What are the outsourcing risks and the mitigation

Knowing risks - seizing opportunities: outsourcing software development

Editor's note: When outsourcing software development to external service providers, companies hope that they can benefit from the promised advantages. But as practice shows, outsourcing can not only offer opportunities, it can also bring risks. To ensure the success of an outsourcing project, effective risk management is a must. The ScienceSoft team is happy to share their experience and offer comprehensive advice on all aspects of outsourcing projects.

Such advantages of outsourcing as fast delivery and reduced time to market; lower costs; Access to expert knowledge and new technologies; no need to hire new staff on board and more look tempting. There are also risks associated with both advantages and promising outsourcing trends. To ensure effective risk management, you should know and manage them. 

In our new blog post we focus on three risks of outsourcingwhich we believe pose the greatest threat to the success of outsourcing projects. We also explain how these risks can be minimized and successfully managed in order to take full advantage of the opportunities offered by outsourcing.

Risk No. 1: Incorrect selection of a service provider

Choosing the right outsourcing service provider - this is how your long-term cooperation and success begins. Or failure ... If your selection was wrong, be prepared to face deadline and cost overruns, unsatisfied users, security breaches, and other resulting problems. Experience has shown that there are 2 reasons for this:

  • The Client has little experience with outsourcing and does not know exactly what to look for when choosing an outsourcing provider.
  • The Outsourcing service provider overestimates its competencies or offers lower prices compared to their competitors in order to win a project.

To avoid a negative experience, we recommend taking more time to get a comprehensive picture of the country of a potential partner, their skills, services and experience in outsourcing projects. To check the reliability and trustworthiness, you can request numerous case studies and references that describe and confirm experience in similar projects.

Risk # 2: Ineffective communication

Since effective communication is often referred to as a key factor for project success, an outsourcing service provider must take communication seriously. In the case of poor and ineffective communication, the project requirements can hardly be clearly defined and problems can be discussed and resolved in good time. Also, keep in mind that language barriers, time difference and cultural differences can also lead to communication problems.

In order to avoid problems of this kind and to make communication as effective as possible, remember that opportunities and risks often go hand in hand. If you are Using a structured approach to collaboration that ensures effective collaboration at different levels enables you to monitor project progress based on agreed KPIs (Key Performance Indicators) and SLOs (Service Level Objectives), to measure and evaluate the quality of the services provided and to react to changes in good time.

All of these KPIs and SLOs are aimed at creating greater transparency in cooperation. Reports and online meetings play an important role in this. But on-site meetings help build mutual trust, although this can be more time-consuming and costly for an outsourcing service provider. It therefore makes sense to clarify at the beginning whether a potential outsourcing partner is ready to use the “on-site” outsourcing model.

As far as language barriers, different time zones and cultural differences are concerned, one thing is clear: no one can give one hundred percent guarantee that problems will not arise. But the selection of the most suitable provider (also based on linguistic, cultural and geographical criteria) and the effective organization of the cooperation can significantly reduce this problem.

Risk # 3: Insufficient knowledge transfer

Insufficient or missing knowledge transfer can lead to the failure of the project because those involved in the project do not receive the knowledge they need to successfully implement the project. It should be noted that the transfer of knowledge is not a one-off, but a continuous process and can take place in the following three directions:

  • From client to contractor: it is about the transfer of business requirements, KPIs, SLOs and other necessary project knowledge, which makes it possible to understand the project idea and conditions for its implementation as deeply as possible.
  • From contractor to client: it is about the transfer of intermediate results (when using agile development methods) and final results (when using linear models).
  • When switching from the outsourcing provider: it is about the transfer of key knowledge from one provider to another in order to enable the uninterrupted provision of services.

For an effective knowledge transfer it is also advisable to structure it:

  • The Responsible person and to monitor their activities continuously at regular intervals.
  • Predefine which Methods and Tools be used for the transfer of knowledge, z. B. User guides, support knowledge bases, web conferencing, traditional meetings, training courses, presentations, workshops, interviews, remote desktop connections and more.
  • Performance Indicators (KPIs) and Goals (SLOs) to measure and check the quality of the transmission.

In summary

If you recognize the risks of outsourcing software development and prepare for them, you increase the chances of making your outsourcing project a success. Regardless of the risks involved - wrong choice of provider, ineffective communication or inadequate knowledge transfer. It is much more important to know how these can be reduced or avoided. This knowledge brings you closer to your goal and lets you enjoy promising benefits from outsourcing.

Are you looking for an outsourcing partner who can take over your project or the entire project pipeline in software development? ScienceSoft is ready to support your initiatives.