Custom Software Development Outsourcing: What Does Value for Money Mean?

Outsourcing software development can greatly decrease costs; no doubt about it. But we also know that lower rates don’t always translate to an overall better deal, and that’s the very challenge of outsourcing. I mean, who has never heard of IT outsourcing gone bad? Unclear roles in the outsourcing process, inadequate development skills, poor planning and communication, project deviation, lack of transparency, or just a lack of trust—the list of contributing factors could go on.

Fortunately, most organizations looking into outsourcing do realize the dangers of making cost their number one priority. As much as possible, they try to include value into the equation to get the most benefit out of every dollar they invest.

But how do you balance this equation and identify the best opportunities for your business? And what does "value for money" really mean in software development outsourcing anyway? In this post and podcast, we discuss how software development outsourcing could be your best option and how you can find the best value for your money in this endeavor.

I. Why outsource? The (good) reasons for it

Outsourcing cuts development costs and promotes flexibility

It goes without saying that outsourcing needs to be more cost-advantageous than in-house development. Otherwise, there’s no point in even considering it. The costs are considerably less when you outsource, primarily because you can hire developers from cost-efficient countries–i.e., lower salaries and a lower cost of living than in your country.

It also adds flexibility to your project: you don’t have to create a large and costly team if you don’t see your company needing one for the long term. This is in contrast to hiring and maintaining your own in-house development team where your software development costs remain high regardless of the volume of work. With the right outsourcing development partner, it’s usually easy to scale up and down within a few weeks.

For a complete global comparison and detailed hourly rates for software outsourcing and offshoring in the most popular locations, check Accelerance’s 2020 Global Custom Software Development Rate guide. (Accelerance is the largest consulting firm that lists, verifies, and vets software outsourcing companies.)

An outsourcing software development partnership has much more to offer

A partnership with the right software development service provider can give you so much more mileage out of your investment. These benefits include:

• Getting real talent or skills you can’t always find locally
  The State of Software Development in 2020 report by software development agency Coding Sans confirms that the lack of talent in the industry continues to be one of the biggest challenges faced by tech companies and startups. And when you have to limit your search to local developers, the chances of finding the right person for the job become smaller.
  
  Working with an IT staff augmentation company gives you access to a much bigger pool of highly qualified software development talent. This allows you to get your project off the ground faster and complete it on time.

• Avoiding turnover
  Turnovers hurt. This is especially true in the software development industry, where talent is scarce, as we’ve established in the section above. But this is only a problem if you have in-house developers. With the outsourcing company usually assuming the responsibility of replacing them right away if a team member leaves, your resources are a lot more stable, and you don’t have to worry as much about the impact such change can have on your project. Plus, some software development outsourcing companies manage to keep an attrition rate so low that the risk of seeing someone leave is rare. This is typically the case at Arcanys, where the attrition rate at Arcanys is about 60% lower than in Australia or New Zealand (8% Vs. 20% on average for the IT industry).

• Avoiding hiring hassles and fees
  When one of your in-house developers leaves, the negative effect of that can be quite palpable. And the problem would not just end with possible delays and loss of knowledge; you would also have to find a competent replacement for that person. You would need to go through the hassle of reviewing resumés, interviewing candidates, and making difficult decisions. Not to mention the accompanying costs to contend with.
  
  However, if the same thing happens in an outsourced development team, your outsourcing partner should be able to find you a capable replacement within a few weeks, without causing much disruption to your project. By putting the majority of the responsibilities in your tech partner's hands, you save your organization time, effort, and money.
  
  Read more: 7 reasons why software development outsourcing is even more relevant after Covid-19

You can explore a hundred different ways to outsource software development

There is no one-size-fits-all solution in outsourcing. Every project and contract can have a different approach to match your needs and budget. That said, there are generally two patterns used in software development outsourcing:

• Fixed-price contracts
  Software development companies working with relatively small projects, usually do so using fixed-price contracts. These providers build their business model on quantity, which means their team of developers handle various projects for different clients at the same time. The work may involve creating simple websites, mobile apps, or e-commerce platforms, among others. These projects usually last for a few weeks up to a few months.
  
  With the price agreed on from the start, this model works more like a package deal. The client gets a particular output for a specific cost. However, if the provider’s team wasn’t able to take into account all the client’s requirements during the project assessment period, the amount of work rendered could greatly exceed the agreed cost. This could lead to serious financial losses for the provider, as well as longer waiting periods for the client.
  
  What’s therefore important to remember for this type of complex project is that having a fixed price contract doesn’t mean that the plan, scope and timetable are fixed, too. These could all change over the course of development, and that is a risk for both parties. Still, this configuration is a good fit for organizations that require flexibility and speed, for ‘small’ projects, or those that are not technically complex, with clear specifications from the beginning.

• Time and Materials/Dedicated Team contract
  In a time and materials contract or a dedicated team contract, a development team works on only one project until completion. The project scope and completion time isn’t set in stone. However, there’s a good chance of success because you can work as closely as you want with the dedicated team to ensure that the product is shaping up according to what you and your company envision.
  
  Staffing companies (like Arcanys, for example) build teams of expert developers with specific technologies, thereby acting not just as service providers, but as true business partners. Because they’re dedicated to a single project—usually for European, US, or Australian clients—the developers can focus all their experience, expertise, and even passion for their craft on that single project. In this collaboration model, the IT team also takes more pride in their work because they get to be involved in large and complex projects, and stay abreast with the latest technologies.

II. So, what is value for money in software development outsourcing?

Whether in B2B or B2C, the term "value for money" is by no means a new one. It’s how people or organizations evaluate services acquired in terms of overall cost, quality, and sustainability. In software development outsourcing, finding the best value for money can be done by balancing the following three factors:

Economic: Find more competitive rates.

The massive investment needed to hire and maintain an in-house team is one of the biggest hurdles a company could face when there are software projects to be developed. Outsourcing software development projects to a service provider firm has been deemed a very viable solution to this problem because of the established cost benefits it offers.

For instance, when you partner with cost-advantageous countries like the Philippines and those in Western Europe, you get more hours of code done within budget. This translates to having more code delivered even while working with the same financial resources.

Now don’t get us wrong here. We're not saying you should make a beeline toward the provider that offers the cheapest rates. Rather, we’re talking about securing the right quality of work at the best price. More than saving money, you want your project to succeed with developers that have a significant portfolio and the appropriate expertise, and team managers who know what they’re doing and can bring projects to completion.

By itself, the cost of development means nothing if it's not comparable with the value you’re getting. The difference in costs can only be evaluated objectively when using the same considerations—like comparing apples to apples. For instance, at similar rates, two providers could deliver very different results, performance, and reliability. This is where the value comes under consideration. “Value for money” therefore implies spending the minimum development costs while getting the maximum efficiency and outcome from the outsourcing partnership.

Effective: Get things done.

As soon as the project starts, the ultimate goal is clear: get your product developed. That’s why you need to make sure your development team is competent, willing to give their highest quality of work, and can collaborate well with you in achieving your business objectives. Your developers are the core. They keep the engine running, so choose them carefully. How? We look at two general criteria:

• The right skill set.
  An efficient team is composed of people with the right skill sets. Having team members that speak perfect English, understand your ecosystem, anticipate your needs, and solely focus on your business would undoubtedly result in higher productivity. You also need to have a good grasp of what makes quality code because it will come in handy to evaluate the developers' talent levels.
  
  Some questions you can use to assess them are: What experience does each team member have? How do they make sure that the code they put together is of the highest possible quality? Do they have regular training on the latest technologies? Do the senior web architects review the code produced? How do they test the code they write? Lastly, the way the project is managed, the collaboration, and the communication between your company and the dedicated team are also crucial in building the partnership's efficiency.

• Shared values.
  The recipe for getting things done doesn’t just depend on your team’s technical competencies. An effective collaboration also requires common culture. This means sharing a common vision and core values, which can guide you and your provider in how you do business and work together. Pay attention to your partner’s standards on transparency and communication, responsiveness and deadlines, continuous improvement, management style, and so on.
  
  Also, beyond their products and services, choose an outsourcing provider based on the country with attributes that are important to you and will be able to deliver effectively for you. Outsourcing to countries with excellent educational systems and native-like English speakers—like the Philippines for example—ensures that the people you’re working with can readily adapt to your expectations and way of doing business.

For more practical tips on how to assess providers’ capabilities, culture and more, go check out this series of videos: 2021 Guide to Evaluating Software Development Outsourcing Firms

Efficient: Maximize your return on investment.

Little things make a huge difference. When you put all these extras together and are rewarded with a project that performs in the best possible manner with the least waste of time and effort, then that’s efficiency. It’s what makes your investment worth it, and then some. All these best coding and management practices ensure everything runs smoothly. It's the trust you build with your provider, as well as the provider’s ability to see the big picture in your business, and prompts them to offer you a complete solution that may require machine learning, IoT, or Artificial Intelligence.

You can also get more for your investment with your partner’s add-on services, from design to software testing to AWS monitoring— anything that will help you ship your product faster, safer, and better. Efficiency is also evident when your team members are proactive and bring fresh ideas to the table. It's the company culture that delivers a higher degree of satisfaction for your developers, and therefore, for you. You got it. It's everything that brings you maximum output in exchange for a given input.

When you’re clear with all that (i.e., efficiently balance the three E’s above), and you’ve found the sweet spot with a software outsourcing firm that you trust, there’s still one thing you need to remember: outsourcing does not mean simply handing over your project to the chosen software company. In a team extension model or dedicated development team model, you must consider your outsourced team as your own. You would have to collaborate with them as much as you would with an in-house team.

This means that you continue to hold major responsibility in the success or failure of the project. The good thing is, with the right provider, close collaboration with your provider and the outsourced team can come with great rewards. Here is a series of areas to evaluate and questions for potential software providers to help you pick the right partner.

If you prefer bite-size videos, check out our related series here.

III. The hidden costs of choosing the wrong provider

Partnering with a software development outsourcing company that does not fulfill the expectations we’ve set above can result in two things: 1) you lose out on getting the best value for your investment. 2) you deal with substantial expenses. They may initially be hidden, but they can become damaging enough to make or break your project. These costs are:

The cost of bad code quality

Dealing with crappy code can turn into a costly problem because it’s hard to maintain, hard to set up, and hard to understand. When you need to change developers, and the new team takes over a complex code base, it could get to the point where they would rather rewrite the code instead of working on the old one. This could also lead to a lack of motivation for the team and greater pressure to produce good output based on substandard work.

The cost of missed deadlines

Bad code and a generally inefficient and disorganized project can ultimately result in a ton of missed deadlines, and these can also be expensive. We’re talking about launch dates that have to be pushed back, sales and marketing teams that need to rework their strategies owing to the delay, failure to keep up with the competition and more. To say that this could be detrimental to your business is an understatement.

The cost of a high attrition rate

A company needs to bear the costs as well when developers leave. Hiring, onboarding, and training new employees will incur additional expenses. That’s not counting the time you will have to allow for the new member’s learning curve, plus the cost of disruption in your project development. Of course, this won’t be as huge an issue if you work with software development providers (as discussed earlier). But if your outsourcing partner cannot keep their developers happy and doesn’t have a deep pool of IT talent, it could still cause delays in your project.

Closing Thoughts

Warren Buffett, who is not only one of the most brilliant speakers ever, but also one of the most successful businessmen in the world today, once said, "Price is what you pay. Value is what you get." This particular quote is relevant whether you're buying his words, books, or stocks. And we've all come to know this over time: the price of something is not always directly proportional to its value. More often than not, you need to look beyond the price tag and learn more about the product you're getting to understand its true value.

This couldn't be more applicable when looking for a software development outsourcing partner. With your product development and, ultimately, business goals at stake, it pays to take your time in choosing your provider. Consider all the factors, evaluate all the E's, and determine whether you're really getting the right value for your money.