IT Outsourcing Risk Management: Best Practices

Outsourcing software development has become quite popular nowadays for many different reasons. Companies turn to outsourcing to save on costs, free up time for core business activities, and access the best professionals worldwide. While outsourcing is a smart practice, it does come with some risks, like keeping your data safe, or communication issues. These can be easily handled with careful planning and picking the right partner. Sure, there’s always a chance that things might go wrong one way or another, but it’s important to be ready and flexible to solve any problems that might come your way. 

In this article, we’ll review some common risks of outsourcing software development, and give you examples and tips to help you handle these challenges. 

Why do Businesses Outsource Software Development?

First things first, let’s talk about why outsourcing software development is so popular these years. Well, companies are always on the lookout for ways to cut costs without losing quality which makes sense. Outsourcing to a country where labor costs are much lower is a good way to do that. But it’s not only about saving money, it’s also about accessing top talent, that is not available in their area. According to Statista, the IT outsourcing market is quickly growing and is expected to bring in $110.10 billion in revenue in 2024. 

Let’s look at the main reasons companies outsource their software development with examples:

Offshore IT Outsourcing Helps Reduce Operational Costs

Compared to traditional hiring, IT outsourcing can be a more budget-friendly option for different reasons. For starters, companies don’t need to invest in training and maintain an in-house team which comes with expenses like employee benefits and infrastructure. In outsourcing, they don’t need to worry about such costs, because they only pay for the service provided. This way, companies have more control over their budget and can allocate resources better.

Let’s say a software company is planning on developing a new mobile app to promote its products to a wider audience. The company has a tight budget and doesn’t have the in-house specialists suited for the project. They have found the perfect solution and started collaborating with a reputable offshore team from Eastern Europe. The offshore outsourcing team has the necessary expertise and can offer lower costs and high-quality work to do the project. 

Partnering with Specialized Development Companies for Advanced IT Solutions

Using the latest technologies to stay competitive in business is a priority for most companies. With IT outsourcing, this is made easy, because companies can have access to the most talented specialists in different programming languages, frameworks, or technologies. This way, they receive quality services, while also reducing the time they would have spent on in-house hiring otherwise. 

Example: A big financial services company wants to use blockchain technology to upgrade its transaction processing. They don’t have in-house experts for blockchain development so they decide to work with a well-known outsourcing team from Asia. They have a portfolio with successfully completed projects using blockchain so they are right for the job. The financial services company gets to benefit from their expertise without having to train and hire in-house employees which is a more time-consuming and costly process.

Outsourcing Non-Core Tasks to Focus on Business Functions

Outsourcing software development can also mean that the company can shift their focus more towards what they are best at, or important business activities that help them grow and innovate. For a company that’s juggling multiple things at once, this might be a smart approach that can contribute to its long-term success.

Example: Imagine you have an e-commerce company that’s doing well. You have a growing customer base and sales are going up. But as your business grows, you quickly realize that you don’t have enough internal resources to handle this growth which makes it difficult to focus on other important areas like creating business strategies or updating the products. You decide to partner up with an outsourcing team to handle your software development needs. You have more time to concentrate on core business activities this way. You get to focus on what you’re best at while other areas of your business are also taken care of.

Adapting to Changing Project Needs

It’s not easy but it’s necessary to keep up with the always-changing market needs and new project requirements to stay relevant. With the flexibility outsourcing offers, businesses get to quickly scale their development teams as their needs change. This can be especially useful when it comes to allocating budgets better and responding to different opportunities and challenges.

A mobile app development company sees a significant increase in its workload during the holiday season. They selected a flexible outsourcing company to take care of some tasks for the holiday season, and easily reduced their outsourcing needs once things had quieted down. 

Faster Product Launches with the Help of Global Development Team

Businesses benefit from faster development processes when partnering with outsourcing teams. They have the chance to take advantage of a 24/7 development cycle if they choose an outsourcing partner from a different time zone. 

Example: A tech startup just came up with a great product idea with a high potential for success. To bring the product to market as quickly as possible, they choose an offshore partner from a different time zone to help with software development. The tech company gets to be the first among its competitors to bring the product to the market, thanks to the 24/7 development cycle offered by the offshore team.

Partnering with Experienced Outsourcing Teams for Project Success

In-house hiring is not always the best option for companies, since it’s a more time-consuming process and might also require additional training. Experienced outsourcing teams stay updated with the latest technologies, and constantly invest in their self-development. If you opt for outsourcing, your chances of finding the best-fitting expertise you need are very high. 

Example: A healthcare organization is planning to create a modern patient management system. They don’t have access to experts for this project in-house, so they decide to outsource to a team proficient in that technology. The outsourcing partner follows security protocols and checks for any risks while working on the project, helping the organization manage its patients more easily in the new app. 

Common IT Outsourcing Risks and How to Avoid Them

While outsourcing IT projects is a great way to access talented specialists and save on costs, it can also come with certain risks. To benefit from outsourcing services, we need to be aware of potential risks they might pose because understanding them will help us take measures to avoid them. 

Communication Barriers

Communication is the base of any business relationship, not just outsourcing. Since you’re partnering with a team from a different country, chances are, you haven’t met in person yet, so you mostly rely on online communication. Miscommunication can lead to so many problems, like misunderstandings, project delays, or even quality issues. To avoid this happening, make sure you set up communication channels from the beginning. There are many collaboration tools out there that you can use for project management and tracking. Regular video conferences and check-ins also help everyone be on the same page. Make sure to find time to get to know your outsourcing partner to understand their culture, and practices to build a strong working relationship.

Quality Control Issues

Maintaining high quality throughout the project’s lifecycle is another common challenge that could come up in an outsourcing collaboration. It can happen usually when the outsourcing vendor and the client have very different practices and expectations. This can lead to delays and possible rework which takes time and effort.         
Setting clear expectations and quality standards from the start will help you avoid this issue. Also, make sure to hold regular meetings and review work to maintain high quality standards.

Intellectual Property and Data Security Concerns

When outsourcing IT projects to external vendors, companies face the risk of intellectual property theft. Create legal agreements that address the protection of your intellectual property and data. Signing non-disclosure agreements (NDAs) with your outsourcing partner is also beneficial. However, before choosing a vendor, make sure they follow strict security protocols regarding data protection.

Scope Creep and Project Management Challenges

In project management, “scope creep” happens when project requirements frequently change. This can lead to increased costs and delays. Bad project management can make things even worse, so it’s very important to prioritize defining the project scope, and its objectives from the beginning of the collaboration. You can also put change control processes in place to handle any scope changes and see how they might affect the project. Make sure to collaborate closely with your vendor to keep everything on track and within budget.          
 

Vendor Reliability and Performance Issues

Relying too much on an external vendor can come with challenges related to reliability, performance, and business continuity. So, when selecting an outsourcing vendor, take the time to evaluate their track record, portfolio, and client references to see if they’re the right fit for your requirements. Note that, even then, things can still go wrong, so you want to make sure to have a contingency plan to be prepared for any issues that might come up during the collaboration.

Cultural and Time Zone Differences

It’s usually great to meet and work with people from a different culture. When partnering with a vendor from a different time zone, though, it can be difficult to sync schedules in a way to maintain constant collaboration and communication. It’s not impossible, it is just something to consider when choosing an outsourcing team. Make sure that everyone can attend meetings, even with time zone differences. For a good collaboration, there are many online tools you can choose from to keep communication consistent with your outsourcing team. 

How MoldoWEB Can Help Mitigate IT Outsourcing Risks

At MoldoWEB, we prioritize offering you a pleasant outsourcing experience at all times. With over ten years of experience in software development and IT outsourcing, we have specialized experts ready to help you with your IT project and take it to the next level. 

Here’s how we help you manage the common IT outsourcing challenges listed earlier: 

Flexible Options: We know the same solution doesn’t work for everyone, so we offer different ways to work together. You can choose from a fixed price or something more flexible; it’s up to your needs. 

Clear Updates: You will get regular updates regarding the project without having to ask.

Smooth Teamwork: We build successful partnerships based on mutual respect. This makes collaboration with our partners productive and collaborative. 

Proactive Risk Management: Paying close attention to potential risks that might come up helps us keep everything under control and free of surprises. 

Conclusion 

Outsourcing IT projects is a good idea for businesses that want to access talented specialists worldwide and save on costs. However, as with any business processes, there are some risks associated with outsourcing. These can be related to communication, quality control, intellectual property and data safety, scope creep, and unreliable vendors. It’s good to be aware of these challenges to be able to tackle them early on. This article offers tips on how to manage these common risks that come with IT outsourcing. 

By choosing trustworthy outsourcing partners, you can reduce these risks and make the most of outsourcing.