Offshoring Software Development Risks & How to Avoid Them

Offshoring or offshore outsourcing is the process of assigning some of your company’s operations and services to a third-party organization that is situated in a foreign time zone. It is now unavoidable for businesses to seek assistance from offshore firms and utilize their skill set, which they lack in their own workforce, given the rapid improvements in the IT sector in today’s globalized world.

Hiring highly skilled developers who reside in another country and using their knowledge to create software solutions for your company is possible and affordable with offshoring software development. Due of the potential benefits of offshore software development, several of the largest companies, like Apple, Ford, Cisco, and others, are choosing to outsource their development projects.

However, it cannot be risk-free to partner with a foreign firm and rely on it for all of your business operations, data, and procedures. Take into account the following important risk concerns before deciding to outsource your company.

Common Offshore Development Risks

• Hidden Cost Risks

The primary motivator for businesses to choose outsourcing for their bespoke software development projects is the cost-effective advantages. But occasionally, hidden expenses come to light later in the project’s development stage, and not all of the project’s expenditures are visible at the time of the agreement.

The cost of the project often includes both explicit and implicit expenses. Labor costs, the price of gear and software, and office space expenses are all considered explicit costs. While explicit costs are readily apparent to both customers and vendors at the time of the agreement, these are implicit expenses that frequently surprise businesses by coming to light during development. Project management expenses, communication fees, the variable cost of handling content outsourcing, and unanticipated project changes that necessitate last-minute adjustments are a few examples.

These costs are very hard to predict in advance, therefore by the time the project is finished, the real cost is frequently far greater than the projected cost. Because of this, the majority of businesses are now thinking about set rates in order to prevent additional fees.

• Security and Data Privacy Risks

When collaborating with an offshore firm, businesses’ top worries are usually security and data privacy threats. When the client handles customer personal information such as identification, contact details, email addresses, and credit card numbers, this becomes even more crucial because there is a possibility that the offshore company’s data or IP address may not be safe. Additionally, a weak security system increases the likelihood of data loss, theft, and leaks, all of which might lead to the client’s demise.

• Communication Risks

Ineffective communication is one of the main causes of unsuccessful outsourced initiatives. For the outsourced project to live up to the expectations, the client and developer must communicate seamlessly. Typically, however, the customer fails to see that the vendor is sitting in a foreign nation, most likely on a different continent, and while he may comprehend English, it is not his first language, thus he is not proficient in it. The final project is impacted by the communication breakdown between the customer and vendor caused by the language barrier and the failure to take into account the cultural and local circumstances of the remote workforce.

• Performance Risks

Businesses find offshoring software development projects to be rather profitable due to the low cost, however there is a danger of poor results. There is no assurance that the seller will meet the client’s expectations despite all the assurances and good intentions. Low-quality production is typically the consequence of unskilled staff, inadequate team management, poor communication, and misunderstandings about the project.

• Misunderstanding

Language and geographical restrictions make it impossible to completely rule out the possibility of misunderstandings while working with an offshore firm. The project is needlessly delayed as a result of choosing the incorrect vendor and failing to clearly communicate the project’s objective.

The client should openly communicate to the vendor his company’s goals, procedures, and preferences. Additionally, he must to give the vendor a paper outlining the product requirements so that the service provider is aware of what the organization expects from him and his staff. Furthermore, it’s important to make clear the project’s audience-centric criteria so that the developer may create an interface that is easy to use in response to the needs.

• Poor Management

When working with offshore enterprises, clients frequently deal with poor leadership. Any company’s hiring and management practices have a significant impact on the competency of its workforce; however, an offshore company’s vendor is situated abroad, making it nearly difficult to oversee and manage the workforce. The weakened output is a result of inadequate management, oversight, and professional staff.

• Government Regulation Risks

When two nations are involved in a client-vendor relationship, there is a chance that the laws and regulations will conflict since various nations have different governance and data protection and intellectual property laws. Key corporate activities are increasingly being outsourced, and this is leading to an increase in the legal concerns surrounding them.

There are no international legal regulations pertaining to outsourcing, thus before signing a contract, customers should consult their offshore service provider about all relevant legislation and the legal implications of the project they are outsourcing.

• Organizational Structure Risks

Regions have distinct organizational structures. For example, the US has a flat, simple organizational structure, whereas other nations, particularly Asian nations, have hierarchical social and organizational structures. The way that people operate and think is affected by these differences. For example, a hierarchical workplace structure limits employees’ creativity, soft skills, and ability to think independently. Even though not all offshore service providers have this regressive organizational structure, it’s preferable to address the problem as soon as possible.

Mitigating Risks With Offshore Outsourcing

If done correctly, outsourcing software development can be very advantageous for your company; you can lower operating costs, leverage outside expertise, and grow your business. However, the risks involved may be discouraging you from reaching out to a third-party service provider. Examine the suggestions that may help you reduce the risks associated with software outsourcing.

• Decide Whether You Need To Outsource or Not

Despite the fact that outsourcing development projects is quite popular owing to its many benefits, you shouldn’t necessarily follow the trend.

First, identify what your company’s present needs are, including cost reduction, software product creation, service quality enhancement, and fundamental business process optimization. Next, assess your resources, including staff skills and experience, money, man-hours, in-house developers, hardware and software tools, etc., and identify any gaps that are preventing you from putting your ideas into practice and meeting the needs of your company.

After carefully calculating and compiling your company’s stats, determine whether outsourcing will benefit your company in any way. Furthermore, time is crucial when it comes to outsourcing initiatives; if the company is just starting out or is undergoing a significant reorganization, outsourcing might not be as advantageous as it appears on paper.

• Establish Your Outsourcing Scope and Goals

Before you start your outsourcing journey, know where you want to end up. If after careful contemplation, you have chosen to outsource out a software development project for your organization, assess your internal capabilities first and then contract out the remaining project components to an offshore firm.

The client should clearly define the project’s long-term and short-term needs before outlining the demands and expectations for the offshore service provider. A good vendor would often ask a lot of questions about the company, its objectives, upcoming software products, and the project’s scope in order to better grasp the project’s nature and adjust the development technique. The client must have a thorough understanding of each of them before he can give the vendor the necessary information. Conversely, the vendor will use this data to predict the project’s size, cost, schedule, and approach.

Furthermore, it’s always advisable to retain the company’s core operations, strategic initiatives, and distinctive activities in-house; never outsource these or enlist the aid of an internal development team. Outsourcing your company’s non-core talents is advised.

• Smartly Pick The IT Outsourcing Vendor

Selecting the best offshore provider is more difficult than it may seem. Since the success of your entire project will depend on it, you cannot choose any service provider at random. Choose a provider carefully so that they can provide excellent service with less oversight or control. The ideal service provider is one who understands your sector well and whose abilities match the technological needs of your company.

Begin by compiling a shortlist of potential outsourced development firms. After you’ve chosen five firms, compare them. Examine their offerings, benefits, areas of expertise, service models, and methods for collaboration for comparison.

Examine their profiles, portfolio of prior work, customer comments on their profiles, and clutch reviews with a critical eye. All of these can help you make a more informed decision about which service provider is suitable for your business project by giving you a clear picture of their qualifications and expertise. Speaking with the representatives of these businesses will provide further insight into their skill set, capacity to address your issue, and dedication to their work.

• Focus On Value Over Cost

Although cutting costs is one of the primary advantages of outsourcing, consumers searching for offshore service providers shouldn’t prioritize this. Cheaper does not necessarily mean better, and most of the time, low-cost vendors lack the necessary skills, which leads to poor work and delayed projects. Businesses should prioritize intellectual capital over cheap cost; suppliers who charge more typically have highly qualified and experienced developers on staff who are committed to completing high-quality work on schedule.

• Frame A Comprehensive Written Contract

Businesses should draft a thorough written contract that specifically includes all the information required for the project, since contracts lacking a defined scope of work can have fatal results. To prevent future managerial, technological, and communication problems, this is crucial.

Create a thorough Statement of Work that all members of the team can agree on. Next, attach this work statement to the contract. Don’t assume that your foreign partner is in charge of a particular project component; instead, make it clear in the contract.

Furthermore, the contract should contain provisions regarding the untimely termination of the project; whether the client or the vendor wishes to terminate the agreement due to internal issues, there should be clear articles outlining who is responsible for paying for the project’s costs in the event of an early termination.

• Keep Your In-House Team On-Board

Keep your internal team on board before starting an outsourcing project with a distant team. Inform them of all the managerial and structural changes your company will be doing, provide them information about their extended team that will be working in a different time zone, and make sure that every employee is aware of and comfortable with the change.

Talk to your internal team members about their worries; explain why you are implementing an outsourcing approach, its possible advantages, and how they may collaborate with a distant team. Be encouraging to your internal staff because they may be resistant to this new way of working, and with your help, they will get more familiar with the remote team. Talk to them about project management and collaboration software, teach them about the communication tools you’ll use during the development process, and urge them to be cordial with their offshore team members.
In order to avoid tragic consequences, companies should create a detailed written contract that includes all the information required for the project. To prevent future communication, technological, and managerial problems, this is crucial.

• Establish Strong Communication with Your Remote Development Team

Effective communication is essential to a successful outsourced project; in order to maintain a positive client-vendor relationship, businesses should continue to communicate with and update their service providers on the changing objectives and operational procedures of their firms.

Since there are many different communication technologies accessible, such as voice calls, video conferencing, and messengers, businesses should begin by setting up channels of contact with their remote workforce. Then, determine together which channel you and your offshore team will use for communication.

In this type of client-vendor relationship, there is no such thing as over-communication, so talk as much as you like. Arrange meetings for each day and each week. Send out emails every two weeks and schedule frequent one-on-one meetings to go over project updates, concepts, and achievements. Understanding bottlenecks and obstacles and coming up with solutions are also crucial. Following each conference call, sending a follow-up email is a good method to review all of the important details that were previously covered.

• Focus On The Management Processes

Companies must be actively involved in the management process since it might be difficult to oversee a distant team of developers. Managers are frequently employed by businesses to oversee remote teams, interact with them, and provide them the project’s instructions and guidelines. For effective management, businesses must regularly meet with the remote workforce, give comments, and keep track of the project’s development. But businesses or their managers should avoid micromanagement; instead, they should listen to the service providers’ thoughts and proposals and respect their competence.

• Pay Attention To The Security

Companies that handle customer data are particularly concerned about data security, and the danger of a data breach increases when they collaborate with offshore service providers. Therefore, before completing the relationship, all such businesses should sign a non-disclosure agreement and security standards with the offshore team. To prevent future data breaches, find out about the offshore company’s security procedures and inquire about their security certifications. If in doubt, avoid dealing with such a team.

• Build Relationships, Not Just Software

Things get more mechanical in commercial interactions, and customers sometimes forget that building an honest connection with the vendors—regardless of their geographic location—will inspire them to perform at their highest level. Personal connections instill trust and respect in the business arrangement, which motivates and engages the remote development team and makes them go above and beyond to meet the client’s expectations.

Businesses should have an open door policy since it encourages workers and offshore teams to voice their issues. This will help them operate more clearly and prevent needless misunderstandings and confrontations.

Understanding the offshore team members’ cultures, talking about their hobbies, personal life, and habits, as well as sharing a few personal information about yourself, can help you develop a personal relationship with them.

Wrapping up

Every type of business process has challenges and obstacles, and the same is true for successful outsourcing. Offshoring software development has certain potentially upsetting dangers, but if handled carefully, the advantages of outsourcing will undoubtedly outweigh the drawbacks. Use the aforementioned advice to assist you understand and reduce the risks that come with outsourcing. Take advantage of offshore and build a successful client-vendor relationship with consistent communication and a sound management plan.