The Hidden Costs of Offshore Software Development

Most companies who are looking to outsource their software development do so to reduce overall costs and increase efficiency of delivery. However, a major concern with outsourcing is accumulating unexpected costs that exceed savings – otherwise known as hidden costs. When outsourcing, it’s important to consider the distance of your outsourced software development team as it plays a major role in the amount of control you have over the productivity and direction of your software’s build.

When considering the distance of your software development team, understand that time zones impact the quality of collaboration and management that you’ll have with your team. The greater the distance, the shorter window you will have relative to normal business hours to provide oversight 0n the progress, priorities, and direction of the build. Inherently, having less control over these processes can lead to the encroachment of hidden costs throughout the software’s development.

Top 8 Offshoring Risks

1. Increasing Costs of Management

The distance between you and the software development team can lead to unexpected increases in the cost of management. Two major factors that affect the costs of management is distance travelled and quality of communication.

Cost of Travel

While many large corporations may have a working budget for the cost of travel, the time commitment to travel can be a burden for C-level executives and directors. A one-way flight from California, USA to Mumbai, India will take nearly 18-hours. Meanwhile, flying to visit a software development center in Hermosillo, Mexico will take less than 2-hours. The inbound flight, reviewing the development progress, and flying back home will take at least three-business days at best with an offshore firm. A nearshore firm in Mexico will only take you a minimum of one business day. For C-level executives and directors, this time commitment can be used to manage other priorities.

Limited Communications

When outsourcing, it is imperative to have high-quality communication between the distant-team and your business. The further away your software development team is from your business, the greater effect that time zones have on the opportunities you have will have to communicate. For a client in New York, NY, business starting at 9:00am will be 10:00pm in Shanghai, China. The client in New York, NY will be a whole day behind of their software development team, limiting the opportunities for feedback without hiring an overnight manager and software developers.

2. Fees for Additional Work

To avoid going over anticipated budget, effective planning and communication are key to ensuring that development meets its goals. Client companies can get the most out of the hours put into software development by partnering with a firm that practices Agile methodologies, because Agile works to mitigate risk. However, to make Agile methodologies work effectively, the outsourced team and client will need to have consistent and effective communication to benefit from collaboration.

4. The Cost of Errors

An offshore outsourced software development team can lead to delays in the feedback of ideas and deliverables. This can lead to software engineers slowing productivity during waiting periods and sloppy production from rushing to meet deadlines, creating mistakes. The cost of reworking increases overtime as the software accrues more work from rushing that will need to be addressed later.

In addition to the cost of reworking mistakes, adding on new features is also hindered by the limited opportunities for collaboration. Software development teams who practice Agile methodologies are highly flexible to change in direction, including the building of new features, due to its principles of sustained collaboration. However, these Agile methods are most effective with open communication for collaboration. Having limited communication can lead to inefficient collaboration, delaying the implementation of new features.

5. Poor Data Security

When sharing proprietary information with an overseas third-party, there are risks of that information being disseminated, or even stolen. Likewise, the increased access to your company’s stored information can result in data theft.

6. Legal Issues

Dealing with foreign governments can be complicated depending on your business. Learning a new set of international laws and regulations and how it impacts offshoring your software development there can be a risk, and include added financial costs.

7. Turnover

Foreign companies often have high turnover rates, which results in having to retrain personnel to get them up to speed on your project. In many cases you may not realize that your team has been replaced with new employees, who are slowly acclimating to your project without the proper direction.

8. Poor Infrastructure

One of the bigger risks of offshoring is one that the programming team has no control over. In developing nations, reliable access to the internet, viable telecommunications for international phone calls, and — most importantly, a dependable electrical grid reduces the effectiveness of an outsourced team.

Nearshore Is the Cost-Conscious Solution

Companies looking to outsource their software development should take into consideration how distance affects the quality of communication and control that they have over the developer’s direction, progress, and priorities. While Agile has proven to be a cost-conscious practice of software development, it is most effective when collaboration flows freely.

Nearshore software development firms have the advantage of sharing similar time zones with companies in the United States. The closeness of a nearshore software development firm offers client companies the savings of outsourcing with the dynamic of an in-house team. Having greater control over the progress of software development will help mitigate unexpected costs, giving you the most return for your investment.

Tiempo Development is a software development with centers in Monterrey, Mexico City, and Hermosillo, Mexico. Our engineers practice Agile methodologies in collaboration with clients to build high-quality software to their needs. For more information about our software development in Mexico, read our whitepaper about Agile and Nearshore Methodologies.