Foreword
Do you want to try IT outsourcing, but are worried about the potential risks? Or, you previously had a poor outsourcing experience and came here to learn how not to repeat it?
Either way - you’re in the perfect place. In this article, you’ll receive ample information on all of your questions on mitigating the IT outsourcing risks.
On the spot
The most common and most troublesome risks of outsourcing development are:
1. Wrong vendor selection
2. Unforeseen expenses and hidden costs
3. Security of data
4. Constant delays
5. Poor management of the remote teams
6. Communication barrier
7. Poor quality of the final product
8. Lack of knowledge in the client’s domain
9. Lack of control over the process
However, our experts have shared tips on how we handle these risks when working with our Clients.
Read on to learn more!
The Most Common Outsourcing Risks & Solutions
First to mention - all of the risks are not a concern with a reliable provider.
The competition in the IT outsourcing field is fierce. Those who want to win clients need to have excellent reputation. To maintain it, they do their darndest to keep their clients happy. It’s out of their ideology to create troubles for them.
So, choosing such a provider automatically takes mitigating these risks out of your agenda - it’s their responsibility now.
We have a fantastic article on how to find such a company, be sure to check it out! — “How To Choose Your Ideal Outsourcing Partner: A Step-by-Step Guide”
For now, let us show you how we at SENLA, who care a lot about our image, address this with our Codex — the principles behind everything SENLA does:
Our purpose - To make the world better through effective software development.
How - Make money for us and our Clients.
Our foundation - Taking care of our specialists.
Our aspiration - Deliver on time.
1. Wrong Vendor Selection
Choosing the best IT service provider is one of the most crucial and complex tasks during your outsourcing journey. The selected vendor must possess the knowledge and expertise needed to implement your project.
There may also be other vital factors, such as:
- Does a vendor have proficiency and experience in cutting-edge technology?
- Do they have expertise in resolving challenging issues?
- Do they have a passion for your project?
- Do they have a good portfolio and customer success stories?
- Do you have significant time zone differences?
On the whole, there’s a lot of requirements towards an IT outsourcing partner, and they can differ from one company to another.
Solution
We can’t directly address this step for our Clients — they typically come to us after this preliminary search stage has been partially or thoroughly completed.
It’s from there on where we aim to create a piece of mind for them, demonstrating our proficiency and attitude to work. Everything so they could be sure in their decision. If you want to learn what we can offer you — fill in the form below and let’s talk!
If you want to continue your search for now, here are a couple of words on how we recommend you choose your potential IT outsourcing partner.
Start with solid research to avoid the critical IT outsourcing risks we’ll talk further about, associated with the wrong vendor selection. The best way to find a professional IT provider is by visiting specialized review sites such as Clutch.co and GoodFirms.
When you collect a list of suitable companies, run a background check on every candidate. Put special attention on their ranking and testimonials. It would be best if you defined how long the vendor has been in operation and the most common types of their customers. Check the average size of a project and delivery time.
Visit their website to learn more about the vendor’s expertise, the technologies and domains they work with, and completed projects. Case studies usually speak louder than words, so read them thoroughly to find out whether a company managed to fulfill other clients’ expectations.
In addition, make sure that your outsourcing partner is adaptable enough to handle urgent problems. If you work across multiple time zones, this situation worsens because you lose money every second that the issue is unresolved.
2. Unforeseen Expenses and Hidden Costs
The primary goal of outsourcing is to acquire a competitive edge through cost- and profit-optimizing measures. However, it becomes a danger if the cooperation results in unanticipated expenses.
Later in the project development phase, unforeseen costs like updates to the hardware or software, redeployment or relocation, auxiliary services, or troubleshooting may add up to the project's overall price, which would cause it to exceed its initial budget.
Hidden costs are one of the most widespread IT outsourcing risks; the vendor might charge extra fees for some types of engineering, legal, and marketing support.
Solution
Compare the vendor pricing with current in-house development expenditures and other expenses. This will give you a decent high-level idea of an optimal budget.
Going into details, from the project’s onslaught we always ensure that we’re clear about working overtime, on-site visits, and quality standards. We also try to come up with the most precise development costs estimation so that they don't change drastically by the end. This is the primary way of how we try to deal with this risk.
However, plans rarely execute perfectly. In case there’s a need for additional financial input, we try to find ways to minimize it for our Client. One of the primary tactics of how we do it is looking for open-source alternatives to the required platforms, environments, or modules (More about open-source you can find in our article - "Unlocking the Potential: 8 Benefits of Open Source Software for Businesses").
Different vendor tactics on the market can affect project delivery and efficiency. For example, some may add more team members or swap them.
We always document the pricing model and different working scenarios in our outsourcing contract. These are some of the practices that help us and our Clients avoid the costly risks of IT outsourcing.
3. Security of Data
When you outsource a project to a service provider, you expose some or all of the company's assets to the public. Because of this, you may be concerned about data protection, intellectual property, and privacy. Copyrights, patents, trade secrets, and other issues are involved.
Although the likelihood of fraud is low if you work with a reputable vendor, there is always a probability that the outside company may steal or leak sensitive data.
This worry increases when someone is hired from a foreign country who does not abide by your homeland's rules. For instance, it may be problematic if a member of the outsourced software development team steals project code.
Solution
Ask about a vendor’s data security practices, especially if you’re, for example, in the government, healthcare, or financial sectors.
Our most common and efficient method to secure the project’s data is by signing an NDA (Non-Disclosure Agreement) before the project’s start. An NDA guarantees that any information you reveal to us during the development process, meetings, or negotiations will remain confidential.
Upon a Client’s request, we also sign an NDA on the presale stage, when we research their business to prepare an estimate. We treat data security exceptionally serious
An NDA will spell out the terms under which data is to remain private. The agreement also highlights the consequences of divulging the specified confidential information to other parties.
Other ways to safeguard your company’s data include, again, researching independent review sites before using the vendor’s services. Look into their reputation and if they’ve ever breached any of their customers’ intellectual property rights. Due diligence on the vendor’s ability to protect your company’s IP, internal risk practices, and how they handle data breaches.
4. Constant Delays
The tech sector is a sophisticated field with complex projects; the implementation is usually prone to delays due to various challenging issues, such as communication lag, inaccuracies, and poor project management.
Unexpected risks are the number one cause of constant delays and can significantly damage project implementation. Some problems may arise when the vendor doesn’t have efficient tools to handle issues appropriately or your company has a new demand for them.
Delays may result from inaccurate estimates and failure to outline all the essential project requirements. Even one improper condition can affect the success of the entire project.
Solution
As said in one of the above sections, we always try to make our estimates as realistic as possible. This concerns both costs and development time.
To avoid this risk further, we communicate with our Client regularly, develop a contingency plan, and have surplus inventory if there are hardware issues. When you are unprepared for something, it’ll be more challenging to deal with a problem.
Having a contingency plan means we’ll have an easier time dealing with these challenges. Preparing helps our company develop practical solutions that help us with challenges as soon as possible, so they don’t impact a project’s timeline.
5. Poor Management of the Remote Teams
It can be truly complicated in practice to lead a remote team due to the lack of real-time interactions in the physical space. Poor remote team management can lead to a communication gap between your company and the outsourced team. This can make them less engaged with the project or find it redundant. An unmotivated remote team, in its turn, can result in stressed developers, unmet deadlines, and your dissatisfaction.
Thus, the contractor's experience in team management is essential to effectively leading a remote crew and implementing the project on time.
Solution
We define project success at the onset to ensure all parties are clear on the objectives and what would make the project successful. This eliminates the risk of the team working without understanding their expectations.
Sharing a high-level user journey walkthrough helps our team adopt a user-centric approach when developing the project. Bi-weekly Friday demos with our team helps our Clients stay in touch and control. We can also use different platforms such as Slack to communicate any changes implemented immediately, and a Client can also answer any questions we may have on the project promptly.
6. Communication Barrier
According to a study conducted by PDI, 25% of outsourced projects fail due to poor communication. Some communication issues are inherent when outsourcing; however, the core of this outsourcing risk is usually deeper.
Organizational and national culture variations and language barriers can hinder communication. The client-vendor dynamic can further aggravate communication issues, where the vendor may want to be agreeable with the client and not voice out unachievable goals.
What’s more, when working with a remote team, communication challenges may arise from time differences that can make scheduling video conferencing difficult.
Poor communication can hinder project implementation; therefore, it’s essential to determine the root cause and find effective ways to deal with it.
Solution
To ensure barrierless communication on projects, the minimal English command level for anyone who applies to work at SENLA is B2. Besides, we run English courses for various levels within a company to further upgrade our developers’ skills and make sure the language doesn't become stiff when they’re on a bench.
We have more than 5000 mandays in all popular project management systems and methodologies so our staff is well prepared to facilitate meetings. Syncing with our Clients, we prefer videoconferencing to texting.
We also set a working schedule that works for both us and our Client. If the time difference isn’t big, we usually just ask our developers to shift their hours to have a full sync. If it’s significant, then we establish mandatory overlap hours to work out all matters effectively and proactively.
These simple yet efficient tips help us avoid problems, resolve challenge issues, and facilitate knowledge transfer.
If you want to learn more about vendor-client communication and see the whole scale of our efforts in this area, read our article "How to Ensure Effective Outsourcing Communication?"
7. Poor Quality of the Final Product
A big challenge when outsourcing IT services is that you’re unsure of the end product’s quality. Recent research indicates that 45% of organizations outsource IT projects to optimize costs.
This is perfectly understandable, especially in the times of crisis, like now. But all the attempts at minimizing costs or reducing product development time can be shattered if you receive a poor-quality end product.
Solution
Again, it all comes down to an excellent vetting process to choose a partner with a top-notch software development team. Don’t just consider cost when selecting a vendor; ask for samples of work they’ve done previously to check their quality and the companies they’ve worked with.
To ensure our Clients get quality software, we always ask for or — if not well developed — assist in creating detailed product specifications. The Clients also check the product’s quality at every development stage to ensure it’s up to standard.
In addition, we sign an SLA (Service Level Agreement) to outline all the services we provide to protect our Clients against any quality concerns. During project implementation, both we and them follow a solid quantitative quality assessment process to determine the areas where it hasn’t been met.
8. Lack of Knowledge in the Client’s Domain
Mutual understanding between a vendor and a Client of all project requirements is vital for a high-quality product. Therefore, the vendor needs to have relevant industry knowledge. A lack of domain understanding will cause outsourcing risk that can affect both parts.
Team members may not have all the necessary technical skills, or may lack business product and domain-specific knowledge, which can lead to costly training, low-quality software, or missed deadlines. The competency of the contractor plays an important role in their ability to deliver a quality end product.
Solution
As a client, ensure your requested product remains connected to the domain, customers, and product during development.
As a vendor, we’ve accumulated profound knowledge in 15 domains to be well-fit for delivering on this. You can overview our proficiency in them on our industries page.
We’ve recently launched centers of excellence to accumulate our experience and best practices in each of them. Besides, at the start of every project and the end of each development stage, we also carry out knowledge transfer to avoid losing any essential domain knowledge.
9. Lack of Control Over the Process
As said before, vendors who are only interested in fast incomes won’t bother to ensure maximal transparency for you. They just don’t need it.
In fact, they may even distort information on purpose to mislead you and “complete” your task with as little expenditures as possible, often compromising on quality.
Needless to say that in such a case, you run a risk of getting a final product that doesn’t match your requirements or is of poor quality, as well as missing the deadlines.
Solution
We once again stress the importance of due diligence when choosing a service provider. We have a great article in support of this — “The Real IT Outsourcing vs Negligent One”. There, we denounce the insides of this fake “IT outsourcing” kitchen and why such providers aren’t doing it in essence. We also list the red flags giving them away that you should immediately avoid. Be sure to read it to be well prepared for your selection process!
Another good advice for keeping a good control over development is weighing the responsibilities you want to hand over to an outsourcing partner.
To do this, we, together with our Clients, develop meeting schedules, track metrics, and software development KPIs, and assign a delivery manager (local, if applicable) who’ll keep you up-to-date with each project development stage.
This helps us build trust towards each other and minimize risk when our Clients transition control. Receiving updates or reports from us helps our Clients see well how we’re progressing.
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Wrapping Up
Outsourcing project development is a cost-effective way of getting an upscale product; however, it may come with several serious risks. Fortunately, you can mitigate all of them and ensure successful and timely project development by partnering with a reliable IT outsourcing provider.
If you don't want to worry about your outsourcing project and carry it out safely and securely, fill in the form below, and we'll do the exact things described above for you!