Understanding the Risks of Outsourced Development and How to Avoid Them

Outsourcing isn't anything new, but the practice is becoming more popular as software companies try to reduce costs and tap into a global talent pool. External sourcing also enables these companies to improve output and scale services up or down without hiring or training additional staff. 

However, as beneficial as outsourcing might be, it’s not without problems.

Any business looking to outsource tasks or operations must understand its risks and proactively mitigate them. Let’s discuss the top six common risks companies face when outsourcing software development projects and how to address them.

When Should You Outsource?

Taking software development work outside your in-house team can be a strategic move if done for the right reasons. Here are some ideas to help you determine when to consider outsourcing:

1. Can you choose not to do it at all? Business founders often fall into the trap of trying to handle everything by themselves, including the tasks outside their core expertise. If you find yourself in this position, a better approach would be to focus on the core aspects of your business and outsource the ancillary task to a specialist who can help you.

2. Is what you’re building part of your core value proposition? If the product or system is central to your business's unique value proposition and is outside your core expertise (or your hands are full), then it makes sense that you hire full-time engineers to work on it internally. Anything outside of that can be outsourced. 

3. Even work that starts off non-core can become critical. What starts as an inconsequential task can become important over time. If you notice that a non-essential task is becoming more crucial for your business or customer experience, consider hiring someone in-house to keep the quality consistent and give you more control.

4. Can you buy software off-the-shelf and customize it instead? Before deciding to outsource a software project, it’s worth checking if there's already software that can meet your needs. Purchasing and customizing ready-made software can be easier and more cost-effective than outsourcing, particularly if the work involves repetitive tasks and doesn’t require much innovation. This approach gives you more control over the system, security, and long-term maintenance.

Whether to outsource ultimately depends on the importance of the product or service in your business. If it isn’t a central part of your business, you are probably better off outsourcing it. 

Managing The Top 6 Risks Of Outsourcing

Any company looking to outsource software development should know the common risks and proactively take measures to mitigate them. Here are the six pitfalls associated with outsourcing:

Quality Assurance Concerns

Poor performance tops the list of issues companies deal with as a result of outsourcing. Developers make mistakes, whether they’re in-house or externally sourced. However, the risk of getting a poor end product is higher with a new vendor because the vetting process for external workers is typically less strict than for full-time employees.

Trying to cut costs or save development time could backfire if you have to start over with a new company. To avoid poor quality service and software from your vendor, it's important to do due diligence upfront. Here are some steps you can take:

• When using externals, be as involved in the hiring process as if you were hiring FTEs. Otherwise, you will get whatever the outsourcer feels like giving you. This is particularly true if the outsourcer has to go to market to fill the vacancy.
  
  
• Ask the outsourcing company for examples of its past work. Find out who it has worked with and what kind of jobs it has done.
  
  
• While you should always inspect your code to ensure it meets quality and security standards, it’s imperative when you’re using a third party. Static analysis isn’t a silver bullet, but it is simple to contractually require compliance with your code quality and security standards and, therefore, ensure a minimum level of care is being taken.
  
  
• The externals should be held to the same level of account as the FTEs, so embedding a tool like Codacy throughout your entire organization will ensure a high level of ongoing quality compliance.

Communication Issues

Software is often the result of many people’s contributions, including developers. These individuals work together and communicate with other stakeholders to share ideas and receive feedback during development. Now imagine the outcome if there were no smooth communication within the team.

A 2023 study found that over 70% of businesses think communication is one of the main challenges in outsourcing. Some communication problems are expected when working with teams in different locations, but the real issue is often deeper. Differences in national cultures, company cultures, and language barriers can also be factors.

Here are some steps you can take to improve in-team communication:

• Use project management tools to streamline communication and put internal and outsourced teams on the same page.
  
  
• Clearly define the roles and responsibilities of each team member and communicate expectations along with periodic feedback on how each member is performing.
  
  
• Ensure that the outsourced team members have a strong command of English; you can assign written tests or use face-to-face or video calls (as a lot of communication can be nonverbal).
  
  
• Make sure everyone agrees on working hours across different time zones. A big time zone difference can affect teamwork.

Lack Of Control And Oversight

Central oversight is needed in development teams to ensure quality software is delivered on schedule. In-house teams often have this management naturally, but leaders need to make an extra effort to provide it for outsourced teams. Otherwise, they risk the kind of misalignment that can completely derail the project.

There’s also the issue of access to critical information. Having a third party build a complete subsystem or product is high risk. You can’t inspect the quality of the solution at any reasonable point, and the system knowledge will sit with the contractors. 

Here are some solutions worth considering:

• Core products and software should be handled in-house, under your direct supervision.
  
  
• If you can’t do it yourself, hire someone in-house to oversee the work of third-party contractors and demand periodic feedback on their work process and overall project progress.
  
  
• Make sure there is open communication between everyone involved. You will need to give up some control, but the risk is lower when the team feels comfortable sharing concerns or problems with you early.

Unexpected Costs

One of the main reasons companies outsource is to cut down costs. Outsourcing is advisable if you have a well-established team and the business needs cost flexibility. Consider staff augmentation to enlarge your existing teams with an external headcount. This maximizes the retention of knowledge in-house when the externals exit.

However, it’s important to ensure that the money saved upfront doesn’t cause problems later. Low cost can sometimes mean low quality or hidden costs. Try to avoid both.

• Be sure to clarify quality standards, on-site visits, and overtime from the beginning. If not, the vendor will waste time asking for clarification during the project, which can be costly.
  
  
• Create a detailed budget that accounts for potential contingencies.
  
  
• Decide on the external contractor’s operating model. A time and materials arrangement usually has a lower daily rate, but a fixed price model gives more incentive to deliver on time, adding predictability.

Data Security And Confidentiality 

Before engaging with third-party vendors, consider the implications and take measures to secure your IT system. Consider the damage that could be done if your data security or intellectual property (IP) rights are compromised. Make sure your security standards and expectations are clearly expressed to avoid ambiguity.

Some ideas:

• Implement strong access controls in your project management environment to keep sensitive information safe and prevent employees from accessing what they aren’t supposed to.
   
• Carefully research potential outsourcing partners. Check their reputation, history with data security, and customer reviews to determine their credibility.
  
  
• Cultivate security awareness in and outside the organization.
  

Lack Of Experience With Remote Teams

Nowadays, many businesses are fully remote, and some others are considering it. Going remote allows companies to tap into a larger talent pool and gives employees the freedom to work where and how they are most productive.

It’s a win-win situation, right? Well, remote work can carry risks if your team doesn’t have experience with that arrangement. There can certainly be a learning curve when working with a remote team for the first time.

Some steps you can take: 

• Again, make sure everyone agrees on working hours across different time zones. Significant timezone differences can cause friction and hamper teamwork.
  
  
• Make sure everyone understands the project goals and what success looks like. Getting this clear from the start helps reduce the risk of ambiguity.
  
  
• Use project management tools to streamline collaboration and create a consistent workflow.

Codacy Helps Keep In-House and Outsourced Code in Check 

In a globalized world, outsourcing can help you find amazing talents in any corner of the planet.

However, its success depends on proactive risk management and setting up systems to prevent communication, security, transparency, and end-product quality issues.

Get started with Codacy today and take the first step toward securing your code, whether written in-house or outsourced.