Risks of outsourcing software development go hand in hand with high rewards.

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 pitfalls of IT outsourcing, 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 them. It will help you approach outsourcing effectively, build a successful product, and profit from the partnership.

But first, let’s briefly touch on why two-thirds of organizations plan to outsource more in the next two years and what advantages make IT outsourcing so alluring.

The key benefits of IT outsourcing

Benefits tend to outweigh software outsourcing risks for most businesses.

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

Lower cost

According to Forbes, cost reduction is the top benefit companies chase when outsourcing IT services. Outsourcing allows you to hire expert developers from countries with significantly lower hourly rates. You also save money on hardware, software, recruitment, sick leaves, rent, utilities, office supplies, and more.

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

Better quality of services

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.

Productivity boost

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.

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

8 biggest risks of outsourcing software development

Before partnering with a vendor and investing resources, you must consider all software outsourcing risks.

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. The result? A yawning expectation gap.

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.

These things can be crucial for delivering a high-quality app, while others may be nothing else but money-wasters scaling all the cost-saving benefits of outsourcing down to zero.

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 a remote outsourced team—onshore, offshore, or nearshore—takes this challenge to a whole new level.

According to Entrepreneur, 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 threat to your project.

It’s pretty typical for vendors to overestimate how proficient their developers are with frameworks and programming languages. But in fact, 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. According to Deloitte, there are a few areas of concern when outsourcing software development:

  • 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

Imagine outsourcing the update of a legacy banking app only to end up compromising the financial records of your clients and your business reputation as a result. That would be a nightmare, and the next point is to blame.

Lack of integrity

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

Poorly chosen vendors 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 an unreliable vendor, 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 while a senior developer just oversees the process. In this case, you will be splashing out $50-70 hourly for a $20-30 job.

Ineffective task management

Task chaos and, as a result, inefficient processes and delivery delays are typical problems for IT outsourcing. 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 each risk that will help you get the best out of outsourcing.

How to avoid risks of IT outsourcing [Bonus Table]

Businesses should develop a sound outsourcing strategy that addresses all key software outsourcing risks.

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 fees for every service 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.
  • 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 IT services

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.

These tried-and-true practices help us eliminate risks for our clients:

  • Always up-to-date libraries on the project
  • A list of potential technical and business risks related to the project
  • Streamlined handling of client requests and task prioritizing
  • 24/7 tracking of project status
  • Secure environment for the most regulated industries
  • Three-phase review of the completed tasks to ensure the solution is fit
  • Clear terminology
  • All changes in the project reviewed by first-class engineers
  • Direct access to top engineers in case of emergency
  • Consulting support by business analysts on a regular basis
  • Knowledge base covering all project-related information
  • Fully transparent development task specification and assignment
  • Monthly activity reports and productivity estimates

These and other practices of our dedicated teams helped us develop successful risk-free products in a variety of industries, from automotive to healthcare.

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. So don’t hesitate to contact us—we will be happy to help.

Frequently asked questions

Are there any alternatives to software development outsourcing?

Yes, IT outsourcing has one major alternative: staff augmentation.

Staff augmentation (or team extension) is hiring personnel on a temporary basis for a project to fill gaps in your team’s expertise. You can find experts from all over the world and hire as many as your project needs for any period. The developers can work remotely or from your office.

The key difference between software development outsourcing and staff augmentation is that you retain full control over the project. The latter leaves you fully responsible for its outcomes.

Why does outsourcing software development sometimes fail?

There are quite a few risks of outsourcing IT services that can spoil the cooperation. In particular:

  • Wrong provider for the job. They can be inexperienced, unprofessional, unreliable, or all at once. Or, there simply can be no spark.
  • Failure to communicate project goals, vision, and scope. It’s not rare for clients to be vague about what they want and assume that contractors are mind-readers.
  • Unrealistic expectations. You can’t create a second PayPal for $30,000, yet many businesses try (and fail).

What is the best way to outsource software development?

To avoid software development risks, consider this:

  • Define your business objectives
  • Outline your development goals
  • Decide upon the budget and timeline
  • Analyze your requirements for the vendor
  • Narrow down the list of countries for outsourcing
  • Assess the vendors, keeping in mind your needs and the risks we listed
  • Choose your vendor and sign a contract and NDA
  • Start the development, holding your hand on the pulse throughout the process

Which countries are best suited for IT outsourcing?

The best country to outsource your work to is the one matching your needs and goals. As of 2022, some of the most popular countries for IT outsourcing include India, the Philippines, Ukraine, Poland, Romania, Brazil, Argentina, Mexico, China, and Malaysia. The reasons businesses choose one country over another vary, as each country has its benefits and risks of outsourcing IT services.