How Often Do Software Development Outsourcing Deals Fail?

The numbers vary depending on which study is cited and what definition of failure is used. But executives initiating or in the midst an IT outsourcing relationship must be constantly sobered by the fact that, from a purely statistical viewpoint, their deal stands about as much chance of failing as of succeeding.

Managing IT outsourcing is hard. It doesn't pay to pretend otherwise. Deloitte Consulting LLP's study "Calling a Change in the Outsourcing Market" found that 70 percent of participants have had significant negative experiences with outsourcing projects.

Let's define failure for offshore software projects and explore some of the reasons for the high failure rate of outsourced software development projects.

I think that not getting software which meets the goals of the buyer is the first element needed to define a failure. The next would be cost, either exceeding the expected costs or exceeding the cost that onshore development would have been. Not meeting schedule is another problem with these projects. Another element would be a lack of relationship with the developer which enables changes to be made easily and functionality added as the project proceeds.

Language and cultural challenges, the time zone shift, and the distance between you and the faces of the development team are all stopping points to the development of your offshore project. Since offshore outsourcing often results in failure of one kind or another (quality, schedule, cost), companies are rethinking this strategy.

The fact of the matter is, offshore software development requires that the buyer carefully develop a plan for the development and then manage the project as it unfolds. Check on code quality and conformance to standards and validate progress when you take a look at the code. If you specify incremental deliveries, be sure that they have organized their development so this can occur. When an operational portion of the code can be tested early, you will be able to see how well they are doing unit testing and whether they are building what you asked. When they deliver an increment, test it yourself right away. This means you need an in-house test team. Make sure this is included in your costs.

This kind of project management may be more than most companies want to deal with. Unfortunately, you can't just turn over the management of the project to an offshore company.

Buyers and software providers need to analyze the risks and consider the costs associated with mitigating them. Management usually assumes that by giving away software development to another company they also give away the risk, not realizing that they keep the primary management responsibility and most of the risk. The project manager will face all of the challenges of an in-house development plus many additional ones. The outsourced employees are part of another company with its own goals that are not the same as your company's goals. They're not right there with you to ask or answer questions. They have their own managers they must listen to.

You may want to seriously consider onshore development for your project unless you have the following:

Solid specifications

A sound project manager on site

An experienced team in India or China with senior developers

A good QA team

U.S. software companies can find reasons not to outsource software development and coding to offshore sites, such as these:

they can do background checks on U.S. Citizens

Eliminate the language, culture and time zone barriers

They prefer to help the U.S. economy

The draw of outsourcing is cost savings, but most companies find that outsourcing has many unexpected costs that, when weighed against the savings, negate the benefits.

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