Jeniffer Wilkinson
"I used to be a programmer, now I am a writer :)..."

When Software Outsourcing Makes Sense

There are a lot of discussions on whether Software Outsourcing is really as profitable as it seems from the first sight. Pessimists argue that Software Outsourcing is connected with too much hidden costs and serious risks which make it even more expensive than onshore Programming. There is a deal of truth in this point of view. However, it is not 100% truth. In order to decide whether Software Outsourcing is profitable or not in each specific case, one should understand when Software Outsourcing makes sense.

Many companies including world leaders like Microsoft and IBM outsource their Programming and Examination tasks to Teams. The reported average cost-saving is 30%, and it amounts 50% in some cases. The figures dispel any doubts about the profitability of Software Outsourcing.

The decision whether to outsource or not is usually based on a calculation. Costs needed for establishing domestic software development center and costs needed for outsourcing the Software Development Project to Outsourcing Software Team are calculated and compared. If the first figure is lower than the second one or even equal or higher but the difference is minor, Software Outsourcing is not the thing for this Software Development Project. Slight cost difference in favor of outsourcing may be whittled down by the risks connected with offshore development. When the difference exceeds 30%, outsourcing the Software Development Project to offshore Outsourcing Software Team is a reasonable decision.

Different Outsourcing Models Are Suitable For Different Outsourcing Projects. Offshore Development Center (ODC) Is A Model Providing Outsourcing Software Team Working Over The Long-term Software Development Project. In This Case Software Outsourcing Providers Usually Set Up A Fixed Monthly Fee. There Are 2 Ways To Establish The ODC. The First One Is Foundation Of Own Software Development Center In An Offshore Country. It Includes Leasing An Office, Hiring A Personnel, Buying Necessary Hardware And Software, And Other Organizational Activities. The Second Way Is Hiring The Dedicated Outsourcing Software Team In An Software Outsourcing Outsourcing Software Team. The Dedicated Outsourcing Software Team Is A Team Of Developers Working Permanently Over One Long-term Software Development Project For Only One Outsourcing Customer. In This Case Allocation Of Management Functions Must Be Agreed In Contract.

When a Software Development Project is not permanent but temporary and limited to development of a certain Software, it can be outsourced to a Outsourcing Software Team on a front-end basis. In this case Outsourcing Software Team is responsible for most of management functions, project planning, teaming, testing, and other routine activities. R&D functions can be either implemented by a domestic team or outsourced to Software Outsourcing provider.

Offshore/onshore model is probably the most reliable one. It means that project is outsourced to onshore company with overseas operations, so sales and management are implemented within Outsourcing Customer's country while development is outsourced to an offshore location.

So, does outsourcing bring profit? The answer is 'in some cases'. The outsourcing makes sense if your Software Development Project is suitable for offshoring.

Released online: 5/10/2007