How to save your software development budget in IT outsourcing

How to save your software development budget in IT outsourcing
N-iX
2019-11-04T18:44:37+00:00

The way we perceive IT outsourcing is swiftly changing. But the key problems remain the same. Businesses suffer from frequent delays in software development, poor communication with remote teams, inefficient management, which affect their software development budget. And this is something that ...

How to save your software development budget in IT outsourcing
By Marta Hlova November 04, 2019

The way we perceive IT outsourcing is swiftly changing. But the key problems remain the same. Businesses suffer from frequent delays in software development, poor communication with remote teams, inefficient management, which affect their software development budget. And this is something that an experienced IT outsourcing vendor can help you cope with.

With that in mind, here we discuss the solutions to common problems every CEO or CTO should keep in mind to save their IT outsourcing costs. If you are thinking about how to optimize your software development budget, these tips will help you save a lot of money.

  1. Select the company with the best quality-price ratio

Cost reduction remains one of the main reasons for IT outsourcing. Companies are looking for IT providers overseas to save their software development budget. It’s true, the rates of software developers in Asia and Latin America are tempting.

Annual software engineer salary in top countries across the world

For example, in Colombia, the annual software engineer salary is more than 5 times lower than in the USA. And in India, the average programmer salary is almost 7 times lower than in the UK. However, the lowest software engineer salary often comes with high cost-poor quality. In other words, you get what you pay for.

You shouldn't look for a low software engineer salary. The best way is to define your budget beforehand and then find a partner that will fit it. The Eastern European countries such as Ukraine, Poland, or Bulgaria offer the best quality-price ratio. The software engineer salary in the UK is 2 times as much as in Poland. This allows for saving the software development budget without undermining quality. This situation is related to the state of the economy and the standard of living of people there but doesn’t mean to the poor quality of IT services. Eastern Europe is famous for its profound engineering education. Poland and Ukraine graduate 15,000 and 23,000 IT specialists respectively each year, which are further employed by the top IT service companies.

  1. Make sure all the requirements are clarified

Inaccurate and incomplete project requirements is one of the main reasons why your money is going through the roof. It often happens that a client wants to launch their product fast to outrun competitors on the market. They have a general idea what features the product should have but pay little attention to competitor analysis, product discovery, user experience, security standards. The tasks are added directly to the backlog without detailed specifications and previous research. As a result, the product lacks scalability, usability, security, etc. So the client needs to invest additional money to polish it so as it can meet the industry standards. 

With a skilled business analyst, however, you can avoid the problem. And a mature IT outsourcing partner should offer BA expertise and help you collect and clarify all the requirements and artefacts. The role of a BA is pivotal during the whole software development life cycle. They help define project requirements against what’s technologically possible as well financially and functionally reasonable. This eliminates the problem of double work and significantly saves a software development budget. If the client isn’t ready to invest in the BA on the project, the reality is that they will probably invest much more in enhancing their solution in the long run. 

  1. Choose the right cooperation model

In general, companies go for IT outsourcing either to extend their software development capabilities, build a software product, or deliver a business solution. There may be three main cooperation models: dedicated development team, time & material, and fixed price. If a client fails to choose the right model for a project, their software development budget could greatly suffer. So make sure your IT outsourcing vendor can suggest you the best cooperation model that suits your business needs.

Save your IT outsourcing costs with the right cooperation model

Fixed price model works best for small and medium projects with clearly defined requirements. Both parties need to agree on the detailed project scope, requirements, budget, and deadlines from the outset. Any deviation from the plan requires the complex process of change request approval. So it is the least flexible cooperation model.

Usually, a client needs to develop a solution, has a certain budget but doesn’t have enough expertise and capacity to do it internally. So the client entrusts the success of the project to a vendor under the fixed price model. In fact, it is one of the most expensive models of cooperation because the vendor bears all the risks and is fully responsible for project success. 

By contrast, a dedicated development team model is a viable solution for long-term projects with evolving requirements when a client needs to develop a product or extend its software development capabilities. The client receives a team of software development professionals entirely focused on the project, works closely with them to define a project roadmap, either takes part in team management or delegates it to the vendor, and has total control over the software product. This model is highly flexible and fully adaptable to any changes. 

As for the T&M model, it is frequently used when a client needs an expert on a temporary basis on a project: a UX designer, a DevOps engineer or a Solution Architect. As a rule, it doesn’t make sense to allocate these specialists under the dedicated development team model on full-time, because you will suffer unnecessary expenses. So it is more effective to engage these experts part-time and pay only for the work done based on the hourly rate of an IT specialist. This ensures cost-efficiency, transparency, and timely delivery of the tasks.

  1. Ensure effective knowledge transfer within the project

Unshared knowledge affects software development cost. When a team member walks out the door, they take a boatload of experience with them. And if it is not documented, it is lost. It takes a lot of time and money to build up this knowledge from the ground up. Thus, in IT outsourcing, the knowledge transfer process is essential at all stages of software development. And this is something that the majority of companies overlook. In the end, it leads to missing deadlines and high employee turnover rates.

At the beginning of the project, Knowledge transfer should be performed from a client to a vendor or from a previous vendor to a new vendor. During the project exit, a vendor needs to transfer knowledge back to the client so that they can use the solution effectively. The same true of the very process of software development. When new members join the team, they need to acquire important knowledge on the project to work efficiently. In fact, an experienced software development vendor can help you organize different flows of knowledge transfer during the project keeping your company’s knowledge safe.

  1. Watch out for sneaky clauses in a contract 

A poorly assembled contract may result in unexpected IT outsourcing costs or even heavy penalties. It is important to draft a contract that satisfies both parties. Before signing the contract, it is important to carefully examine it especially regarding such issues as notice periods, payment terms, confidentiality and data protection.

For businesses that grow rapidly, it is essential to have the possibility to scale and shrink the team within the shortest time frame. Depending on the tech stack and the local tech talent market, the length of a notice period about extending or shrinking a team with one IT specialist can vary from 1 to 3 months. Make sure you agree with a vendor on the reasonable notice periods to avoid unexpected delays in software development that will influence your software development cost.

Clients also need to be aware of the consequences outlined in contracts for missing payments. Usually, the vendor reserves the right to stop all services to a client and dissolve a team of IT specialists in case of a payment delay longer than a certain period of time. So pay attention to these terms when signing a contract.

The cost of data breaches and cyber attacks is the most dreadful for companies. Thus, a client should ensure that a vendor undertakes recurrent internal audits of its compliance with the security controls and policies. Also, it is important to check whether a vendor has established practices for data protection such as deidentification, reidentification, and anonymization of data in big data sets. Vendors should protect data from loss, destruction, falsification, and unauthorized access according to legislative, regulatory, contractual and business requirements. They have to ensure secure log-on procedures, password management, cryptographic keys management, network security, and information asset management.

  1. Ensure healthy communication with your outsourced team

The issue of communication covers several important aspects such as insufficient English proficiency, cultural differences, the lack of emotional intelligence, etc. However, the main problem arises when remote software developers don’t understand the client’s business needs. Many offshore projects are doomed to failure because customers fail to clearly communicate their goals and overall plans on the strategic level. When an outsourced team doesn’t have enough information on your business, they can’t apply their experience to the full to help you innovate your product. Articulating the vision of a project would help offshore specialists contribute to formulating a winning product strategy. 

Communicating with a remote software development team can hinder software development if your provider doesn’t know how to establish a set of best practices. Frequent business visits, daily standups, regular planning sessions, retrospective meetings, team buildings, etc. can help establish healthy communication between a client and a vendor. 

  1. Define clear metrics and KPIs for your outsourced team

To define clear boundaries of your remote team responsibilities, you need to establish specific measurable KPIs that will benefit your business. When KPIs are not connected with your business strategy, you’re wasting huge amounts of time and money because software developers are doing a job that will have no tangible results. Finding a vendor that will contribute to defining your metrics and tracking progress will help you save your budget. To measure KPIs of your outsourced team, ask your vendor to use tools, dashboards, and reports that will help you analyze and improve their work on a day-to-day basis

  1. Find a vendor that would manage your team effectively

When you settle on IT outsourcing, you need to ensure that your project is in the right hands. To build successful cooperation, many offshore development companies provide delivery managers (billable or non-billable) to their clients. A delivery manager works closely with a client for the first months of cooperation to devise an efficient remote cooperation model and help to set up all the processes connected with managing people, processes, and a product. A delivery manager is also accountable for business processes integration, technology alignment, operations management, and regular performance and financial reports.

  1. Don't go for multiple vendors for short-term to save your IT outsourcing costs

Partnering with vendors frequently for less than one year is considered to be not profitable in terms of a software development budget. The main reason behind is that a long-term IT outsourcing partner can always offer you the most attractive per-year contract rate. So you should define clear selection criteria to avoid the risk of recurring vendor searching and save your IT outsourcing costs.

Also, the privilege of long-term cooperation is strategic partner relationships. The vendor will become more than just a ticket solver and contribute to growing your business. Such companies as Anoto, Lebara, Currencycloud, Ratesetter, Hotschedules have already discovered the benefits of long-term cooperation and now experience steady growth and prosperity.

A key to planning your software development budget

As you can see, the software development budget depends not so much on the software engineer salary, but rather on some other aspects such as cooperation model, business requirements, knowledge transfer, and more. 

The list of common IT outsourcing mistakes presented in this article is not exhausted. A mature IT outsourcing partner, however, which has vast experience and established best practices in place can help you avoid some of the most tricky problems and save your IT outsourcing costs. Interested? Contact our experts to find out more.

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By Marta Hlova November 04, 2019

About N-iX

N-iX is an Eastern European provider of software development services with 900+ expert software engineers onboard that power innovative technology businesses. Since 2002 we have formed strategic partnerships with a variety of global industry leaders including OpenText, Novell, Lebara, Currencycloud and over 50 other medium and large-scale businesses. With delivery centers in Ukraine, Poland, Bulgaria, and Belarus, we deliver excellence in software engineering and deep expertise in a range of verticals including finance, healthcare, hospitality, telecom, energy and enterprise content management helping our clients to innovate and implement technology transformations.

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