Outsourcing has repeatedly proven that it’s an excellent way of developing quality projects without spending an unreasonable amount of money and other company resources – human, physical, or intellectual.  

However, there are certain risks of outsourcing software development that come with the territory. So, let’s learn how to deal with threats to avoid distress, ruined projects, and damaged work relationships. 

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Why do businesses and tech companies outsource software development?  

IT outsourcing is a well-known and widespread practice of hiring a third-party vendor to handle a whole or a part of the development project otherwise managed by an in-house team.  

The most common reasons for outsourcing are as follows: 

  1. The lack of local and regular access to the needed talent and technological resources 
  2. The development of multiple new products on a tight deadline 
  3. Accelerated business processes 
  4. Cost-cutting 

Besides an obvious handful of risks of outsourcing IT that we’ll discuss next, there are a few advantages that come with it as well: 

  • The ability to shift the company’s focus to more pressing matters 
  • Access to a much wider variety of specialists 
  • Faster onboarding process 
  • No need to manage employee turnover on this particular project 
  • Scalability 

You might be interested in the engagement models used in IT outsourcing.

What risks can you come across while outsourcing?  

When done correctly, outsourcing can turn out to be a relatively trouble-free process. However, a poor choice of a vendor, a lack of effective communication and experience, failing to see a bigger picture, unreasonable requirements from both sides, or security breaches can notably jeopardize the result. 

Depending on vendors and their countries of origin, language and culture barriers can occur and set back the development process, disrupting the communication flow, causing problems with remote work management. 

Nearly all of these potential risks and situations can be promptly dealt with – either with minimal damage or, in some cases, avoided altogether with careful planning. Below we’ll go through multiple accessible ways you can manage them, with tips and explanations.  

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Top risks of outsourcing IT services and solutions to them  

Our team has managed to single out the eight most frequently occurring outsourcing risks and provide practical solutions to them. 

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Risk 1. Uncontrolled project execution 

The first risk on our list is simultaneously the most frequently occurring one as well. No business owner likes to lose control, especially on their project. However, the very definition of outsourcing is to hand it over to the other company. Sometimes, the project gets accidentally let loose or excessively overmanaged, and it’s hard to find a balance. 

Solution: Keeping the project under control  

Before embarking on a journey to find the right service provider, take your time to plan out which responsibilities you’ll be handing over to them and how hands-on you will be during the project. Develop a roughed-out plan first, and be sure to point out which processes and results you expect. 

Then, after you’ve chosen a vendor, it’s time to make that plan more detailed. Review and preferably put into writing the expected deadlines for each part of the project (a professional vendor will provide you with a Work Breakdown Structure, a document where the project is divided into smaller parts). Try to avoid having any turning points that were not previously discussed.  

It’s also essential to agree on how the vendor will keep you in the loop — frequent meetings, complete reports, quick email updates, etc. Finally, keep track of the KPI’s and relevant metrics to add a more grounded approach to your supervision style. 

Risk 2. Contract misalignment and disagreements 

There can also be a possibility of exaggerated or unreasonable expectations if both sides of the team fail to discuss every task beforehand. It may lead to overly critical feedback and ruin the relationship because the service provider should’ve taken care of something not clearly specified in the contract. 

Solution: Addressing every interpretation of tasks and processes 

At times, disagreements over some contractual terms or features can happen because not all team members are brought up to speed on all the details, especially when there are many employees and variables involved. Try to include both decision-makers and relevant staff in the negotiation process before the contract is signed. 

The task interpretations can also vary — that’s why it’s better to encourage the team members to speak up on every matter that appears vague or overcomplicated. Still, there’s no 100% guarantee that problems won’t arise, so it’s better to have at least one representative from each team designated to deal with such issues. 

Another suggestion is to manage your process or timeline expectations – that way, you can stop potential conflicts and misunderstandings before they even start to surface. For example, management can have their idea of how long a project may take to finish, which may not coincide with the developers’ estimated timeline. 

Risk 3. Hidden costs 

Among the dangers of outsourcing, this sneaky mood ruiner called hidden costs sometimes fails to be considered on the planning stage. Such unforeseen circumstances can come from unexpected troubleshooting, unplanned software or project upgrades, extra services, or some other expenses that weren’t previously mentioned. 

Solution: Accurate service estimation, backed and followed by SLA 

Try to make the overall service estimation as all-in as possible. Perhaps consider turning to a professional analyst or a QA with relevant experience if you don’t have the amount of tech-savviness required for this specific project. The outside expert may better see the bigger picture and include some usual expenses that you might’ve missed.  

Take a closer look at all the estimates your future partner provides and which type of contract they prefer. It can be a Fixed Price (per feature or iteration), Time and Materials contract, or a Flexible Scope framework. You can even check the amount of overtime the outsourcing team has clocked in by using a special time tracking software.  

Another useful thing to consider is signing a Service Level Agreement and making sure you know beforehand about all the hosting costs, both scheduled and unscheduled team visits, acquiring extra pieces of essential equipment, fees, etc. 

risks of outsourcing IT

Risk 4. Wrong choice of vendor 

With delegating your project to a third party, there’s always a risk of running into an unscrupulous vendor. As a result, you may end up with a subpar quality product, failed deadlines, lost customers or jobs, and even security violations. Whether it’s because a vendor did some extra embellishment with self-presentation or you under-vetted your candidates, here’s how to avoid it.  

Solution: Background check and thorough research 

It’s crucial to get a full scope of the outsourcing company’s background, expertise, and all selection of projects. First, go through their portfolio on their website. You may even contact some of the previous clients and ask for more detailed feedback beyond what you can read in a short review.  

Except, don’t end just there. If you have some doubts left, ask around in the outsourcing community and review platforms for references, plus always demand proof of how they communicate, treat less experienced clients, deal with competition, etc. 

Aside from current and previous clients, check for partners as well. If they have any, make sure they are also experienced and have a decent reputation. But, of course, you don’t only judge someone by their own name and reputation — their choice of friends and partners can also be quite telling. 

One of the most dangerous IT outsourcing risks is a significant breach of security, leading to the loss of sensitive data and subsequent cyberattacks. Intellectual Property is considered one of the most prized possessions of almost every company. Among other crucial data are both your employees’ and your clients’ private and financial information. 

Solution: Making sure they follow policies and regulations 

Depending on the industry, there are multiple standards and regulations ensuring data protection. For example, ISO/IEC 27001 provides valuable requirements on how companies should handle their information security. Other useful standards are NIST SP 800-53, HIPAA, GLBA, Sarbanes-Oxley, etc. Choose a vendor that is extra diligent about following the needed regulations and goes above and beyond to ensure their clients are protected.  

But policies and standards are not the only way to protect your data and assets. Non-disclosure agreements are also a great way to legally ensure you won’t end up with stolen information, data leaks, or other types of cybercrimes. Pay attention to how a potential vendor reacts to you offering them to sign an NDA – if they don’t have malevolent intentions or have nothing to hide, they won’t oppose that. 

Risk 6. Poor communication 

Not enough time and effort to establish and adopt effective communication and knowledge transfer can significantly undermine the project’s success. In addition, lacking structure, not sharing essential information, and having gaps between important parts of the process leads to both sides’ team members pulling the project in opposite directions. 

Solution: Making your approach more structured 

Adding structure to your communication process helps see the entire process, and everyone’s part in it more clearly. Start by incorporating a particular hierarchy even if your company is not used to it. Then, add various levels of communication that involve particular groups of people working on the same issues. 

Make sure that every detail is discussed throughout the entire development process. Have scheduled progress reviews, frequent sessions, and multi-formatted meetings to determine the problems as soon as they appear to avoid dragging them on. 

Another way of preventing miscommunication problems in the future is to ensure your outsourcing vendor has all information from the start. They have to have a full picture of your needs and demands to work with them properly. So, provide full documentation, including internal guides, strategies, and databases, show around your work process, and have comprehensive discussions with all team members. 

Risk 7. Mismanaging remote teams 

Another type of management and communication issue among the common risks of outsourcing, especially today, is mishandling remote teams. The location has never been such a non-issue in terms of reaching out and working, although it brings other problems – how to effectively control and steer remote workers.  

Solution: Constant check-ins and feedback 

First, be aware of the time zones. It may not be much relevant if you have a couple of countries between you on a map. Still, the difference is much more significant if you’re, for example, from a European country, and your vendor is located in the USA or Asia.  

To remedy that, plan the overlapping hours during which all team members will be easily reachable via email, call, or video chat, and plan your next online gathering. Use that time to deal with as many pressing issues as possible. 

Another problem with remote teams is the lack of timely feedback. Frequent check-ins and regular praise if everything is going right can distinctly boost the team’s morale and help you feel abreast with every decision and change they are making.  

Make sure you choose a vendor that has a significant amount of remote work experience. That way, they may already know the common pitfalls and how to avoid them. 

Risk 8. Language and culture barriers 

Outsourcing opened a whole new market of specialists. There’s no problem now to search internationally and have a quality service provider from an opposite part of the globe. But with this unavoidably come cultural and language-related difficulties that disrupt the most important thing in partnership — communication. 

Solution: Study the differences and set your standards 

First, you need to become well acquainted with local laws and regulations that can influence contracts and foreign relations. Cultural differences are not an issue to be dreading either. Of course, different countries have different work styles and their boundaries may vary from yours, however, there’s nothing thorough research and mutual agreements can’t fix. 

And set your standards when it comes to English language proficiency, especially if it’s a second or a third language for you both. It can affect how well they understand your requirements and assure they won’t go off track due to a simple misunderstanding.  

To find out the team’s language proficiency, don’t rely too much on their descriptions of themselves – insist on audio or video calls to see for yourself. If they refuse and are pretty adamant about written communication only, it may indicate many issues. 

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Bottom line 

With careful planning and thought-out management, it’s entirely possible to mitigate pretty much all the risks of outsourcing IT services we’ve mentioned above. First, make sure you invest your time into proper research – this way, you can avoid half of the issues that stem from a lack of knowledge. And last but not least – be transparent and demand the same from your vendor.