Outsourcing software development has witnessed a surge in popularity, offering organizations a strategic advantage by tapping into global talent pools. According to Precedence Research, the global IT outsourcing market is expected to grow to $1.149 billion by 2032. Outsourcing provides various benefits, including lower recruiting and onboarding costs, increased delivery speed, and filled talent gaps. It’s no wonder why the strategy is so popular.
However, navigating the outsourcing landscape isn’t always easy and requires a keen awareness of the potential risks. In this blog, we'll discuss five critical risks of this widely adopted strategy and provide tactics to reduce risk in delivered software.
Risk 1: Quality Assurance Concerns
Ensuring the quality of software is a constant concern, especially across different work environments, methodologies, and coding styles. Developers make mistakes, whether they’re in-house or externally sourced. It is estimated that software developers make 100 to 150 errors for every thousand lines of code. And when working with an outsourced team, controlling the quality of the code produced becomes even more difficult because they’re writing the code outside of the four theoretical walls of your organization. If the code is poor quality, it can lead to costly issues in production, increased technical debt, missed deadlines, and poorly performing software, among other impacts.
Risk 2: Data Security and Confidentiality
Data security and confidentiality are top priorities; if left unchecked, they can have costly consequences. In fact, a report by IBM states that the average cost of a data breach is estimated to be $4.24 million. So, entrusting an outsourced team with your code and sensitive information can be scary because it opens a door to potential vulnerabilities.
The nature of sharing proprietary code and confidential data with outsourced teams introduces challenges centered around protecting critical assets. Intellectual property, trade secrets, and any confidential practices that provide a competitive edge are at the forefront of these concerns. Additionally, mishandling or unauthorized access to user information can lead to legal ramifications and reputational damage. The potential vulnerabilities may arise from various sources, such as inadequate security protocols within the outsourced team, unintentional data leaks, or even malicious activities.
Risk 3: Communication Challenges
Clear communication is paramount in software development, and outsourcing introduces unique challenges. The geographical and cultural distance can lead to a lack of shared context and understanding. Differences in languages and work practices can cause misinterpretations of requirements, expectations, or even project milestones. Plus, teams located in varying time zones can amplify misunderstandings. This asynchronous nature of work makes real-time collaboration difficult and can slow down communication, hinder issue resolution, and impact overall project efficiency.
Risk 4: Lack of Control and Oversight
Managing a project without the day-to-day oversight inherent to in-house employees is a uniquely difficult challenge when using outsourced teams. The absence of immediate control introduces uncertainty, especially in critical areas such as meeting deadlines, ensuring quality, and adhering to project requirements. Without the ability to oversee every aspect in real time, there's a risk of misalignment between expectations and actual progress. Deadlines are missed, quality assurance feels distant, and there's always the concern of veering off the agreed-upon path.
Risk 5: Hidden Costs and Budget Overruns
Unexpected costs can jeopardize project budgets and timelines. According to a report by Deloitte, 57% of organizations have experienced cost overruns in their outsourcing projects. The challenge lies in the potential for unforeseen costs that can exceed the budget. These hidden costs can manifest in various forms – from unexpected software license fees to additional development hours required for unanticipated issues and complexities. The risk of budget overruns becomes an ever-present burden that can jeopardize the financial stability of your project.
Achieve success while avoiding the risks
Outsourcing software development offers unparalleled advantages, but success hinges on proactive risk management. By addressing communication challenges, ensuring quality assurance, prioritizing data security, maintaining control and oversight, and transparently managing budgets, organizations can forge successful and collaborative partnerships that help sustain the performance of their software.
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