What Are The Risks Of IT Outsourcing? How To Avoid Them?

Are you enticed with the concept of IT outsourcing and at the same time wary owing to the risks involved? In the last few years, IT outsourcing has become dominant due to the COVID pandemic, and we see many companies operating remotely due to this reason. However, someone who has never engaged in outsourcing might fear that this setting is too expensive and takes up a lot of their time. And all we can say is that it is natural to have these fears about remote setup. As you plunge into IT outsourcing, it is impossible to avoid all the risks, yet you can quickly mitigate most of them. 

Top Risks Involved With Outsourcing & How You Can Deal With Them

1. Question: Ending Up With A Developer With No Knowledge Of Your Business Niche

There is this risk with outsourcing that you may end up with an outsourcing development company that lacks the domain experience. Even though most solutions are generic and e to various niches, no domain knowledge can lead to many problems during development. You may end up with a software product that varies from your industry standards. 

Solutions:

• Add a product discovery phase, where you will receive use cases, finished wireframes, and business processes, hence a blueprint for your product’s technical specification. This will reveal gaps in the developer’s technical expertise or soft skills. If you have doubts after this, you can contact a competent developer. A small investment upfront saves you from more significant problems.  
• Find the domain expertise of the development company before finalizing them. This information is usually available on their website, or you can ask them directly and check the case studies as proof of experience. 

2. Question: Quality Compromise

Often, when going the outsourcing way, businesses consider saving money and go with the cheapest offer hiring a team of newbies that turns out to be very expensive in the long run due to their incompetence and causes a lot of communication problems. Hence, you land further inland in cost savings, losing your money and your time.

Solutions:

• Ensure that you have a tech-enthusiast working with you, as even with outsourcing, you must have some technical knowledge. 
• Check if the developer uses the latest DevOps practices that speed up development and maintain superb quality, for instance, constant integration & delivery, source control systems, containers, building automation tools, and much more.)
• Consider their technology stacks, such as the libraries, frameworks, monitoring, and testing tools. Check whether they focus on only manual User Interface testing or can provide an entire range of QA services, such as API testing, performance testing, extensive QA automation, and Test documentation.
• Never compromise on quality. Choose a development partner who offers high-quality standards and prefers the role of a Quality Analyst on the software project. Also, I prefer that the developer employ code review. 

3. Question: There Can Be Broken Promises

Most outsourcing firms out there talk about their talented development team and vast expertise; however, you can’t trust their words. There are often risks that the software developer might not meet your vision or go out of business during the software development.

Solutions:

• The first thing is to look at the company’s website because if they cannot create an excellent website for themselves, how can you expect them to make one for you. 
• Look at their case studies as credible software development firms will be proud to display their successful projects listing out the client’s backgrounds and their problems and how they successfully solved those issues. Case studies can also be pivotal in demonstrating the expertise of the vendor.
• Besides case studies, look at independent review platforms, such as Clutch, which enables the clients to rate the IT outsourcing firms and offer the experience of working with them.
• It is always wise to get in touch with their clients to know more about their credibility. 
• This is the social media age, so you can quickly check the developers’ activity on social media and check whether they share knowledge with the other developers. You can check how much they prefer polishing their skills by checking if they participate in local IT events and international and online conferences. 
• A face-to-face meeting is always a good idea. If possible, visit the development partner’s office as this allows a sneak peek into their daily work life and offers a chance to interact with people working on your solution. 
• Ensure to add a clause to the contract spelling out contingency plans if the development firm shuts down due to any reason. Mention in the agreement that you should be allowed to take over critical infrastructure and all the resources used to create your system. Find out if the local laws & political instability can be a probable threat to your long-term partnership. 
• Consider assigning an MVP initially to assess the vendor’s technical expertise, soft skills, and attitude. Commissioning small scope of work ensures that you don’t spend a lot of your precious time and money on incompetent developers. 

4. Question: There Can Be Hidden Expenses

When dealing with an outsourcing firm, you might face the issues of unforeseen costs. Even though you can quickly discover most of the costs before the development process begins, some could still be hidden from you.

Solutions:

• Find out about the pricing models your development provider has offered. Often, companies have different notions regarding fixed/non-fixed price contracts; hence, an engagement model better fits your project. 
• Ensure stating your requirements before the development process. Consider organizing a requirement gathering workshop. It helps define the scope of work and lessen the chances of unforeseen costs scare.  
• Consider signing an SLA (Service Level Agreement) listing services provided by the development firm and their costs. Get aware of hidden costs such as on-site visits, hosting, overtime, integrations, and purchasing essential software, hardware, and plugins.

5. Question: Communication Problems

As per Grant Thornton’s International Business Report, around 88 percent of participants stated that communication is crucial for attaining success in outsourcing. After all, language barriers, different time zones, lack of in-person meetings, and cultural differences can affect the project outcome.

No matter what video conferencing tool you use, it cannot be easy to communicate over video calls or phones in an outsourcing scenario. And even when you succeed in dealing with this issue over time, another challenge on your face will be scheduling issues due to different time zones. When it comes to outsourcing, your only option is communicating virtually, so you either email or send a message, which makes software outsourcing quite challenging. 

Solutions:

• The first step can be to check the team’s fluency with the English language, as language issues can create a lot of misunderstandings in the future. Also, figure out how well they understand your project requirement at the negotiation stage. At this stage, clearly state your personal communication preference and conduct regular online meetings. 
• Find out if the software development firm is experienced in working with your time zone. The difference of 1-2 hours is negligible, but more than 8 hours require significant adjustment for the outsourcing firms. For instance, they may implement a code in your nighttime while inform about it in the morning.
• The behavior, gestures, and intonations vary in every country. China, India, and Southeast Asia prefer clear and precise instructions and work processes. Often, they like the Waterfall strategy. Eastern Europe and Latin America have a style similar to the USA and Western Europe, valuing flexibility and Scrum teamwork.
• In case of a huge time-zone difference, you can ask the development team to shift their work hours so that you have a few hours of overlap. Regular morning sync-ups can be very helpful in resolving blockers. 
• Ensure that your outsourcing service provider has established requirements-gathering practices and has employed expert business analysts. 

6. Question: Loss Of Control

One of the most significant risks associated with outsourcing is Loss of Control. A business process handled by an in-house development team is outsourced to an external agency, which will lead to a loss of control. When mismanaged by the service provider, it can impact the quality of the product. Besides, the level of control also depends on the outsourced developer’s geographic distance. Face-to-face meetings and inspections are not an option when the distance is vast, and you rely on virtual ways to communicate, making it harder to monitor performance and productivity. 

Solutions:

• Be involved in the development process, as your absence or lack of interest can affect the final product. It is also essential to provide feedback at various stages of product development. 
• Form effective communication channels using the latest mechanisms. Try daily emails, video-calling, Slack channels, on-site demos, and ask for project management and bug tracking software access. 
• Communicate with the outsourcing development partner if you are keen on managing the project with them together. It is good to appoint a project manager responsible for communicating with the development team. 
• A comprehensive management plan, listing main stakeholders, their roles and responsibilities, and their contacts, and establishing processes in case requirements need to be changed.
• Think about the development aspects you are keen on delegating before assigning the project. 

7. Question: Inexperience With Remote Work Setting

It cannot be complicated to manage a remote team. In this kind of work setting, you need to do regular check-ins on results, provide constant feedback, communicate effectively, and appreciate their efforts. If you fail at doing so, this can cause a communication gap between you and your remote team. The outsourced team might not be as engaged with the project if they sense your indifference to the project. And this will lead to unmet deadlines, unsatisfied customers, and unhappy employees. 

Solutions:

• Select a development partner with experience in a remote work setting. Go with renowned outsourcing IT firms that create all their business processes based on their clients’ offshore locations. They are already experienced in working in different time zones, have a good understanding of cultural differences, and required skills to cooperate successfully. 
• You can also ask your development partner to train your in-house employees so they can work with the remote teams. 

8. Question: Failure To Deliver A Project Or Constant Delays

When it comes to outsourcing services, the general established rule is the 4x rule, which means that in remote work, it takes four times as long to attain a result. These delays are often caused due to communication lag, inaccuracies, and miscommunication. However, by learning to be more organized over time, you can significantly improve work and delivery times.

Solution:

To deal with this risk, it is crucial to have constant check-ins with the service provider, or you can even come up with a contingency plan. 

9. Question: The Risk Of Exposing Intellectual Property

When you work with an outsourced team, you have to disclose your intellectual property; hence it can cause some stress as here you are sharing sensitive information regarding your business processes, IT systems, and employees. 

Solutions:

• Find out about your outsourcing partner’s experience handling confidential business data (mainly when the sectors are government, healthcare, and financial). Learn about their data protection practices. 
• Before you start the association, sign an NDA (Non-Disclosure Agreement). You can research local IP laws or even consider hiring a legal consultant experienced in software outsourcing. 
• You can also have a non-Compete clause added in the agreement that prohibits the outsourcing development partner from using the knowledge of your system to create a competing product. These clauses are essential to protect your interests.

Conclusion

Outsourcing is a viable option to get your work done at a lower cost, and it has many other benefits. And by taking care of a few risks, checking regularly, and paying close attention to details, you can thrive with an outsourcing development partner. Choosing the right outsourcing development provider will be a good start.