Blog post

5 Risks of Outsourcing Software Development and How to Avoid Them

Liz Ryan photo

Liz Ryan

Product Marketing Manager

5 min read

  • Code Quality

Outsourcing software development has witnessed a surge in popularity, offering organizations a strategic advantage by tapping into global talent pools. According to Precedence Research, the global IT outsourcing market is expected to grow to $1.149 billion by 2032. Outsourcing provides various benefits, including lower recruiting and onboarding costs, increased delivery speed, and filled talent gaps. It’s no wonder why the strategy is so popular.

However, navigating the outsourcing landscape isn’t always easy and requires a keen awareness of the potential risks. In this blog, we'll discuss five critical risks of this widely adopted strategy and provide tactics to reduce risk in delivered software.

Risk 1: Quality Assurance Concerns

Ensuring the quality of software is a constant concern, especially across different work environments, methodologies, and coding styles. Developers make mistakes, whether they’re in-house or externally sourced. It is estimated that software developers make 100 to 150 errors for every thousand lines of code. And when working with an outsourced team, controlling the quality of the code produced becomes even more difficult because they’re writing the code outside of the four theoretical walls of your organization. If the code is poor quality, it can lead to costly issues in production, increased technical debt, missed deadlines, and poorly performing software, among other impacts.

Organizations can avoid quality assurance concerns by:

  • Establishing a robust quality assurance framework that defines clear standards for writing code 
  • Adding static analysis to proactively and regularly scan the codebase for issues
  • Reinforcing code quality standards by using a mechanism in the SDLC (e.g. quality gates) so that only code that meets the standards is released
  • Leveraging testing processes, including unit tests, integration tests, and user acceptance testing
  • Conducting regular code reviews often to identify and address issues early in the development cycle
  • Investing in an automated tool that provides visibility into development activities and helps facilitate communication for improving code quality efforts

A strong foundation built on clear standards presented through accessible tools and processes establishes expectations for outsourced teams and encourages a shared commitment to delivering a high-quality product. 

Risk 2: Data Security and Confidentiality

Data security and confidentiality are top priorities; if left unchecked, they can have costly consequences. In fact, a report by IBM states that the average cost of a data breach is estimated to be $4.24 million. So, entrusting an outsourced team with your code and sensitive information can be scary because it opens a door to potential vulnerabilities. 

The nature of sharing proprietary code and confidential data with outsourced teams introduces challenges centered around protecting critical assets. Intellectual property, trade secrets, and any confidential practices that provide a competitive edge are at the forefront of these concerns. Additionally, mishandling or unauthorized access to user information can lead to legal ramifications and reputational damage. Potential vulnerabilities may arise from various sources, such as inadequate security protocols within the outsourced team, unintentional data leaks, or even malicious activities. 

To enhance data security and confidentiality with outsourced teams:

  • Give developers a SAST tool that integrates with their IDEs and your DevOps platform to proactively detect and remediate bugs and vulnerabilities
  • Leverage advanced SAST capabilities for uncovering hidden vulnerabilities (e.g. secrets), particularly in third-party open-source libraries
  • Implement encryption protocols for data in transit and at rest
  • Regularly conduct security audits and tap into reporting that provides insights into code compliance with industry standards (e.g. OWASP, CWE, HIPAA, and PCI, etc.)
  • Reinforce coding standards and distribute regular communication on the impact of issue remediation and writing high-quality code on the security of your software

Ensuring that outsourced teams have the tools and processes to protect sensitive information is crucial to the relationship's success. An emphasis on security can benefit both in-house and outsourced teams as they work together to deliver more reliable, high-performing software.

Risk 3: Communication Challenges

Clear communication is paramount in software development, and outsourcing introduces unique challenges. The geographical and cultural distance can lead to a lack of shared context and understanding. Differences in languages and work practices can cause misinterpretations of requirements, expectations, or even project milestones. Plus, teams located in varying time zones can amplify misunderstandings. This asynchronous nature of work makes real-time collaboration difficult and can slow down communication, hinder issue resolution, and impact overall project efficiency.

To overcome these challenges:

  • Proactively communicate code quality standards across teams and use tools to reinforce them in the development workflow
  • Schedule regular meetings to foster a sense of connection and alignment
  • Clearly define roles, responsibilities, and expectations for project scope 
  • Leverage reports to get a periodic, high-level overview of the code quality and security of your projects or applications to enable proactive outreach when needed

A 2023 Grammarly and The Harris Poll report reveals that 72% of business leaders believe effective communication has significantly increased their team's productivity. Open and transparent communication channels between the in-house and outsourced teams further contribute to a seamless quality assurance workflow. It's not just about finding and fixing bugs but fostering a culture of quality throughout the entire development lifecycle.

Risk 4: Lack of Control and Oversight

Managing a project without the day-to-day oversight inherent to in-house employees is a uniquely difficult challenge when using outsourced teams. The absence of immediate control introduces uncertainty, especially in critical areas such as meeting deadlines, ensuring quality, and adhering to project requirements. Without the ability to oversee every aspect in real time, there's a risk of misalignment between expectations and actual progress. Deadlines are missed, quality assurance feels distant, and there's always the concern of veering off the agreed-upon path. 

Maintain control and oversight by:

  • Creating and reinforcing clear quality and security standards for writing code
  • Establishing clear project milestones and deliverables
  • Utilizing reports that provide visibility into development progress
  • Building a collaborative environment that encourages open communication and feedback

A case study by McKinsey highlighted that organizations with effective project management practices reported a 35% higher success rate in meeting project goals. Finding the balance between establishing a code quality framework for success and providing guidance without micromanaging outsourced teams helps ensure projects meet expectations without delays.

Risk 5: Hidden Costs and Budget Overruns

Unexpected costs can jeopardize project budgets and timelines. According to a report by Deloitte, 57% of organizations have experienced cost overruns in their outsourcing projects. The challenge lies in the potential for unforeseen costs that can exceed the budget. These hidden costs can manifest in various forms – from unexpected software license fees to additional development hours required for unanticipated issues and complexities. The risk of budget overruns becomes an ever-present burden that can jeopardize the financial stability of your project.

To avoid hidden costs:

  • Create a detailed budget that accounts for potential contingencies
  • Regularly monitor development activities to stay up-to-date on project progress with a SAST tool and reports that are integrated into the development process
  • Foster transparency in discussions to align both parties on budget expectations

Addressing the risk of hidden costs and budget overruns in outsourced development projects is crucial for mitigating unforeseen expenses and fostering trust and collaboration with the outsourcing team. Overall, tackling this risk promotes financial stability, enhances collaboration, and reinforces the foundation for successful outsourced development endeavors within the defined budgetary constraints. 

Achieve success while avoiding the risks

Outsourcing software development offers unparalleled advantages, but success hinges on proactive risk management. By addressing communication challenges, ensuring quality assurance, prioritizing data security, maintaining control and oversight, and transparently managing budgets, organizations can forge successful and collaborative partnerships that help sustain the performance of their software.

Click here to learn more about how to reduce risk when outsourcing software development. 

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