risks of outsourcing software development and software outsourcing challenges to consider in 2024

Key Takeaways

  • Software development outsourcing opens cost-efficient growth opportunities, enabling companies to focus on core activities, reduce costs, and access global expertise.
  • IT outsourcing is employed by 92% of G2000 companies.
  • While offering numerous benefits, IT outsourcing might pose project misalignment risks. To eliminate software outsourcing challenges, finding a reputable vendor with a strong portfolio is crucial.

Putting your business idea into the hands of outsourced IT contractors is always a high-risk–high-reward venture. If you leap without considering the risks of software outsourcing, you can sink your project or, at best, waste too much of your stakeholders’ resources.

But if you know how to navigate the common IT outsourcing challenges, it can become the secret sauce that will make your startup the next unicorn.

This article will walk you through the critical risks of outsourcing software development and provide solutions to dealing with them. It will help you approach outsourcing effectively, build a successful product, and profit from the cooperation.

What is Software Development Outsourcing?

IT outsourcing is a business practice where a company hires an external third-party service provider to delegate the software development process instead of doing it in-house. This can include writing code, developing user interfaces, quality assurance testing, product design, project management, or other related services.

Businesses outsource for various reasons. From cost reduction and gaining access to specialized expertise to increasing operational efficiency, this cooperation model allows companies to focus on core business activities. It also allows for scalability, as companies can easily adjust the level of resources based on their current needs.

software outsourcing challenges and statistics to keep in mind

According to Statista, the IT Outsourcing market is predicted to hit $512.50bn in revenue by 2024. With the consistent growth of the outsourcing demand, it’s also expected to grow annually by 10.99% from 2024-2028, reaching $777.70bn by 2028.

Now, let’s briefly touch on why 60% of big companies worldwide choose to outsource software development and what advantages make the cooperation model so in-demand.

The Key Benefits of IT Outsourcing

problems with outsourcing software development and software outsourcing risks can be outweighed by its benefits

More and more businesses of all sizes address software development to outsourcing partners because the rewards outweigh the risks. Here’s the rundown of the expected benefits of IT outsourcing:

Cost and time optimization

Cost optimization is the top benefit companies chase when outsourcing IT services. In fact, 56% of small businesses expected revenue increases in 2023 from project outsourcing. Outsourcing allows you to hire expert developers from countries with significantly lower hourly rates, yet without compromising quality. You also save money on hardware, software, recruitment, sick leaves, rent, utilities, office supplies, and more.

Faster time to market

Software development companies have well-established work processes and productivity tools. Throw their experience into the mix, and you’ll get a power team focusing on the critical task of delivering a top-notch solution instead of wasting their time on side issues.

The dedicated team starts baking your product straight away, while your in-house staff is only preparing the ingredients.

Access to global talent pools

Outsourcing gives you access to the global pool of experienced IT talent. It means that you can fill the expertise gap very quickly. You get to hire people with impeccable skills, deep domain experience, and a long-standing track record of building successful products.

Focus on core business

Outsourcing your software development allows you to focus on other important areas like marketing and sales to speed up your business growth. You can delegate support, software updates, or industry-specific tasks to the outsourced team. In the meantime, your in-house developers can concentrate on the core tasks of high strategic and security importance.

Enhanced Security

With data security being one of the biggest IT outsourcing risks and SaaS development concerns, reputable and certified vendors stand for safeguarding your data. By offering deep cybersecurity expertise and updated technologies, outsourcing partners protect your infrastructure.

They provide constant system monitoring for early threat detection and fast response, following secure development practices and aiding in compliance with industry regulations

Scalability

Outsourcing allows you to easily scale your IT operations up or down based on your current business requirements. If you’re launching a new product or expanding into a new market, you can quickly ramp up IT support. Conversely, in slower periods, you can reduce services to save costs.

Also offered by outstaffing cooperation models, this flexibility makes it easier to adapt to changing market conditions and business needs. As a result, you won’t need to burden yourself with hiring or laying off in-house staff, or investing in additional hardware or software.

These are some of the basic perks of IT outsourcing for businesses. Now, let’s check out the software development risks that can sabotage these benefits unless you deal with them in time.

8 Biggest Risks of Outsourcing Software Development

common problems with outsourcing software development

If not addressed or prevented, these outsourcing risks can put your product’s quality, security, and cost-efficiency under threat.

Misaligned vision

Misunderstanding between the client and the contractor is one of the most typical and dangerous risks of outsourcing software development. It can happen for multiple reasons: unclear project scope, communication barriers, a lack of insight into the client’s business processes, poor awareness of technical nuances on the client side, and more.

The human factor can also come in the way of finding common ground. Your vision, goals, and motivations may differ from those of your contractor, resulting in an expectation gap.

For a successful software development partnership, you and your contractor must be on the same page about the critical factors, including the project’s goal, timeline, and budget. Otherwise, you risk ending up disappointed with the result.

Hidden costs

Unfortunately, many businesses that turn to IT outsourcing to cut development costs spend more than expected or agreed. You may find yourself paying extra for obscure overheads. Or your bill might include additional fees you didn’t consider when you signed the contract.

These overheads and costs can take a big bite out of your project budget. Then comes a limited number of free product iterations and upgrades, relocation, redeployment, after-hour services, troubleshooting, and whatnot.

You may need to pay a surcharge for these services, even though you might’ve assumed that some of them — like quality assurance to test your product — came with the package.

Communication barriers

Even in-house teams working from an office and sharing one language and culture might struggle with building effective communication. Doing so with remote dedicated teams — onshore, offshore, or nearshore — takes this challenge to a whole new level.

Popular countries for low-cost IT outsourcing include India, Poland, Ukraine, the Philippines, China, Brazil, Malaysia, and other non-English-speaking regions. That’s when the first potential hurdle — the language of communication — pops up.

Bring different corporate cultures and time zones (some of them up to 12 hours ahead or behind!) into the mix, and communication issues will snowball into roadblocks.

Lack of domain expertise

Another serious risk of software outsourcing is poor knowledge of industry details like trends, regulations, audience preferences, and programming languages best suited for your domain.

In that case, you risk facing project delivery delays, missed obligations, extra charges, and substandard quality. Or the contractor can outsource the project to a more experienced third party without you knowing it. This might threaten your data security and creative control.

Lack of experience with tools and technologies

Just like with industry expertise, the developers’ lack of proficiency in the required technology poses a risk of software project failure.

It’s pretty typical for vendors to overestimate how proficient their developers are with frameworks and programming languages. But, your contractor may have little experience building the type of solution you want. Don’t let it slide unless you want your project to be a guinea pig for an inexperienced development team.

Security and privacy risks

Outsourcing adds a new layer on top of the existing data security and privacy issues. There are a few areas of concern when outsourcing software development:

  • Insecure data processing and leaks of sensitive customer information like credit cards, medical records, or login credentials to third parties
  • Appropriation of your code and other intellectual property
  • Lack of general and domain-specific compliance certifications like ISO 9001, ISO 27001, GDPR, or SOX protecting your and your client’s data from the negatives of cybersecurity risks.

These software development problems also apply to partial task outsourcing and IT consultations. Imagine outsourcing the update of a legacy banking app only to end up compromising the online payment data of your clients and your business reputation as a result.

Lack of integrity

Another risk is choosing an unreliable vendor with no sense of integrity and obligation.

Poorly chosen contractors can let you down in many ways. For example, they can deny you their warranty services after finishing the project. The warranty guarantees that any defects found in the system will be fixed by the vendor cost-free. However, with a questionable firm, you might pay for the problem fixes out of your own pocket.

Here’s another example. Imagine hiring a team of supposedly middle and senior-level developers but ending up with junior engineers who do all the work on your product. And, in reality, that senior developer just oversees the process. In this case, you will be splashing out $50-70 hourly for a $20-30 job. Moreover, in custom software development, the numbers can be even higher.

Poor task management

Task chaos, inefficient processes, and delivery delays are typical disadvantages of outsourcing software development. The reason behind them is weak project management.

When you hand your project over to the contractor, they usually assign a dedicated project manager serving as a bridge between the two companies. The project manager plays a key role in the project’s success: they distribute tasks, control their execution, and report back to you.

Unfortunately, the risk that your vendor will manage your project poorly is always there. And poor management translates into slow progress and delays.

These 8 of the most dangerous risks in software development outsourcing can have crippling consequences for your project. But there are solutions to risk-free web and app development outsourcing!

How to Avoid Risks of IT Outsourcing [Bonus Table]

how to successfully outsource software development and deal with software development outsourcing pitfalls

Steering clear of outsourcing risks may feel like walking a tightrope, but it doesn’t have to. Follow these steps to mitigate the dangers of outsourcing:

RiskSolution
1. Misaligned vision
  • Participate in an onsite discovery workshop with the outsource team to synchronize your visions and share the project objectives.
  • Create a work statement with key project details.
  • Outline software requirements specifications.
  • Develop a unified terminology framework to avoid misunderstanding (or ask your contractor to do it).
2. Hidden costs
  • When drafting a contract, ask your vendor to specify the hourly rates and pricing models they can provide.
  • Assign a business analyst to the project to estimate technical requirements and control their prioritization while making sure you don’t waste money on unnecessary tasks.
3. Communication barriers
  • Take an active part in interviewing and hiring the development team.
  • Get to know those responsible for your project in person. If impossible, organize an introductory video call for outlined project estimation.
  • Plan regular catch-ups with the team or its project manager to stay on top of things.
4. Lack of domain expertise
  • Always study the company’s portfolio and success stories. Don’t forget to check their expertise in creating projects similar to yours.
  • Have a call with the contractor’s representative (CEO, CTO, client service officer) to talk about their domain experience and how to apply it to your project. Outline your challenges and ask their opinion on how to solve them.
5. Lack of experience with tools and technologies
  • When reviewing the case studies, pay attention to the detailed descriptions of the technologies and frameworks used.
6. Security and privacy risks
  • Search for mentions of ISO 9001 and other industry-specific compliance certifications on the vendor’s website.
  • Always sign an airtight non-disclosure agreement (NDA) to secure confidential information and protect intellectual property.
  • Make sure all the created code is documented.
  • Find out if the vendor has risk management policies in place to mitigate security risks.
7. Lack of integrity
  • Check how many years the vendor has been on the market, the number of employees and returning clients, client and staff testimonials, and the number of successful projects.
  • Look up their rating on Clutch.
8. Ineffective task management
  • Interview the project manager personally before taking them on board. Do a full assessment: their command of English, their experience, the tools they use, and their task review process.
  • Ask the company’s representative to describe their task management process—true professionals love sharing their strategies.

Acropolium’s Approach to Outsourcing Services

overcoming common risks in software development with Acropolium

With three unicorns and over 170 projects across industries under our belt, we at Acropolium have a fair share of experience fighting software outsourcing risks. Following advanced project methodologies and practices, our dedicated teams craft successful risk-free products in a variety of industries, from hospitality to healthcare.

Success Story: Medical Software Development Outsourcing

Thus, when partnering with a medical clinic, the client trusted us with a SaaS-based appointment scheduling software.

Challenge

The company’s challenge was the reliance on manual entry. They decided to outsource SaaS development for a highly digitized system for appointment booking with smooth access to patient medical records.

Solution & Results

We addressed these issues by creating patient appointment scheduling software, enhancing workflow efficiency and customer experience.

  • The solution included a SaaS appointment app with vital features, along with a secure clinic scheduling software offering two access levels — basic and premium.
  • It supports multiple languages and users and is integrated with an electronic health record (EHR) platform for seamless patient appointment booking.
  • The no-show patient rate decreased by 30%, with patient wait time lowered by 25% and an overall 40% increase in users accessing their medical records.

Success Story: Hospitality Software Outsourcing

We’ve witnessed another bright example of successful outsourcing cooperation with a hospitality provider that was looking for a hotel management system.

Challenge

The challenge during development was to ensure the secure processing of large data volumes. At the same time, we had to integrate the solution with booking platforms and internal systems for real-time data display and secure online payments.

Solution & Results

  • We implemented features to automate bookings and reservations, reducing human error.
  • Our team ensured real-time messaging for swift communication between hotels and guests, which resulted in a customer base increase of 9.7%.
  • We also added room customization options, allowing guests to personalize their stays with automated check-ins and check-outs.
  • Eventually, there was an 82% increase in integrations with booking platforms and payment intermediaries.

Final thoughts

Starting as a way to cut costs and speed up development, IT outsourcing can easily turn into a disaster. You can avoid it, though, by considering the outsourcing software development risks.

Choosing a reliable and experienced outsourcing partner plays a decisive role in ruling out risks and disadvantages. The right vendor will guarantee you significant cost savings and high quality. At the same time, they will shoulder all the challenges and responsibilities.

At Acropolium, we know how to manage technical and non-technical risks across industries and product types. And now that you are aware of the benefits and risks of outsourcing IT services, you can start your journey. So don’t hesitate to contact us—we will be happy to help.

Sources of Information