How to Mitigate Risk in Outsourcing

May 31, 2016

Slack, Skype, and GitHub are just a few of many successful companies that have used outsourced development teams. Get it right, and outsourcing will save you countless hours, not to mention dollars, which you can reinvest in your business.

What’s more, outsourcing may well be the only way to attract the right tech talent to your project, as 65% of CIOs believe there’s a talent crisis in the world and recognize the issue as one of the biggest barriers to a company’s success (the 2016 Gartner CIO Survey).

And yet, despite the need to seek alternative sources of talent, some entrepreneurs worry that outsourcing is too risky a strategy for their business.

True, software outsourcing comes with a number of risks, but if you know how to navigate around them an outsourcing partner can become one of your strongest assets.

Here are four of the most common risks associated with IT outsourcing, as well as tips for mitigating them.

Risk 1. Loss of Control

Hiring an outsourcing firm to build software for you typically means ceding control of, and thus insight into, the development process. This might not be that big of a deal if the work you’re outsourcing  isn’t core to your business. Otherwise, this lack of control could cost you time and money.

The Solution

  • When you first start working with an outsourcing partner, ask them to identify a focal point (an account manager or a PM) that will always be accessible to you in case of questions. Go one step further and make sure you establish times for regular updates and status reports.
  • Define milestones, deliverables, and documentation together with the vendor.
  • Plan timelines for meetings.
  • If the above isn’t enough, consider partnering with an outsourcing vendor that lets you to run your team directly.

Risk 2. Low-Quality Product

You need to ensure that the end product you get from your remote team meets your standards for quality and usability. Using outsourcing partners, you run the risk of getting software that works just fine at first, but starts experiencing problems in a week or two – when the vendor is no longer responsible for solving them.

The Solution

  • Ask the potential outsourcing vendor to specify the number of concurrent projects their team will be working on if you sign the contract. Ideally, you want a team that would work exclusively for you.
  • If the team members work on several projects at the same time, ask the vendor about how they prioritize tasks and allocate time.
  • Find out what software development methodology the vendor uses (based on our experience, Agile works best for distributed development). You want to make sure they’re running projects professionally.
  • Develop a clear requirements review procedure (how and when the team reviews the provided requirements and how they identify conflicting or incorrect requirements).
  • Make sure the vendor is certified to a quality management standard (such as ISO 9001).
  • Ask the vendor to describe what quality assurance procedures they follow.
  • Most outsourcing vendors proudly display lists of their clients on their websites. Don’t hesitate to insist on references before signing the contract.
  • Have the software tested by your in-house QA engineers or a third-party software testing provider to make sure it’s up to snuff.

Risk 3. Hidden Costs

When it comes to costs, bear in mind that any vendor will expect you to pay for work not covered by the scope of your initial contract. That means you may end up spending more than the contract suggests, and in some cases a lot more.

The Solution

  • Ask the vendor to include the payment terms in the contract. You want to pay using your own currency to avoid currency exchange risks.
  • Make sure the contract includes a full list of additional expenses that may occur, like the purchase of software and hardware for your team, overtime, and after-hours communication.
  • Engage a third-party law firm for guidance if your personnel lack expertise and need advice on the contract.

Risk 4. Security Breach

If any proprietary company information like algorithms, databases or other trade secrets is going to be transmitted to the vendor, there’s always a risk, however small, that your data will be compromised.

The Solution

  • Ask the vendor about the security measures they employ to make sure only authorized personnel can access their workstations and storage platforms.
  • Sign a confidentiality and non-disclosure agreement with the vendor which includes a penalty clause if an incident occurs.
  • Review the vendor’s disaster recovery plan.

If these risks still seem too great for you to give outsourcing a go, you might want to try a different approach.

More than 65 clients from 17 countries have chosen Daxx's model over IT outsourcing because it gives them all the benefits of the latter, like access to tech talent that might be unavailable locally and reduced expenses, while eliminating most of its risks.

Here’s how it works. You specify your requirements for the type of developers you need. We then scour our database of over 35,000 Ukrainian software engineers and pre-qualify those candidates that look like a good match.

You interview and approve each member of your software team, who we then place in one of our development centers located in Ukraine’s largest tech hubs.

You manage your team directly and communicate with them just like you would with your in-house software developers, thus removing the risk of losing control over your project.

The developers you hire with us are dedicated 100% to your project, and motivated to deliver quality. For them, your project is a full-time job.

While you focus on development, we support you by advising on team management best practices, taking care of HR and retention, and dealing with administrative issues like payroll, taxes, and sick days – all for a flat monthly fee added to your developers’ salaries. No unexpected expenses or extra charges.

You may also like:

The 7 Best Reasons to Hire Offshore Developers with Daxx

What Makes Ukraine the Perfect Destination for Offshore Software Development?

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