The Benefits and Risks of Outsourcing Software Development Projects to a Service Provider

Trung Tran

Trung Tran | 04/01/2023

The Benefits and Risks of Outsourcing Software Development Projects

Budget pressure, “developer drought,” the need to speed up time-to-market, and many other pain points alike are the key drivers for IT organizations to resort to a pragmatic solution – outsourcing IT needs. For those organizations that are short on resources, entrusting their business processes to a capable hand is nothing more than a good idea, especially during the context when the IT industry is extremely competitive and demanding as current.

Among IT’s a dozen sectors, such as IT support services, dedicated teams, staff augmentation, etc., software development services are the most outsourced function. Like a coin with two sides, software outsourcing unquestionably comes with both pros and cons. Therefore, any business that strives to reap the most out of this business strategy should be aware of any potential trade-off considerations that could offset the benefits it offers. In other words, any good things are implicit with risks, and so does software outsourcing. Regardless, many businesses take a chance with a software outsourcing partner as long as they can keep the outsourcing risks at bay and mitigate their potential damage. In order to achieve that goal, there should be a deliberate risk management strategy in place.

Benefits of Delegating Software Development Projects to an Outsourcing Company

Before moving to the risks, let us respire you with all the benefits you can rightfully get when handing over your software development projects to an outsourcing provider in the first place.


No doubt about this. The most competitive advantage of software outsourcing is cost reduction. Software developers, especially those with sought-after skills and expertise, tend to be hard to find and costly to acquire. As a result, setting up an in-house development team of full positions will cost a fortune and a great deal of effort. You may end up with budget constraints and missed deadlines before getting your project off the ground. Instead, outsourcing your entire project or some parts of it to a remote team enables businesses to leverage disparity in labor costs and the available resources, domain knowledge, and IT infrastructure provided by the outsourcing firm. Moreover, contracting out your project helps you spruce up the operational processes and once again cut unnecessary spendings where needed. No overhead costs mean more investment in core business goals and research & development while directly increasing the profit margin at the same time.

Flexible Staffing Option

Hiring IT staff is one daunting task, but retaining them is another, not to mention maintaining a full-fledged team. Outsourcing gives you the freedom to adjust the team size to fit your needs throughout the project. This will save you from the burden of having a large permanent workforce that is not necessary for any particular project or assignment. Or you do not have to suffer from the staff shortage when the workloads increase or project requirements alter at short notice.

Faster Time-To-Market

When collaborating with an offshore team, speed is another major factor that many businesses rave about. A well-managed remote team working round the clock with tools like Agile methodology and ERP solutions make it possible for your project to be delivered faster than expected without compromising quality. The shorter development cycle enables businesses to take full advantage of market opportunities by delivering products faster than their competitors. What’s more, you can be more flexible and agile when it comes to responding to up-to-date technologies, market trends, and customer demands.

Access to Highly Skilled Resources

Outsourcing is the key to unlocking access to the global tech talent pool. By this, we mean companies no longer limit their reachable IT workforce by geographical locations but can expand their horizons to remote professionals from all across the globe. Also, this makes it easier for organizations to look for exceptional individuals with specialized skills and expertise in areas such as cloud computing, artificial intelligence, big data, DevOps, and more. That’s why a lot of business owners have soon seen this as an excellent opportunity to deal with the growing tech talent shortage crisis.

These are not all the benefits you are set to receive when contracting with a service provider for software development solutions.

What Are the Common Outsourcing Risks & the Resolution for Each?

Whether it is the onshore, nearshore, or offshore outsourcing model that you decide to go with, there might always be some common problems or operational risks that would jeopardize the outsourcing process as well as the outcome. As mentioned earlier, an outsourcing decision is still worth taking if you conduct a thorough risk assessment from the outset. So, you had better learn about the risks of outsourcing software development before you figure out a workaround for them.

The Relinquishment of Control over the Development Process

The privilege of outsourcing services is to hand over the responsibilities to others and have the job done without getting your hands dirty. But for some business owners, losing control over the operations is unsettling as they still want to outsource the projects but keep everything on a short leash. Honestly, this is an issue of trust since you may doubt if the offshore vendors are capable of delivering the results up to your expectations. And frankly, your concern is not unfounded since not all software outsourcing firms are equal in quality and reliability. So, it is paramount to find a reliable partner. Ensure that you have assessed multiple aspects of the candidates for the future partner through independent review platforms (E.g., Clutch), the company’s portfolio, proven track record, previous projects, the company’s ranking, and more, before making a decision. And it will not be easier said than done if you stick to the following guide.

Unexpected Costs

Unforeseen and hidden costs are the subsequent outsourcing risk to worry about. Project scope creep and lack of clarity on costs from the outset can leave you with a hefty bill that could have been avoided. Software outsourcing firms give you various pricing models. The fixed price model, for example, is an outsourcing pricing model wherein the customer and vendor agree on a predetermined cost for the project before the development process begins. This cost covers all fees associated with the project, including labor, materials, resources, and time required to complete the project. Fixed pricing allows customers to budget accordingly without worrying about surprises at the end of the project. However, not all vendors include all the fees in the predetermined charge, and they will rack up surcharges for management, support, and other after-hours services. Or such things as unplanned software upgrades, unexpected adjustments in plans, etc., can lead to a surge in charge as well.

Therefore, it is imperative to make everything crystal-clear before you sign the Service Level Agreement (SLA) - the list of services you request for your project and their costs. First, start with your project requirements and scope, decide on the range of services, estimate the development costs, and negotiate the delivery timeline and associated fees accordingly. Last but not least, make sure you have a comprehensive contract containing the inclusions and exclusions of the project and that both parties consent to it.

Project Miss-alignment

When teams are geographically distributed, it’s common for misalignment to occur between the service provider and your organization. This is the result of poor communication and knowledge transfer.

Certainly, it is unavoidable to face some communication challenges when you have to work in tandem with someone from across the globe. This is partly because you and your remote teams are completely different in language, culture, and time zone. The communication gap between the in-house team and the outsourced one can somehow be bridged by building mutual trust and having consistent communication thanks to online communication channels and phone and video calls. Don’t forget to set up frequent meetings to keep all parties on the same page and connected.

Regarding knowledge transfer, make sure that your in-house team and the offshore partner are aware of what has to be done and how it should be approached. Besides, it is essential to have a comprehension of the roles and responsibilities of each party involved, as this determines who will take ownership of an issue or project when something happens during the course of development.

Privacy and Security Concerns

If there could be one thing that bothers business owners the most when they consider an outsourcing decision, it could be the risks of security. After all, when the confidential data of your business is placed in the hands of a third-party vendor, you should be concerned about safety and privacy issues.

Normally, software outsourcing firms have non-disclosure agreements in place to protect their customers’ intellectual property rights and information. However, there is no guarantee that all vendors can offer the same level and standards of data security; therefore, it is essential to thoroughly review these agreements and select the vendor with well-established processes and protocols. Ensure that your chosen one has strong access control measures, as well as authentication and encryption techniques, in order to safeguard any sensitive information or data that is involved in the project. Additionally, it is important to get everything in writing in a Non-Disclosure Agreement so both parties are aware of the terms and conditions surrounding privacy and security.

Subpar Quality

The deliverables of poor quality are the least to expect from an outsourced project, but there is a possibility that it may occur, even with the most experienced vendor. The root causes leading to an end product with poor quality or, even worse, a failure are many, including a lack of clearly defined project requirements, inexperienced staff, the absence of communication and collaboration between the two teams, insufficient testing, poor planning, etc.

Since the reasons differ case by case, so do the solutions. We can categorize them into three stages: Before, during, and after development. Prior to development, the common practice is to find and partner with a reputable outsourcing company that has an impressive track record in terms of successful projects and customer feedback. During the development cycle, it is crucial to establish an open line of communication between the stakeholders and your remote team in order to stay on top of the quality control processes, project timelines, milestones, and tasks. And it is advisory to hire a tech-savvy specialist on your side, and this person will be in charge of inspecting the work from remote teams once again. This way, you can ensure the outcome passes all the quality gates before making its way to the deployment. After completion, there should be proactive support and maintenance services included to guarantee the smooth running of your application in an ever‑changing environment or in cases of bugs and errors.

After all, the wrong choice of outsourcing vendor is the ultimate cause of all these risks. On the flip side, finding the right partner pays off in the long run, not only in terms of cost-savings but also quality, reliability, and so much more. Let Orient Software navigate you through these outsourcing risks and accelerate your projects. We are a top-tier software outsourcing service company made in Vietnam with global standards and quality. Find out more about us and how we have been helping hundreds of clients worldwide succeed. We have eight branches around the world, so drop us a message and meet up with our team at your convenience. Look forward to collaborating with you.

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