The concept of outsourcing software development project has gained tremendous popularity in the last couple of years with large organizations gradually outsourcing internal IT functions and developing external partnerships with firms established overseas. This growth has been stimulated due to several factors such as lower costs, high quality, professional services, reliability, increased customer satisfaction, improved productivity and efficiency, reduced time-to-market and obligation to concentrate on core areas of business. Another important factor that certainly contributes towards driving the need for outsourcing is the possibility to access state-of-the-art technological skills that are usually inadequate in an in-house arrangement (Balakrishnan, 2006).
In a move to determine from several studies that how far the outsourcing has helped in reducing the production and supply chain costs, it can be successfully concluded that organizations are considering development of applications as a variable cost eventually impacting ROI (Return on Investment) of the company as a whole. And as the development costs become external, organizations are merely required to incur costs pertaining to the process of business case justification resulting positive ROI for the business. Also, outsourcing partners are employing project management personnel who act as a member of organization's team and helps with building software and applications (Balakrishnan, 2006).
On the other hand, nothing is possible without risks and tradeoffs and therefore organizations undergoing outsourcing software development projects are too facing substantial risks and tradeoffs associated with outsourcing. It is certainly valuable to consider capability maturity and quality assessment of outsource partner that later attributes to the success of development process and relationship. Besides to the risk of not getting the desired quality of software expected, other important risks and trade-offs are required to be consider (David A. Vogel, 2005)
Major Risks and Trade-Offs in Outsourcing a Software Development Project:
Organizations encounter immense concerns in regard of risks and trade-offs associated with the outsourcing of software development project and sense an utter need for managing the risk for the success of execution of IT outsourcing practices. Major of them includes difficulties arising due to communication, overall quality of the project delivered, concerns in regard of securing intellectual property, misapprehension of requirements etc. Also, lack of physical proximity determined especially in view of development teams (David A. Vogel, 2005).
Few of them are discussed below in detail:
Risk of Inadequate Quality:
Assurance of quality is certainly critical in the case of IT outsourcing. As it has been determined that arising of bugs at the time of development of software/application is factual and requires to be fixed itself at the time of testing process of the software/application. The risk arises for organizations in a sense that whether the outsourced vendor has in place an adequate process for quality assurance and the testing has been done adequately. Main reasons for inadequate quality assurance are:
The outsourced vendor does not have its own testing team or quality assurance team and assumes that testing would be carried out through in - house arrangement.
More priority given to the development and keeping the quality assurance and testing process aside owing to the strict deadlines of the project.
Several system requirements missed out during the testing process due to non understanding by the outsourced vendor (Singh, 2006).
Managing the Risk:
For reducing the risk associated with the quality assurance and quality expectation, organizations are required to evaluate whether the outsourced vendor has adequate and efficient quality assurance process in place. This can be determined by knowing several things including:
Efficient system for tracking and identifying bugs or changes in the system.
Current processes in place for fixing of issues and bugs.
Current standards followed in the context of quality compliance and monitoring.
Whether development teams making use of regression tests and industry-standard tests for testing each build in the software/application.
Compatibility or adequacy of software in terms of performance, load, integration as well as end user experience (Singh, 2006).
Risk of Stealing Intellectual Property:
Protection of intellectual property and technological assets is one of the major concerns for organizations undergoing IT outsourcing or off shoring. Several cases of unethical activities of stealing technological assets and property and confidential data and corporate information while dealing with outsourced vendor have brought into light and therefore organization is taking crucial steps to avert the risk (Corbitt, 2003).
Managing the Risk:
Organizations before outsourcing are required to assure that the potential vendor has implemented and has enforced policies dictating protection of intellectual assets and data shared with them. The latter is ought to make a clear check to prevent unauthorized creation of software copies. Also, organizations are required to keep clear documentation of their property including of source code developed during the course of the project as well as its legal protection. Aside from the legal protection and documentation, few steps can be taken to protect the intellectual property those of which are:
Enforcement of Information Security Management Policy by the vendor.
Sharing of only necessary and required information during the course of the project.
Clarification of ownership and licensing of source code developed during the project (Corbitt, 2003).
Risk of Communication Barriers:
Several outsourced vendors and firms fail to meet the desired expectations and did not deliver superior quality owing to the misunderstanding of requirements. These misunderstandings may arise due to -
Communication barrier: English being a popular medium of language to communicate on global platform and team members lack fluency in English.
Differences in Time Zone: Especially arises in the case of offshore outsourcing.
Cultural Differences: Differences in working style and work culture adopted in countries often lead to misunderstandings (Ghayyur, 2005).
Managing the Risk:
Open and periodic communication and meetings with key project team members through the medium of email, or call is certainly important for continuous monitoring of software projects. Another measure includes taking status updates and follow-ups on project through email or call would certainly result in identifying critical issues, if any within the project (Ghayyur, 2005).
Closing Discussion:
IT outsourcing is certainly coupled with a wide range of benefits including reduced and controlled costs, high quality and improved productivity. But at the same time, it has significant risks associated that are required to be mitigate from the client end or from the vendor's end. These risks identified are either related to people or process when effectively managed and reduced results in establishing a long term relationship of outsourcing partnership and earning superior maximized returns. Ideally, open and frequent communication has been acknowledged as the best approach towards managing these identified risks, certainly with a vigilant planning and careful evaluation of potential vendors for outsourcing.
