The Business Case for Outsourced Software Development

There’s no doubt about it, more often than not, outsourcing software development to high quality technical teams delivers world class technical output that significantly improves business value. However, despite the obvious benefits of taking such an approach, many companies struggle to justify the cost. 

This is unfortunate as this thinking often fails to consider the ‘real’ costs associated with using freelancers or hiring internally. The reality is, when the costs are broken down, it’s easy to see why investing in an outsourced software development team/agency is not only the right way to go, but also the most risk averse and cost effective.

To make the business case for outsourcing software development you first need to compare your options and emphasise why it’s the right strategic choice. 

Agency vs. In-house vs. Freelancers

Typically, there are 3 options available to get a project delivered:

1. Agency 
2. In-house 
3. Freelancers

In the section below, we evaluate each option based on the key criteria you need to consider when making the resourcing decision. 

Cost

Cost often plays a key role in the decision to outsource, however, a balance must be maintained between cost and quality. This is particularly important as many options that deliver technical output at a low cost often deliver buggy, unreliable output. 

Agency 

When hiring an agency, cost is often based on two types of delivery model:

Project-based work - This is priced based on time and materials required to deliver the project, and is representative of a per hour or day rate for each of the individuals in the team required. This rate is agreed up front by both the client and the external partner. Once costs are agreed, the partner is responsible for delivering the full scope of the project. 

Dedicated team extension - In this model, a client will hire specific roles to build a remote team. Each individual will have a monthly fee and these are combined to identify overall cost. The more specialists required, the more expensive delivery will be. In this model, the client is responsible for the team and ensuring they have what they need to deliver. 

While agencies often cost more than freelancers, they offer a cohesive and high value team of diverse and productive talent. 

In-house 

In-house hiring is an attractive proposition in theory, but it can often be difficult and expensive to achieve in such a competitive landscape. With hiring costs, employee benefits and internal resources (desk, computer etc.) taken into account, the expense of internal hiring accrues quickly. This is often further exacerbated by lack of available talent in the industry, making recruitment even more challenging. In fact, finding a new engineer can take anything from 6 to 18 months, and even when a new hire is found, it’s likely they’ll require additional training to get up to speed. These costs and challenges add up fast.   

Freelancer/s

Freelancers are typically the cheapest option as they have the least overheads, however if multiple individuals are required to work together in a makeshift team, the inefficiencies caused by unfamiliarity can make freelancers unproductive, slow and expensive, particularly as most charge by the day. On top of these challenges, unpredictability is also a problem, it’s not uncommon for freelancers to get distracted by multiple projects or even disappear in some cases, with no one available to replace them and finish the scope of work on time.

Controls and Management 

Controlling and managing external resources often plays a significant role in the success or failure of a technical project. 

Agency 

When using an agency, the majority of work is managed, planned and conducted with input from the client. In most instances, the client provides a clear brief and then ensures a single stakeholder is available and responsible for ensuring the output of the agency is accurate and of sufficient quality.  

With an agency, a partner will agree on the scope of work up-front and ensure that the project runs smoothly. If someone falls sick or unforeseen issues arise, the partner will take responsibility and find the necessary replacements to deliver the scope of work. For many that reliability is key. 

In-house 

In house development is the easiest option when it comes to management, as the team is used to working together and is close to the strategic lead, it’s easy to ensure they remain on target and can adapt as and when needed. 

Freelancer/s

Freelancers are the most difficult option to manage as they’re often uncoordinated and in most instances, haven’t worked with the other freelancers involved before. Without a working history, it can often be difficult to effectively integrate and cooperate when needed. Managing multiple freelancers often requires significant time and resources to produce high quality output, particularly when there are dependencies around delivery.  

Capabilities and Expertise

When determining which approach to take, it’s important to evaluate the skills and capabilities available as this will play a key role in determining which option can deliver the best output. 

Agency 

Hiring an agency is the easiest way to source the exact skills and expertise required in order to get the job done. With a team of specialists all working together, most agencies offer everything required to deliver, irrespective of project complexity. Of course, in order to take advantage of these benefits, it’s essential companies engage with the right agencies. Some will take the job and hand it off to junior staff in the background, compromising quality and delivery. With this in mind, it’s critical proper due diligence is conducted on an external development agency before any paperwork is signed. 

The great thing about this model is that it’s "Pick & Mix". It offers the flexibility to customise the team based on the various skill sets required while also allowing for ramping up and down based on the needs of the project at that point in time.

In-house 

An in-house team is only as good as the developers in it. Recruiting the right developers takes time and something that does not happen overnight. There are no substitutes or people on the bench that can take on additional work, or learn the new capabilities required overnight.  Finding specific capabilities and expertise is not easy. Competition for the very best talent in the market is high, and growing, as a result, finding the skills needed on a reasonable budget is often extremely difficult. 

Freelancer/s

Freelancers are the most flexible development resource when it comes to sourcing key capabilities. Freelance teams can be constructed from handpicked individuals to cover the exact skill sets and knowledge required to optimise the project and deliver high quality output. 

When cost, management and capabilities are taken into account, it’s clear that each development approach has its strengths and weaknesses. As such, it’s essential that companies considering outsourcing evaluate their own situation and identify the option that best meets their development requirements. 

Making the Case for Outsource Software Development 

As companies aspire to grow, many require development resources in order to drive new initiatives, whether this involves the development of a new product, evolution of infrastructure or just simple optimisation. Whatever the case, high quality developers are needed to drive projects, and ultimately, growth. 

Highlight the Importance of the Project to Business Success and Growth 

As many development projects often play a key role in the future of business strategy, it’s important that the critical nature of the output is clear for all stakeholders and the very best resources are hired to deliver. 

While hiring the best engineers for the job internally is typically the priority, it often poses a significant challenge. Many CTO ́s realise that going through months of recruitment efforts to hire quality engineers is time consuming, resource intensive and can jeopardise progress, so they instead choose to complement their existing team with an external partner. This allows them to ramp up their delivery fast and execute on the tasks at hand as well as progress towards their goals. 

Estimate the Value of the Benefits to the Business

By outsourcing technical projects, companies can tap into significant benefits that can drive business growth and success. This includes: 

Faster rollout of new products/services 

With an outsourced software development team, products and services can be produced to the necessary standard faster, reducing critical time-to-market. 

Many venture backed startups are pressed for time to deliver on key milestones to satisfy investors and receive further funding to grow. Suffering with the lag-time to recruit and an "over pressured" internal team, CTOs often make the decision to engage an external partner to boost productivity and help achieve company goals.

Improved business agility 

Making decisions quickly to reflect changing operational and market forces is critical, and access to a high quality outsourced software development team ensures action can be taken fast, as and when needed. 

Better standard of output

Creating a high quality technical project can be tough unless the right skills and expertise are available to optimise delivery and take full advantage of the technologies involved. Fortunately, with the right outsourced software development team these challenges can be overcome. 

Greater resource flexibility 

Technical resources are often squeezed and challenging to manage, particularly when deadlines are tight. With an outsourced software development team, resources can be brought into the business to alleviate stress points and diversify the capabilities available. 

Reduced long term hiring costs

Outsourced software development teams offer a great alternative that allows businesses to avoid major hiring costs and find the skills and expertise they need quickly.

Communicate and Alleviate Common Concerns Around the Outsourcing Proposition

When it comes to outsourcing, concerns are common, particularly when the stakes are often so high. A failed technical project can not only be expensive, but also undermine the future of an organisation. With that said, common concerns can often be alleviated when discussed and explored. 

Risk - Quality will not meet internal standards

In many organisations, there are concerns about the quality of output produced by external developers. The industry still has a conflicted reputation, and this puts many prospective companies off. There are many horror stories in the sector involving companies not doing their proper due diligence at the engagement phase and paying for cheap development teams in India and Ukraine.This leaves them with low quality output and a poor return on investment. 

Solution

To ensure the quality of output is high, it’s important to first conduct proper due diligence on an external partner’s capabilities. Reviewing past work and talking to past clients will provide a good indication of what they can deliver. This will ensure a partner is only chosen who can meet the standards produced internally. 

Risk - The project will run over budget 

Financial concerns are a regular occurrence when it comes to outsourcing software development, many fear the budget available will not be used well enough to deliver the necessary outcome. 

Solution

Allocating financial management to a strong project manager within the business will ensure the external developer invests resources in the right areas in order to deliver the project. This stakeholder will monitor spend, ensure progress is being made and be reflective of the financial investment. If warning signs appear early on, this individual can raise the flag, and fix them before too much is wasted. 

In most circumstances, this PM will ensure good communication standards are adhered to, daily stand-ups are conducted without fail and that there are clear milestones in place to achieve the scope of work. 

Risk - Overcoming trust challenges 

Trust can often be a key factor when it comes to making the decision to outsource software development. Stakeholders often have reservations about the quality and capability of external development teams, and this can limit their ambition or preparedness to outsource altogether. 

Solution

To effectively outline and manage this risk, it’s important that a risk analysis is conducted up-front and concerns are communicated with the external team before contracts are signed. This will give them an opportunity to talk them through, and alleviate any potential worries. Initiating a test project with milestone based engagement will also help both client and engineering partners get familiar with each other and mitigate against things going wrong by breaking the project down into clear steps. 

The number of companies outsourcing for technical projects is rapidly growing as the advantages of such an approach become more obvious and the challenges of delivering internally rise. 

By helping companies find niche talent and deliver their technical projects quickly to a good standard, external development partners are ingraining themselves into the foundation of companies. This is helping organisations struggling with skills gaps, recruitment issues, agility challenges and capacity. 

Offering so many benefits for organisations with technical requirements, the outsourcing of software development projects is set to become the standard, as companies look for alternative ways of meeting their development needs.

The benefits of outsourced software development are clear to see, they just need to be presented in the right way in order to acquire the necessary buy-in from key stakeholders.