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Best practices for outsourcing software product engineering

By Siddharth Wadehra, Head of Research

Software product engineering outsourcing is an integral part of the business landscape today. Reports suggest that almost 30% of the companies outsourced their technology services and about 78% were satisfied with the outcome. Reports from Statista[1] the global market size of outsourced services to be a whooping USD 92 billion with both larger companies and startups joining the bandwagon. With perks like reduced costs, easier access to talent, and potentially faster time-to-market, it’s no wonder that software development outsourcing has gained significant traction.

However, outsourcing could prove to be extremely tricky if one is not careful. Various risks and challenges could quickly derail any outsourced project and could potentially backfire in more ways than one. We have compiled in this article some of the best practices your organization needs to keep in mind while deciding to outsource a software development project or a service.

By following the best practices listed below, your organization would have a higher chance of success with any initiative you decide to outsource.

1. Define your Outsourcing goals clearly. Before going for outsourcing, you should have good reasons that justify that your business really needs outsourcing services. When you have decided that you should go for outsourcing, then you should clearly define what business goals you want to achieve through outsourcing and how meeting these goals will be beneficial for your business.

2. Due diligence and conducting a thorough background check. The very first thing you would need to do when picking out your software development service provider is to have a shortlist of potential outsourcing provides. This helps in a few days, one of which is to establish a baseline of what the market cost is for such services. Once you know this you can move on to picking a list of those you feel would be a good fit for your project. But this is only half the battle. The next part involves doing extensive research into the companies you have shortlisted. You need to know their strengths, average turnaround time and what previous clients had to say about them.

Do not forget you are entering into a relationship with a third-party, so it’s best to know if they have any history which you should know while considering doing business with them. It's easy to start a relationship but hard to extract yourself when things start going south.

3. Use a collaboration model that best fits your unique needs. The models which your organization can explore with the outsourcing vendor are discussed above. This would also dictate the payment structure which you would eventually establish with the outsourcing team. Some of the accepted practices in the marketplace include the following:

  • Hourly rates: Here the outsourcing team is paid a fixed rate every hour. For smaller software development projects this might be an idea since the lifecycle might be rather short if makes sense to pay for just the time spent on it. This also works when you have projects that require only slight modifications.

  • Fixed rates: A fixed budget is arranged at the start of the product with clearly defined goals, scope, and durations.

  • Dedicated: Usually used by large projects or companies that require the full attention of a dedicated team to work with. Such teams usually work on site.

Once you know the best model that fits your project scope, it's best to get the fine details worked out with the outsourcing team.

4. Maintain clear and effective documentation. Our research suggests that miscommunication is one of the primary reasons why most outsourced projects don’t really meet their objectives. This fact is compounded by the fact that most of the teams responsible for delivering projects would be completely remote. Whenever you are collaborating with your outsourcing partner, it is easy for miscommunication that can send a project off course.

That’s why a Scope of Work (SOW) is such an important document for any project. Your list of criteria should match the specific characteristics of your project. This also includes accompanying tasks, duties and responsibilities to be fulfilled by the outsourcing vendor.

5. Establishing and agreeing-upon milestones and mini goals. One grave error companies fall victim to is thinking the job is as good as done when they hand over all the requirements to the development team. There are so many ways this can lead to catastrophic results.

Instead, certain milestones and mini goals should be established for the total lifecycle of the project. This helps with keeping proper track of what has been achieved and what is still pending. Also, the various milestones let you see the various functional parts of your application. This is important because an actual functional section might identify issues, possibilities and overall flow of the software development process. This also brings modularity to the project. 6. Ensuring IP Protection. This part cannot be overstated. When dealing with third-party outsourcing providers, not only should you establish a secure means of transferring information on the project but a level of access control over the more sensitive data should be implemented on both sides.

It would be best to know what security measures and protocols the outsourcing firm has in place already and how they plan to handle your data. But security is a two-way stream, hence it’s also a good idea to establish secure means on how data is handled and transferred to the development team. It should also be clearly stated in advance what can and cannot be done with the information once it arrives in the possession of the outsourcing team. A carefully-drafted NDA should be a good start to putting measures and protocols in place. You should also consult your legal team and include proper contractual norms in the agreement that forbids the vendor from reusing the code and makes him/her agree to transfer all ownership rights of the code onto you.

7. Establish communication channels and schedules. One of the greatest issues with using an outsourced team when developing custom applications is the lack of understanding between parties involved which in turn leads to delays and in some cases, unusable software. To forestall this, proper communication channels need to be created at the very start of the project. The project score and deliverables should be clearly stated and explained. With both sides coming together and ensure that the full requirements and scope is understood by all.

Following this should be periodic scheduled updates on progress, issues, actionable and others. As long as there is a steady flow of information between both parties, it becomes easier to track where the project is at any point in time.

8. Being hands-on. Another issue which many companies looking to outsource software product engineering projects is that once the scope is defined, they consider it off-their-plate. This sets up the executive team up for a surprise, as you should always be in constant communication with your vendor to understand the progress. Having active participation in the development process is critical for the success of the project.

You should not only be conversant with the current progress but make sure the outsourcing team uses tools and methodologies that keep you in the loop. A detached and hands-off approach can easily lead to misunderstanding and communication gaps that prolong the project's final delivery. Also, it would help to make sure you understand the work culture and processes involved in hiring a software development outsourcing service from any given location.

9. Optimizing Costs. Optimized costs are one of the foremost reasons companies outsource in the first place. This is because hiring the right talent often proves to be an expensive and time-consuming deal.

Even if there is a fixed budget for your project. It does not mean it is wise to go for the cheapest outsourcing company available. There must be a balance between what you expect and what you are willing to pay for it. Once this is established the next step is to figure out what will be paid out and when.

Hence, you need to answer few crucial questions before the development process is kicked off: ● What is the expected cost of the project as per the existing market norms? ● What is your budget for outsourcing product development? ● What are the expected ROI and the break-even period of the project? ● What are the long-term cost projections of maintaining the software? ● Does the vendor have an opportunistic mindset? Can costs increase if an opportunity to do so comes up? ● Are there any hidden costs that might surface after the commencement of the project? Here are some hidden costs that you should consider before outsourcing: ● Fluctuations in currency (applicable if outsourcing offshore) ● Fluctuating market conditions (for long-term projects) ● Errors due to poor communication ● Complexity of the development process

If there are events that trigger payment, it should be clearly stated beforehand. It should be noted at this point that there is a very high possibility of going over the stipulated budget when outsourcing a project. Either due to unforeseen requirements or additions, or issues that crop up unexpectedly.

10. Setting realistic expectations. Chances are that you have not worked with the vendor in the past and a huge gap in expectations might exist as a result. You should thrive to bypass this since day-one by effectively communicating your exact requirements with detailed exemplification and case studies. It is impractical to have a large software development project with multiple complex parts and give a short timeframe for completion which would lead you to a half-baked software.

You can follow this by breaking the requirement into realistic milestones with a realistic timeline. Moreover, you can even conduct support and training sessions for the vendor if the project calls to attune them with the existing technological infrastructure.

11. Ensuring cultural synergies. Depending on the region in which you and your outsourcing team are residing in, there may be a stark contrast in the work culture of the two. Variables like timings and process of working, cultural holidays, and workplace norms may come into the picture. Add in processes that are lacking face-to-face interactions and trust may soon take a backseat. Thus, not only is it important to choose a vendor that syncs well with the work culture of your organization, but relationship management should also take the driving seat. You can do this through more active and informal methods of communication in a way that imparts a friendly, positive, and professional atmosphere at the same time.

BlastAsia – Your Way to Success

It might take a while to get a good match right away but finding the perfect software outsourcing partner means that your business can grow and expand in ways that you haven’t thought of yet. The impact that this arrangement has on your business is rather profound, and as such, proper measures should be used to get it right.

BlastAsia with its 20+ years of experience has been working with clients all over the world helping them with their software development outsourcing initiatives. Complement this with over 12 years of experience in agile product engineering practice, it is no surprise that BlastAsia is one of the preferred outsourcing partners for clients all over the world. With the ethos of cultural and work practice alignment training critical for project success, BlastAsia has a record of training fresh graduates into world class engineers to ensure seamless project delivery and success.

To know more, log on to our website https://www.blastasia.com/ or connect with one of our customer success managers HERE to set-up a consultation.







BlastAsia Inc.

35th Floor, The Orient Square Bldg.

F. Ortigas Road, Ortigas Center

Pasig City, Metro Manila, Philippines, 1605

Telephone: +63(2) 7914 4456 - 58
Fax: +63(2) 7914 4456 - 58 ext. 101

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