The Perils of Software Development Outsourcing

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Digital image showing a blue-lighted globe, representing outsourcing worldwide.

Outsourcing is popular and outsourcing of dev work is growing. But for every success in sending development and IT services work offshore, there are multiple stories of failure – some of them spectacular. 

The Standish Group Report Chaos reveals the many perils of outsourcing IT projects in general, particularly sending work offshore. 31% of over 8000 outsourced software projects surveyed, whether onshore or offshore, failed completely and were cancelled. 68% of IT projects suffered from one or more of the following: taking over 180% percent of the allotted target time to be delivered; consuming more than 160% of the estimated budget; and delivering under 70% of targeted functionality.

Half of the projects studied experienced two of these three failures. More than half cost almost three times their original estimate. And only 16% worked out fully as expected and on time and on budget. 

Misunderstandings, security breaches can seem inevitable.

With statistics like these, it’s no surprise that horror stories abound. Here are a few examples: 

A U.S. medical firm regretted the decision to outsource configuration management software development and integration work overseas. A variety of reasons underly this failure. Project managers in the U.S. had difficulty understanding their overseas contact. To make matters worse, the way the software was configured led to major latency issues: updates took up to 13 hours to download.

Another case: A telecom provider thought it would save money by having an offshore company take care of its application development needs. Unfortunately, the contractor’s lack of understanding of the telecom business derailed the relationship. The project had to be scrapped, with plenty of time and money wasted in the interim. 

There are even cases on record of U.S. organizations outsourcing work onshore only to find that it had been subcontracted offshore. The State of Florida, for example, hired a U.S. outsourcer for payroll and HR projects. The work done by the offshore subcontractor led to a serious security breach. 

Further cautionary tales from other parts of the world:

  • One small business paid over $50,000 to an overseas provider who promptly vanished disappeared off the face of the earth –no more returned calls and no product ever delivered.

  • Another outsourcer claimed ownership of the intellectual property it had been paid to develop. 

  • A outsourcer responded to a dispute about the quality of its web development by taking down its client’s eCommerce site without warning. 

Strong project management and due diligence are crucial to resolving outsourcing issues. 

It’s important to realize that these stories represent only a portion of outsourcing projects. But even those who succeed face teething problems. 

One media giant in the U.S., for example, took the bold step of sending a vast amount of its development and customization work for SAP applications overseas. Within a few months, the project was firmly off the rails. Fortunately, the implementation of adequate project management teams on both sides salvaged the project. 

The U.S side put together a strong team of managers including several who had previously been involved in developing the customized SAP applications in house. They, in turn, forced the outsourcer to form its own team to provide enough project management involvement and collaboration to resolve the many issues that had materialized. 

It is clear that the raw price of outsourcing does not take into account the other costs incident with such projects. Thus, price should never be the only driver. And due diligence is vital. 

Finally, let’s end with a success story to show that it’s not all bad. One Danish company send an ERP standardization project to developers in Poland. As well as reducing costs, outsourcing boosted productivity, and helped the company reduce the numbers of personnel tied up in system maintenance.


Further Reading: Learn the Top Ten Reasons Why Projects Fail and explore options to prevent failure with a robust, time-zone spanning project management system.