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September 29, 2022

Understanding the Hidden Costs of Offshore Software Development Projects

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Offshore development remains a popular choice for businesses to offset expensive technology costs. According to Computer Economics, the overall percentage of IT budget for outsourcing is at its highest rate in over 10 years. Offshore teams promise cheaper prices for quality IT workers anywhere around the globe. But the return on investment is often a break-even proposition at best when factoring in the added cost of communication and management of offshore teams, alongside the quality of work. 

Before pursuing an offshore contract, businesses should consider the hidden costs that may reduce their return on investment. 


Communication and Management of an Offshore Team  

Managing an offshore team brings unique challenges. Teams that have worked together for a long time develop their own sets of norms and values. This “working agreement” often includes the way the team interacts daily — internal conflict resolution, standardized scheduling and core hours, and the ability to adapt to each other’s schedules.  Maintaining team norms builds accountability and trust; when these basic tenets of teamwork are disrupted, it can be exponentially more difficult to manage the team.  

Additionally, there are more layers of communication when managing offshore teams, increasing the possibility of misalignment.  Communication that normally travels outward from leadership will need to be reformulated for a new audience, and the team will have to spend extra time making sure that the original intention is not misconstrued. Messages that flow outward from the team will need the same level of tailoring. Beyond these increased communication paths, team members will have to adjust their working schedules to accommodate offshore schedules, which could lead to increased overtime and decreased output on other activities. Team communication will also become more asynchronous. Virtual meetings may have to be changed to emails or instant messages. These seemingly small adjustments will eventually add up to large, impactful changes that could have detrimental effects if the extra effort is not taken to manage them.  Research by Salesforce asserts that 86% of workers believe that ineffective communication is the underlying reason for workplace failures. And these failures add up. The Holmes Report asserts that the cost of poor communication has reached an astounding $37B in lost revenue.  


Impacts on the Quality of Work 

When unanticipated delays occur in software projects managed with offshore teams, the burden to catch up often falls on the Quality Assurance and Testing team (such teams tend to be deployed to reduce risk alongside offshore developers). Quality Assurance can be a very specialized, highly technical task that makes it especially challenging for offshore team members to pick up quickly. This can lead to additional defects and rework, which ultimately leads to delays in deployment. The cost of fixing defects at later stages could very well outweigh the financial benefits of offshore development.  The Systems Science Institute at IBM has reported that the cost to fix an error found after a product was released can be over 100x more expensive than one identified early on in the design phase All the savings gained from choosing an offshore team could be offset if testing is not rigorous and preferably automated. 


When Hiring Offshore Teams Makes Sense 

There is no ‘one-size-fits-all’ approach for deciding to use onshore or offshore developers to complete your project. Trusted onshore teams of business experts should be used when building a prototype or minimum viable product (MVP). An MVP will help you determine how well your product resonates with your stakeholders before committing more resources and budget to it. Once value is confirmed, offshore resources combined with onshore management could provide the additional support needed to scale the project outside of the discovery phase. Offshore development teams would also be ideal for projects that have clearly defined, well-documented, and largely unchanging requirements. These types of projects often allow for developers to work autonomously with a larger backlog of items ready to work. This will allow for the most impactful work to get delivered, improve the overall workflow, and allow for easier decision making. However, a key mistake organizations make is underestimating the complexity and emergence of requirements in the IT space. When new requirements do arise, the inability of off-shore teams to adapt can quickly erode any cost savings. 


Looking to maximize ROI on your next IT development project? Contact us to get started! 

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