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Considering Outsourcing Software Development? How to Make Sure it’s the Best Choice


softwaredevelopmentThere are two kinds of outsourcing: sending work overseas, and buying flexible, integrateable software rather than writing it from scratch. The build versus buy decision is often a hard one since software vendors routinely over-hype their products. Buying point products that are best-of-breed and simple enough to be piloted in your environment with your data is the only way to get past the hype. Buying suite products that attempt to automate everything imaginable always entails a high upfront cost and a high risk of project failure. Some vendors have gotten this message and are starting to modularize their products.

So how do you make the decision to buy or build technology? Answer four questions:

  1. How much?
  2. How long?
  3. How risky?
  4. How strategic?

How much?

Obtain a quote from a software vendor, estimate your internal cost to rollout the software, estimate the integration cost, as well as any configuration or customization costs. This estimate will probably be pretty accurate. Compare it with the internal estimates to develop the software in-house, keeping in mind your specific requirements (many of which you may not fully understand until you’ve gone through demos of the vendors’ products).

How accurate have your IT department’s estimates been in the past? If you have an employee project time-tracking system that is focused on tracking specific project costs, and you routinely compare actual time spent to those estimates, then you will have an educated answer to that question. Compare the two numbers. That is one data point.

In addition to initial rollout costs, find out what your costs would be for ongoing support and maintenance of the new technology for both a purchased system and a system built in-house.

How long?

Is the contemplated system something you can create yourself and rollout faster than a vendor could provide it? Rapid deployment is critical if you want to begin realizing benefits immediately. Sometimes homegrown solutions become obsolete before they’re even completed, while purchased solutions can sometimes be up and running in less than a month.

How risky?

How solid is the vendor? What does Dun and Bradstreet say about them? If they’re publicly traded, is the stock under $10/share? That’s often a bad sign. How many customers do they have and how happy are they? Talk to some customers that are using the product in similar ways you’ll be using it. Companies that claim to have thousands of customers should have one in your city you can go visit. Call their bluff and do so.

Do the same level of diligence on the “build it yourself” option. Building an in-house solution requires staff for maintenance and upgrades, and these costs can be difficult to estimate. Keeping pace with technology advancements is time-consuming and challenging, and takes staff away from your core business. Often you’ll end up with one person who ‘owns’ the system and is the only one who really understands it. What happens if this person quits? In a few years, the system may need enhancements that will be absolutely critical at that time. Who will do the work? If you’re contemplating writing your own system, ask yourself if you really want to become an expert in this kind of technology. What seems like a simple system can be way more complicated than you might first realize.

How strategic?

What will your IT shop learn from building this application in-house?  Is this knowledge coherent with your company’s core business strategy? Will the education your team gains from this exercise lead to improved capability for your company’s business, or is it detracting from more appropriate knowledge? These are hard questions to answer but necessary if long term success is your goal as an organization.

The general rule for IT organizations when making a build or buy decision must be centered around quick and inexpensive ‘hits’, as well as projects that just cannot be purchased at any price. Once you’ve nailed down the answers for the four questions above, you should have a solid direction based on real information, allowing you to move forward with confidence.

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About Curt Finch:

Curt Finchis the CEO of Journyx. Founded in 1996, Journyx automates payroll, billing and cost accounting while easing management of employee time and expenses, and provides confidence that all resources are utilized correctly and completely. Learn more about Curt at https://journyx.com/company/curtfinch.

 

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4 comments
  1. Kevin Jones

    June 9, 2012 at 11:31 am

    I disagree with on point at the beginning of this article, that the only option for custom software is to send the work overseas. That is definitely not true.

    We are a custom software development company (Ectobox, Inc http://www.ectobox.com), based in the USA, in fact in Pittsburgh, PA. Nearly 100% of our work is done by our developers here in the US, producing high quality, effective, and appropriate custom software for our customers where there is a high ROI.

    Beyond that small point, I agree with pretty much everything else in the article. Good article.

    Reply
  2. Randy Guerra

    June 29, 2012 at 11:52 am

    Your Post is So interesting about Software Outsourcing and it is very helpful and useful for the Software Developers. Thanks for share this valuable Post.

    Reply
  3. Dipty Webpr

    August 9, 2012 at 7:23 am

    Thanks
    for sharing this information.

    Software
    Development Company :
    – Ampere Software Provides Best Dot
    Net Development, Java Development, Healthcare Software Development,
    Financial Software Development, Ecommerce Software Development
    Services etc.

    Reply
  4. Prime Outsourcing

    August 30, 2012 at 4:49 pm

    I agree that people who considers outsourcing software development should really be sensible and well-informed about how this type of business works. You need to have a thorough research about the different trends of outsourcing companies to be aware of their strong points and flaws before you commit yourself into it.

    Thank you so much for sharing this article.

    Reply

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