6 Hidden IT outsourcing costs and how to minimize them.

outsourcing IT

IT Outsourcing is common practice. Discover how to minimize associated costs.

Whether you are a startup or an established multi-million-dollar enterprise, developing custom software for your business is a heady and exciting experience. Your enterprise is poised on the brink of digital transformation, and this new software you are building is all set to launch you into the stratosphere of success.

By choosing software development outsourcing, you now expect to save money on development costs and re-direct unexpended resources towards your core business. But that’s just what the brochure says. You have received a quote, and it amazing. A whole 15% less than the other prospective offshore software development companies you were in touch with. But bear in mind that the quote you just received is just the cost of “fingers-on-the-keyboard” development.

The project is now done, and when the bills arrive, you find the cost to have inflated to such a point that any notion of ‘cost-savings’ and resource reallocation goes right out of the window. Welcome to the bane of the hidden costs of software development outsourcing.

In this article, I will try to get you acquainted with software development outsourcing’s hidden costs and how to avoid them. So if you wish to save your business a ton of money while receiving a finished product that brings with it a massive competitive advantage, then dig right in. 

1.    IT Outsourcing Hidden Cost: The feature Ferris wheel

Consider a situation in which your development project is underway. A young executive in your company conducts a SWOT analysis and comes up with the bright idea of adding a new feature to the software. You like the idea and tell your development partner to incorporate the feature. A couple of days pass, and your outsourcing partner gets in touch with you and shares a plan for a feature that promises higher engagement, ROIs, etc. You think for a minute, say what the heck, and decide to go for it. Many such situations come up throughout the development process, and your “just a few feature” software begins sporting a feature bloat that no amount of cardio is ever going to rectify. You are now on the feature Ferris wheel on which you go around and around with your software, gaining girth with each spin. And features don’t come for free.

Even well-established organizations can fall prey to feature bloats, which in most cases just end up making the software complicated and confusing for the end-user. For startups, a feature bloat in the software can spell doom.

The best way to avoid such a situation is to have a very clear understanding of what you wish your software to be capable of. I do not condemn the inclusion of one or two additional features during development but just make sure that you avoid situations where the proposal carries a headline like “a significant design overhaul.” Keeping aligned with the initial germ of the product and the MVP you received is the best way to steer clear of inessential feature additions and their attached costs.

2.    The software security conundrum

A report by TechRepublic states that a massive 60% of developers are unsure of whether their code is secure or not. After a year of coding, your software is finally deployed, and within seven days, someone hacks it, thanks to insufficient code security. No not only do you have to spend heavy coin on regaining control of your software, but you also need an equal and most probably larger amount for a PR campaign that tries to clear your enterprise’s name and tries to retain your reputation in the market.

The optimum solution to the software security conundrum is to not just aim for an excellent user experience but also ensuring that your software is a secure location for clients to conduct business. A few key security considerations are-

  • Control permissions
  • Through testing of code at every step
  • Verification of third party code
  • Ensuring compliance with the strictest security standards
it outsourcing costs

 3.    IT Outsourcing Hidden Cost: Your data needs a home

The data that powers your application needs a place to live in as well as facilities of seamless interaction with the software. Your software requires a server to manage content, access information, and store data. It goes without saying that hosting and server acquisition is a crucial cost that has to be incurred. With unclear expectations, server and hosting costs can inflate to the point of forcing your business to a grinding halt. The number of users, periodicity of requests, type, and the actual amount of data to be managed determine your server and hosting costs.

To avoid untoward expenditure on server acquisition and hosting, consider acting upon the following points-

  • Consolidation of websites/applications
  • Move on-premise servers to the cloud or hosting providers
  • Shift to managed services
  • Virtualize your servers

   4.    The tyranny of technical debt

A normal user experiences only the top10% of a software application; its engaging UI and stable functionalities. The remaining 90%, which consists of high-quality code, stable security infrastructure, scalability capacities, etc., are costs incurred by the enterprise to make their software agreeable to their users.

In simple terms, technical debt refers to a situation in which developers create software with structural flaws in it just to deliver the product early to achieve short-term value. IF left unfixed, these issues can put enterprises at serious risk.

Technical debt is a double-edged sword. It can speed development resulting in cost efficiencies initially, but it demands prompt repayment. Flaws in production code can be corrected with refactoring, but that is a cost. Every minute a developer spends on code that is sub-optimal is counted as interest on technical debt. Entire enterprises can freeze under the debt of unfactored implementations.

Technical debt cannot be avoided completely, but proactive development practices can assure that any new code being written doesn’t contribute to the existing debt load. The best ways of avoiding technical debt are-

  • Follow good coding architecture practices like- abstraction, refactoring, and avoidance of tight coupling
  • Maintain a code coverage of 80% at minimum
  • Utilize issue trackers to be organized
  • Conduct pull requests and regular code reviews

 5.    IT Outsourcing Hidden Cost: Myriad maintenance costs

Consider this situation. You were living in an apartment on rent, but soon you decided to buy a house and move in. When you were in the apartment, if there were any maintenance issues like faulty plumbing or broken windowpane, you could call the building superintendent and have it fixed. But now you are in your house. IF your taps suddenly start leaking, you would have to call a plumber and have it fixed off your own steam. It is easy to draw a parallel between the woes of a homeowner and software maintenance.

Even the very best software demands regular maintenance. According to a  study by Forrester, annual legacy outlays can cost up to 50% of the project development cost. This means that for a solution that costs $100,000, maintenance could cost an additional $50,000. Application maintenance includes corrective maintenance, adaptive maintenance, perfective maintenance, and preventive maintenance. To achieve cost efficiencies in maintenance expenditures, consider the following-

  • Decouple software systems
  • Improve software architecture with microservices and SOA
  • Consider cloud adoption
  • Adopt application support services

6. The in-house illusion

If you have ever taken up a DIY project, you know that the payoff is not the cost savings you achieved by building your dining table instead of buying one. It is the gratification of having created something on your own. Now, this might be an amazing experience, and your table will be the main topic of discussion among your friends and family for a couple of days, but in the time and cost bound world of software development metrics, bragging rights don’t make the cut to be called an intelligent investment. And even when you outsource your software development, the IPRs remain with you. Not only do you get an enviable finished product, but you also don’t lose valuable time that could be spent focusing on core business activities. Though DIY, or in this case, in-house development, can, on the surface, look like an excellent way to reduce costs, DIY ventures could end up taking more time to complete and costing more money.

To avoid the financial pitfalls of an in-house software development life cycle, I suggest working with an experienced tech partner who can help you navigate the complex landscape of custom software development. Such a partner offers value in the form of a right balance of features, reduced risk exposure, managed current and future costs, efficient resource allocation to keep your project on-scope and in-time, all the while ensuring that your custom software vision is achieved.

Wrapping up

Once you have decided on creating custom software for your enterprise, the above-mentioned hidden costs might upset the delicate balance between your budget, the deadlines, and the features you require. The key to circumventing these costs or, at the very least, minimizing them lies in recognizing the factors mentioned above and making arrangements to tackle them before they can arise.

As a parting note, I would like to state, that to keep development costs manageable, the iterative and collaborative nature of custom software development needs to be realized and accepted.

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Pratik Mistry

Pratik Mistry

I am Pratik Mistry, a driven technologist and spirited technocrat. I hold the helm of Senior business head at Radixweb, one of the best custom software development companies where I steer my passion for helping businesses grow revenues by delivering top notch software development services and in building value-based partnerships. As a technology consultant, I speak and write on topics ranging from business transformation and strategies, emerging tech trends, innovation, and management. As a Project Manager, I enjoy the thrill of driving high-impact go-to-market strategies in the sectors of Customer Experience Management, Recruitment platforms, Insurance, Audit, and Compliance.