All business decisions, including IT outsourcing, involve an assessment of risks. Today, 37% of IT tasks are outsourced (Zippia), highlighting how significant IT outsourcing is for modern businesses. Offshore development, in particular, has become prevalent and vital because it provides cost-effective access to a global pool of skilled talent, enabling companies to accelerate development and focus on core business activities. Let’s look at the four most significant offshore software development risks and how to protect your organization against them.
Risks in outsourcing and how to mitigate them
While there are many risks of offshoring and specific issues that can occur, all of them come down to four main categories:
Miscommunication and misaligned expectations
Communication within a singular organization often proves challenging. It is even more challenging to deal with a team of software developers from a different culture. Misapprehensions can arise regarding technical language, requirements, and specifications, resulting in software failing to meet the intended needs or quality standards. Developers view things through a unique professional lens, don’t know the project's context, and often communicate in their second language.
Misaligned expectations are another issue related to communication. These can include differences in understanding the project's scope, deadlines, and deliverables. For example, the outsourcing client might expect a fully polished product ready for market launch. In contrast, the development team might assume their deliverables are functional but still being determined.
Clear contracts can mitigate this issue. They should explicitly detail all expectations, deliverables, timelines, and quality standards. Maintaining alignment is achievable through regular communication, such as daily or weekly meetings, and the use of project management tools that monitor progress and issues in real time.
Our solution:
At N-iX, we maintain constant communication with the client, hold regular meetings, create progress reports, and use open channels for feedback and discussions. Our team is experienced in working with clients from different industries and regions, which allows us to understand and adapt to each client's specific communication styles and preferences.
Read more: Why and how to outsource software development offshore?
Incurring hidden costs
Hidden costs are prominent offshore software development risks that can increase the overall budget. Understanding these potential hidden costs is crucial for maintaining the profitability of outsourcing engagements and meeting the project’s goals.
One of the most common sources of hidden costs is scope creep, where project requirements gradually increase or change without corresponding adjustments in budget or timeline. This can happen due to poor initial requirement analysis, changes in market conditions, or simply because certain functionalities were misjudged or overlooked.
Compromises in the quality of the delivered software can also lead to hidden costs. If the software doesn't perform well, further resources will need to be spent on testing, debugging, and fixing the issues not accounted for in the original budget.
Additionally, transitioning tasks to an outsourcing provider is not always straighforward. These include the costs of transferring knowledge, setting up processes, and potentially losing productivity during the transition phase.
Our solution:
N-iX manages hidden costs by ensuring transparency in all its operations. We provide detailed project estimates and inform our clients about any potential project scope changes that might affect the cost. This initial clarity helps set realistic budget expectations and facilitates better financial planning. We employ efficient project management and software development methodologies. These methodologies are designed to streamline the development process, enhance productivity, and reduce time and resource wastage.
Lack of domain expertise
The risk of overestimating a provider’s domain expertise is another critical concern in software development outsourcing, as it directly impacts the quality of the delivered product. With a deep understanding of the industry's nuances, an outsourcing provider might understand the business requirements and correctly estimate their complexity.
Specific industries have to manage complex regulatory regimes and comply with specific standards. A lack of familiarity with the industry's specific requirements can lead to the implementation of improper software, which can have legal repercussions and necessitate costly revisions. For instance, in the US healthcare industry, software must comply with HIPAA regulations, which govern patient privacy and data security. Similarly, in the financial sector, software must adhere to SEC regulations and other financial compliance standards.
Our solution:
N-iX has extensive expertise across multiple domains, including financial services, manufacturing, energy, and healthcare. For example, we have successfully delivered over 250 finance projects and have more than 300 tech experts with financial services domain knowledge. In retail, we have cooperated with over 80 enterprise clients and delivered solutions for 215 markets globally.
Keep reading: Software development partnership with PrettyLittleThing
Intellectual property theft
Entrusting sensitive information about the company’s systems to the outsourcing provider exposes it to the risk of intellectual property being misused or stolen. This can include sharing source codes, business processes, algorithms, and proprietary methodologies.
Reliable outsourcing companies should clearly state their data protection and intellectual property rights policies to avoid such offshore software development risks. To avoid intellectual property theft in IT outsourcing, ensure that your contract clearly defines intellectual property rights. Include clauses on non-disclosure, data protection, and specific rights and obligations related to intellectual property use. The provider should only have the minimum access needed to do their job. This limits potential exposure and protects your assets.
Our solution:
N-iX is committed to providing the highest level of intellectual property protection. We have 21 of experience partnering with leaders of multiple industries. We comply with ISO 27001:2013, PCI DSS, ISO 9001:2015, GDPR, and HIPAA. This demonstrates our commitment to best practices for information security processes, mitigating threats, and ensuring secure data storage.
Dependency
Dependency on an outsourcing provider can become a significant issue when software development does not adhere to industry standards. It can lead to a number of vulnerabilities, including reduced control over key processes, potential disruptions if the provider faces issues, and a weakened bargaining position. Eventually resulting in higher costs or reduced service quality over time.
The core of this problem typically lies in the original team's failure to maintain proper documentation and clear, readable code. Documentation includes software framework, code functions, and development decisions, along with user manuals, API documents, and maintenance guides. Without these, new developers spend substantial time understanding the system and how to modify it without errors.
Our solution:
At N-iX, we have strict protocols for documenting each development phase, from initial requirements gathering to final testing and deployment. This ensures that we minimize our clients’ exposure to offshore software development risks. We enforce these documentation standards through regular audits and peer reviews, guaranteeing comprehensiveness and accuracy. Among other certifications, N-iX is compliant with ISO/IEC 27001:2013. This demonstrates commitment to maintaining high standards of data security and privacy.
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