The hidden costs of outsourcing software development

Published on: October 19, 2020
Last updated: February 25, 2024 Read in fullscreen view

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Previous article: The Hidden Cost Behind Hiring In-House Software Developers

With outsourcing, the bulk of the in-house expenditures go and the cost structure becomes more straightforward and apparent. However, be mindful of the charges that are not so visible for the first calculation. Depending on the collaboration type, e.g. project outsourcing or outstaffing, you may have certain additional charges to take into consideration. These are recruitment fees, communication, travel, administration, legal documents and others.

Hidden costs of outsourced software

Recruitment

Everything you need to know about the screening and hiring remote engineers is right here. Not all IT outsourcing vendors charge for employment. Recruiting costs are already included in the partnership fees in staff augmentation models.

Team Forming

A customer must negotiate contract terms and maintenance to form a remote IT outsourcing unit. Because there will be many extra expenses you have to pay for when forming a remote IT team. For instance: Infrastructure, tools, technologies, hiring process, employees’ benefits and compensation, etc.

Legal Documentation

Outsourcing contracts with all of their associated SLAs, OLAs, UCs, timeframes, and non-disclosure agreements are a need. You’ll need the assistance of a legal professional to make sure that all issues of cooperation and punishment are taken into account. The cost for such service, as well as a charge to notary institutions, is generally ignored when determining the entire cost of outsourcing.

Cost Variability Factors

In addition to the variation in cooperation models and their accompanying prices, be ready for large variances in pricing, and therefore the hidden amounts you can spend or save.

These are the prices you’ll eventually spend that vary depending on such things as location, the uniqueness of the given technical talent in the IT outsourcing market, level of expertise, English proficiency and the length of the engagement.

Consulting creep

Most clients tell us it’s the cost of consulting during engagements that send costs spiraling unpredictably. Almost all digital and IT engagements are now consulting-led, which is pushing up costs.

Even as other areas of IT service have embraced outcome-based pricing, consulting is still largely charged on a time and materials basis. This can be jarring for clients expecting engagements to be priced in a certain way. While some enterprises will appreciate the increased value they get from getting their engagements right the first time, others will find the additional cost hard to justify.

Duplication of work

When problems arise, the first instinct of new IT outsourcing customers is to fix it themselves rather than allow the supplier to take accountability to fix it. This leads to the client retaining more staff than needed and to the duplication of effort. Be sure the roles of the retained staff have a clear remit that does not duplicate the responsibilities of the supplier. There can also be value loss if some business units opt out of the outsourced services altogether.

Misaligned visions

One of the biggest challenges your project can face is making sure your outsourced partner has a vision for your product that is in line with yours.

It's important that your vision is communicated clearly and concisely to all your outsourced partners, whatever their role in the project may be. This way you will have peace of mind knowing that they are always working on their parts of the project with your views front of mind.

TIGO focuses on your vision from day one, ensuring that everyone is always working towards a common goal with your interests at heart.

Final Word

TIGO is here to help you leverage all that internal knowledge you have, not pinch it! The key is to ensure that your outsourcing partner has the same goal as you -developing a truly awesome product that will generate a good ROI.

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