Software Development Outsourcing

Outsourcing is becoming the trend in most information technology areas, in my own organization, when we established it 3 years back, our decision was to outsource all junior positions within IT department, and hire qualified and experienced staff to manage certain areas. The aim was to reduce cost and get the best out of experienced engineers in areas we don’t master. This model succeeded in some of these areas but others not. The risks that come with outsourcing is general should be well identified and avoided if possible.

Cost reduction is one of the main considerations behind IT outsourcing, software development is one of the areas where outsourcing to other countries like India and Russia becomes cost effective, increase productivity, increase quality and efficiency. But its not always the case, software development outsourcing specially to other country brings risks that need to be identified, and well studied before doing so. Industry reviews claim that half of the software development outsourcing projects fail, and 28 percent of those projects, fail due to contract management issues (Gefen, Wyss & Lichtenstein, 2008). The three phases of outsourcing life cycle that are pre-contract, contract and post contract, should be assessed to identify the risks properly, as each of these phases has its own risks that might lead to the failure of the software development outsourcing model. Companies tend to tradeoff something in return to lower cost of operation and high revenues, but the minimize this trade off, the risks for each business decision should be well assessed and all risks should be identified.

One of the major risks in software development outsourcing is “Protecting Intellectual property”; software development outsourcing requires transferring files, source code, business process or trade secrets to vendors, and sometimes licenses for software that belong to a third party, both vendor and customer should monitor and administer the IP. Recent reports of stolen or purchased sensitive data from Indian outsourcing vendors triggered the concerns of across boarder’s data security (Rottman, 2006).  An employee from the vendor side can send the source code to his private email in order to work on it from home, or to sell it to other companies who might be interested in it. Such actions can be controlled by its hard to eliminate it. However, some Indian vendors started to increase the security procedures by securing areas using access cards, and forming clean desk policies to control the documents that their employee have access to (Rottman, 2006). This only cannot guarantee data security, for that UIC which case was studies by Rottman applied a successful strategy to mitigate this risk, they tended to outtasking to help secure their Intellectual property, the idea is to break their code into smaller portions, and spread it among different vendors to work on it, assuring that to impossible to reconstruct. UIC usually gives the work to three vendors and monitors the job carefully (Rottman, 2006).  In addition to that, IP should be protected by the contract between the customer and the vendor, including legal and financial penalties to more secure and protect the information and IP, in the pre-contract phase of the outsourcing lifecycle, the vendor should be selected carefully to be trustworthy, and working with the vendor in previous projects help building the trust and insures that the vendor understands the customers policies and concerns.

Another major risk in software development outsourcing reside in cost and time over-runs for the project, this can happen because of the instability in outsourced countries, either political or other like environmental, as well cultural gap between the customer and the vendor, such as different language, different work mentality, and big difference in time zones. Usually the customer expects the vendor to pick up the call immediately, but this might not be the case with big difference in time zones. Gonzalez, Gasco and Llopis highlight this as a major risk, as asynchronous communication like email can help in reducing this risk, but it doesn’t work well for all projects. This can delay the project and can directly or indirectly increase its cost. As well bad selection for the vendor who lacks for expertise or have different work mentality, can extremely affect project timelines and cost money.

Even though time zone difference can be seen as an advantage and a driving force, not only a risk, because they can work in shifts, and utilize this time difference to their advantage. However, if not utilized properly, it can still be seen as a risk. To mitigate this risk, mixing of near and far shore vendors can help reduce this risk, by this work that requires minimal interaction from the customer can be outsourced to far shore vendor, while projects that require extensive amount of interaction can be outsourced to near shore vendor. Taking for example the US companies can mix between Eastern Europe and far Asia in outsourcing for such purposes. This diversity in customer vendor selection can help limiting the risk of time and cost overruns and its threads.

Software development outsourcing risks exist and approaches to mitigate or avoid the risks has to be identified to allow maximum benefit out of it.

References:

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