Richard Johnson
"Use your knowledge, skills and abilities to win..."
Offshore Outsourcing is a long-term investment. And it provides long-term payback, but never brings immediate results. The first results become palpable after a year or even more of outsourcing IT tasks.
In spite of the fact that prices of offshore Custom Software Product development are lower by 50 to 70 % than those offered by onshore programming firms, real cost saving from Offshore Outsourcing is much more meager. Sometimes it can reach 50%, but usually it is even lower. This difference is generated by a number of offshoring reefs.
Reef 1: Selecting a vendor
Hidden cost: 2% of annual Custom Software Development Project budget
These expenses include salary of onsite manager of outsourcing Custom Software Development Project, communication (RFPs, requirements specification, contracting), and travel to offshore provider’s location. This price is worth paying because careful vendor selection is a ground for successful Offshore Outsourcing.
Reef 2: Transition of work
Hidden cost: 2-3% of annual Custom Software Development Project budget
Transferring work to offshore partner is the most expensive activity in offshore Custom Software Product development Custom Software Development Project. For a long-term outsourcing relationship, offshore programming personnel must be trained before starting work over the Custom Software Development Project.
When an outsourced process is complicated and business-specific, training may take several months. It is recommended to take offshore programming team to customer’s onshore headquarters and train them with a help of in-house developers. This is connected with significant expenses bringing no real product, but it guarantees that offshore team is properly-trained and ready to work over your specific projects.
Work transition costs include organization of offshore vendor’s infrastructure, as well. To be sure in the quality of outsourced work, Customer should assure that there are proper facilities for programming, testing, data storage and transition as well as reliable communication channels. Offshore infrastructure often demands significant investments.
Reef 3: In-house human relations
Hidden cost: 3-5% of annual Custom Software Development Project budget
Layoff of some of in-house personnel is often an inevitable step when you decide to send a part of your work to offshore programming team. It is a difficult step if considering moral aspects. It takes much time to communicate the need of Offshore Outsourcing to onsite team, both to those affected by layoff and to fellow travelers.
Reef 4: Efficiency costs
Hidden cost: 5-30% of annual Custom Software Development Project budget
Sending work to offshore Custom Software Product development team is connected with significant productivity decrease, brought about by lack of offshore employees’ experience in programming, project management and testing, high rate of personnel turnover in offshore Custom Software Product development companies and communication difficulties. While personnel turnover and communication problems bring about 1 to 5 per cent apiece, productivity decrease may reach 20%.
Reef 5: Improvement of Custom Software Product development process
Hidden cost: 1-10% of annual Custom Software Development Project budget
To reduce efficiency costs, steps for improving development process are needed. This spending issue includes certifications and additional training programs, especially in the fields of Quality Assurance and testing.
Reef 6: Onsite Custom Software Development Project management of Offshore Outsourcing Custom Software Development Project
Hidden cost: 5-10% of annual Custom Software Development Project budget
For successful outsourcing Custom Software Development Project management, in-house manager or even management team is needed. These in-house personnel should be responsible for day-to-day intercommunication with an offshore partner and Custom Software Development Project supervision and control.
The summarized Offshore Outsourcing hidden costs total from 18 to 60%. Nevertheless, IT outsourcing brings profit, especially in long-term projects. The sober estimate of probable cost-saving can prevent customer’s over-expectations about offshoring, thus leading to right and thought-out decisions.
Published on 8/13/2007
