Calculating & Managing Risks Of Outsourcing IT? Piece Of Cake!

COO Victoria Moiseyenko by COO Victoria Moiseyenko on February 26, 2016

Calculating & Managing Risks Of Outsourcing IT? Piece Of Cake!
Reading Time: 7 minutes

Knowledge is power. Using it wisely is an endless pool for going purely for those risks, which are well-calculated and evaluated. And, while ITO and other types of outsourcing differ one from another – the majority of risks are fairly similar. To fully understand the challenges you will be facing throughout outsourcing, it is required that you understand the primary risks of ITO (IT Outsourcing). We have gathered all the required data and have sorted it into the list below:

  • Not all IT functions are outsourced with ease: You may require an application that affects multiple processes in your organization, like a tool or solution designed for automation of your employees’ workflow. Do you trust your partner, a third party technically, to take part in your internal businesses processes? In any case, you should wisely consider the choice of your outsourcing service provider.
  • You may lose control over the process (on multiple stages of the prітoject, even after the software is live): This debate is centuries old. There are many critics stating that no outsider (the outsourcing vendor) will work as effectively as a person operating for you on a full-time basis in-house due to management differences. Who will be responsible for data recovery, disaster recovery, and maintenance?
  • Outsourcing may affect the morale of current employees: This may happen if you are replacing part of your employees’ current responsibilities and tasks. Part of them might even believe their job is at risk.
  • You may get unskilled coders and testers: Price is what usually triggers people into signing deals with low quality service providers who do not have the skill nor the experience to handle complex projects. This is where the myth about poor quality of outsourced projects takes roots.
  • The other side of bad service providers: You may get tricked into being locked into the services you are provided with. There are many outsourcing providers that trick business owners into yearly contracts that limit flexibility or are not documenting processes appropriately, making it a real challenge to maintain software they have developed without them being involved.

However, in today’s world, most poor service providers are long out of business and most risks are easily managed with getting over the communication breech and choosing a decent and trustworthy outsourcing vendor. Those are all challenges we will be talking about further on in the next part of this whitepaper.

Let’s have a quick run-through of the major challenges of software outsourcing. This category has two strong leaders we will be focusing on from the start and a few more pitfalls you will have to overcome together with your outsourcing partner that will be covered further on. So let’s start with the ‘Champions on the field,’ if the word champion may even be applied here:

  • Lack of communication
  • Belief that all work will be done for you without your presence and cooperation

Outsourcing risks management calculation challenges in communication

Lack of communication

The odds are that people who will be outsourcing work for you will be located in an entirely different country with a unique language and culture. This may make the communication between you and the team providing services more difficult; however, this does not mean you should give up trying. First of all, remember you are the one paying the money, which literally makes you the boss and the person in charge of your project. Today, everybody you may ever require will definitely speak English and any cultural aspects and differences are left outside of work so you should not fear communication with people working for your project.

Belief that all work will be done for you without your presence and cooperation

This is the worst-case scenario if you are considering outsourcing services. People working on the project will need to be sure they are doing exactly what you are expecting from them. You are paying them to work on implementing your ideas into reality, not their own. The delay in your replies may cause significant and dramatic issues and defects at all stages of development and testing.

Technically, there is not much required from you; you are still the person paying money for services. However, you will need to reply to requests from the developing team, and you will need to deliver your ideas and plans to them in an understandable manner if you wish for them to develop exactly what you have planned. Also, stay open to suggestions because you are dealing with professionals who have been working on dozens of project that may be like yours and do wish the best for you and your solution. Your project will most likely be a success if you will be a part of the process. Not more. Not less.

The fun stuff

Now that the above is said, we may focus on other challenges you may face during outsourcing development of your software solutions. These are not as widespread as the two already mentioned; however, they are almost as deadly to your projects:

  • Things are never good, cheap, and quick at the same time. At best you may choose two. If you are offered a dream deal stating you will get mountains of results per several pennies, the odds are you are either being tricked or the company you are dealing with has absolutely no experience nor does it have the required experts and solutions. Or, in a worst-case scenario, you may be caught in a long-term deal that is based on multiple contract terms with pricing that surely will be outdated within several months. Sales promises are far from actual delivery, which is frustrating and annoying at the very least.
  • Watch out for under-quotes from service providers. This may lead to new expenses over and over along the contract as you will be charged due to changed circumstances. This trick, when repeated several times, may truly be devastating to both your budget and your business.
  • The contract may not be designed in a win-lose manner. What is meant here is that often companies are facing such contracts in which one party wins and the other loses. This happens due to multiple processes which are now leaner than before, and many companies are not permanent on fairness to their partners. If the contract negation gets this far, just start looking for a different service provider and no matter who wins the contract, everybody will lose the project due to frustration and the bad attitude that will take place all along the way.
  • You may get into a contract where the service provider will try selling you simpler things for more money. Surely you will require consulting services, app development, deployment, management, and more services and they all may be grounded in a complex contract by dozens of change orders. And hence, all those services are different and have various margins and costs the service provider may be easily using (or even claim using) only the most profitable ones (profitable to him, of course).
  • Many outsourcing providers are suffering from the so called Botox Effect. What does Botox do? It eliminates wrinkles; however, normal facial expressions become unreachable. Today, outsourcing providers have eliminated many pitfalls by replacing various processes with automation techniques. However, all that tech required for automation is expensive. Perhaps too expensive for some. This effect leads such companies to confront more challenges and fight cost pressures to simply stay in the flow without any internal progress. Such a company may not be client oriented; however, these kinds of businesses are crazy enough to try out all of the things listed above, which is bad.
  • And last but not least: misconception. Clients are always giving outsourcing companies more credit as if it is a fairytale place where all problems are eliminated after some contract is signed. And when it comes to the realization that cooperation from both parties is required, this hits people unfairly and the strike is sometimes more devastating than expected.

Fun aspect of risk calculation in outsourcing
Despite best practices and principles of outsourcing that will either prevent you from falling victim to such scenarios or eliminate most of these challenges at the very beginning, there are still several general words that have to be written. Let’s quickly go through the best tricks and tips that will help you overcome outsourcing challenges with ease and grace.

  • You have to realize that embedded business logic in apps has to be identified up front. This is a great reason for conducting experiential workshops and hitting two birds with one stone. You will find out all that’s required about the people involved in the development process, as well as their equipment and technologies.
  • Make sure everyone is involved and that everyone, from marketing and management to IT and outsourcing people, are leaving the meeting with the belief they are following one shared goal. Manage people from your side accordingly and people from the outsourcing provider, despite being already aware of what is expected and being ready to work, have to be managed with their own supervisors.
  • “One size fits all” is the worst thing a contract could state and don’t let such poor attempts at gaining customers fool you. Make sure the collaboration you are entering fits your business needs. Outsourcing lies way beyond simple cost reduction. More opportunities and new advantages will pop up from your embedded knowledge and deep insight into the process.
  • Cost management has to come alongside value increase. Make sure you are aware how your outsourcing partner increases value. Make sure both cost and value are provided in the ultimate balance, fitting your business needs and your budget. This may be the most challenging aspect; however, it is a necessity.
  • Surely the possibility of your outsourcing service provider to change and renegotiate value is a crucial part of an agreement that may play well for both involved parties; however, this very aspect has already ruined hundreds of business relationships. Do not be afraid to interrogate your partner about every single aspect of this matter while in the negotiation process. Make sure you have clear and detailed descriptions when such an approach may or will be applied.
  • Be afraid of people that are stating you will have nothing to worry about in the entire business process as long as you are their customer. Such a business model from your service provider will lead to the demise of both of you, and does not even deserve a chance to live. Markets change, so can your needs and the required tech or prices you are willing to pay. Your perfect partner has to realize and understand your business as well as he understands his own company. And there are aspects that are visible and invisible from both sides. Understanding is the key to realization of how your demands and needs have to be met in the current business environment that is happening now, at this second. Such an approach is impossible without your involvement.

There’s also a wide variety of risks that are only common to a particular country or region. Some risks are purely company-specific. And yet, they are easily manageable if you use some of the approaches, mentioned above.

To make the long list short, you should be looking out for two things from your partner that will most likely illuminate all possible pitfalls, dangers, and challenges: visibility and flexibility. You are prepared; now, what’s your next step?