanisms. This will guarantee that the software meets the required standards. It also helps to establish bug-related processes to ensure they are not forgotten and taken care of properly - this plays a significant role at later stages when the product is either in the beta test phase or production.

• Dispute resolution

Writing down a good contract is very wise, but discussing the dispute resolution process before any problems arise is even better. This helps to diffuse any negative emotions that may appear whenever something bad happens - and we all know that negative emotions are the first step to blowing cooperation. It also helps to gain precious time when problems need to be solved.

• Long-time partnership

The last thing I want to mention is building and maintaining a long-time partnership. It makes a difference when your vendor becomes your valued partner rather than a hired workforce.

This allows him to think about your product like his own and propose proactive solutions and enhancements. It also can result in him guarding the quality of the process more than you because he feels obliged to it as your partner. In this way, the success of your product is the common success that is something that all good vendors out there strive for (like us).

Summary

As you can see, working with an external software development company brings many risks and a lot of value. Luckily there are many ways to minimize those risks and gain only the benefits from such cooperation. And trust me - if your vendor is chosen correctly, they will cherish that you think about all those risks because this guarantees good collaboration.

At Sunscrapers, we’ve learned through numerous partnerships that cooperation can benefit both sides if set up correctly. So if you have any questions on this topic and want to understand how our collaboration can help you to run a successful business, do not hesitate to ask.

Contact us!