The 5 Risks of Outsourcing and How to Properly Address Them

In 2022, global spending on outsourced services has reached an astounding $700 billion, which marks the growing popularity of outsourcing as a cooperation model for modern business. However, it is important to be aware of the potential risks associated with outsourcing software development. Despite its many benefits, the risks of outsourcing and the potential challenges of delegating your project to another company can make the whole experience stressful and underwhelming. The most important factor here is to choose a reliable partner who can provide you with expert virtual teams, help you achieve the goals of your project, and deploy the product the way it has been intended. This article will explore the potential risks of outsourcing IT projects and discuss ways to mitigate these risks. We will look at the issues of security, quality, and cost, as well as other potential risks. By understanding the potential risks of software outsourcing, you can make a more informed decision and minimize those risks.

Loss of Intellectual Property

One of the common risks of outsourcing is that the company may lose control over its sensitive intellectual property which is critical to the success of a product or service and the company as a whole. The major IT outsourcing risks pertaining specifically to IP include: 

1. Unauthorized access: Outsourced service providers may have access to confidential information and intellectual property, which could be used with malicious intent. 
2. Data leakage: Developers may have access to confidential data, which could be leaked to competitors. 
3. Copyright infringement: Another risk of outsourcing IT services is that the vendor may use the client’s intellectual property without permission or authorization, leading to copyright infringement. 

To avoid these risks, you must work with a vendor that offers a comprehensive data security plan that outlines how the data will be protected, who has access to it, and how the data will be used. You need to ensure that the service provider has a robust IP protection system in place to protect any confidential information that is shared. Additionally, the client should also have a contract in place that outlines the rights and responsibilities of each party.

Hidden Costs and Budget Overruns

Hidden costs and overruns is a major risk of outsourcing IT projects. Hidden costs refer to costs that have not been included in the initial project budget, while overruns refer to additional costs that arise due to unexpected circumstances, such as an increase in labor costs, materials, or delivery times. To avoid such risks of software outsourcing projects, organizations should consider the following: 

1. Establish a clear budget and timeline for the project. Before outsourcing the project, set a detailed budget and timeline and make sure to include all potential costs. This includes any additional costs that may arise due to changes in the scope of the project or unforeseen circumstances. 
2. Communicate and negotiate with the vendor. Make sure to clearly communicate your budget and timeline to the vendor and negotiate for the best terms. 
3. Monitor the project throughout the process. Regularly monitor the project throughout the process to ensure that the vendor is meeting the deadline and budget. This will help to identify any potential overruns early on and give the organization the opportunity to take corrective action. 

Poor Quality 

Poor or insufficient quality of the product is one of the most common fears and risks of offshore outsourcing. Poorly managed projects can result in increased costs, missed deadlines, decreased customer satisfaction, and damage to a company’s reputation. To avoid such risks, businesses should employ a rigorous selection process when looking for an outsourcing partner. You should also create detailed contracts that clearly define the scope of the project and set expectations for quality levels. You will have to monitor progress regularly and provide feedback to the outsourced developers. Finally, businesses should ensure that their internal teams are adequately trained in how to work with the outsourced software development teams and are following best practices when interacting with the partner. 

Language Barriers

One of the primary risks of offshore outsourcing is the language barrier and inability to properly communicate with the partner: 

• Miscommunication: Poorly understood instructions or requests can lead to costly errors and costly rework. 
• Lower quality: Language barriers can lead to misunderstandings and a lack of clarity in communication which can result in low-quality output. 
• Cultural misunderstandings: Language barriers can lead to misunderstandings of cultural norms which can create tension and conflict.
• Delayed delivery: Poorly understood instructions or requests can lead to delays in delivering the project on time. 

To avoid these risks of outsourcing your projects that are inherent to the offshore model, you will need to take the following steps: 

1. Establish clear communication protocols: Establishing protocols and expectations can help ensure that all parties understand the instructions and requests. 
2. Use translation services: Utilizing translation services can help to ensure that all parties understand the instructions and requests. 
3. Hire bilingual staff: Hiring bilingual staff can help to ensure that communication is clear and accurate. 
4. Utilize collaboration tools: Utilizing collaboration tools such as online chat, file sharing, and project management software can help to ensure that all parties are on the same page.

Loss of Control

Unfortunately, there are several ways to lose control over software development projects, and you need to be aware of those if you want to avoid the risks of outsourcing to a third-party vendor.

• Loss of control over the quality of the project: If the outsourced team is not given sufficient control over the project, the quality of the project may suffer. This can be avoided by ensuring that the outsourced team has access to the necessary tools and information and that regular reviews are conducted to monitor progress. 
• Loss of control over the timeline: If the outsourced team is not given sufficient control over the project or put under unrealistic time constraints, you risk losing control over the timeline. This can be avoided by providing the outsourced team with a clear timeline and expectations for when certain tasks should be completed. 
• Loss of control over the budget: If the team is not given sufficient resources and a timeline for the project, the project may go over budget. This can be avoided by providing clear budget expectations to the outsourced team, as well as regular reviews to ensure that the project is staying within budget. 
• Loss of control over the scope: If the scope of the project is not well-defined, the outsourced team may take on tasks that are outside of the scope of the project. This can be avoided by providing the outsourced team with a clear scope of the project and regularly reviewing the scope to ensure that tasks are staying within the scope. 

Final Thoughts: Reducing the Risks Through Reliable Partnership

Software outsourcing is a great way to reduce costs, access skill sets not available in-house, and improve time-to-market. However, it also carries risks that can be costly and damaging to an organization. We have answered the question of “what are the risks of outsourcing?”, and now you are equipped to deal with them. By partnering with a reliable nearshore consulting partner, these risks can be greatly minimized. A knowledgeable technology partner can help to ensure the best outcomes, both in terms of cost savings and quality of work. They can also provide insight into best practices, the latest technologies, and trends, and provide guidance on how to maximize the value of the outsourcing process. A reliable technology partner is an essential part of a successful software outsourcing strategy.