Does outsourcing really save money?

When you outsource, you save money… At least that is what most of the people think when it comes to outsourcing mission critical work, such as development of software. There is no doubt that outsourcing gives you the advantage of very low labour rates. So why would you spend around $80,000 to $150,000 a year, when outsourcing could get it done for around $40,000. Sounds simple, right?

The truth is, there is lot more to that.

Outsourcing could definitely save you a fortune, if it is done right. I’m sure many of you have heard someone preaching ‘outsourcing succeeds, only if you have prior experience in it’ or something similar to that. Well, it is not the complete truth. To throw some perspective on what I mean, let’s take an old axiom which I find equally ambiguous –‘practice makes a man perfect’. This is again only half of the truth; it should rather say ‘practice along with improvements makes a man perfect’, because if you keep on repeating the same mistakes in your practice over and over again, without learning or improving yourself, you’ll end up making yourself perfect in committing those mistakes. Similarly, learning how to select the right partner (probably from your previous debacles) is critical for the success in outsourcing and save money in long run.

Let’s dig a little deeper with the following scenario.

Assume that you have a revolutionary idea for a great software/product that would put your company as the market leader. In order to save on costs, you decide to outsource it to another company. You approach the first vendor, who offered to do the development for you at a specific rate per hour. Then you move to the next vendor, who offered to do the same development for a rate 40% cheaper than your previous vendor. Which one would you choose?

There is a good possibility that most of you would have thought that 40% cheaper rate sounds more attractive than that of the more expensive vendor. If so, that’s okay, because like many others, you didn’t see the hidden factors.

So what are those hidden factors?

Usually the resources that are acquired for a higher rate are much more experienced. They would be familiar with almost all sorts of issues that may arise during the development. They would also use the right techniques learnt from their past experience to let little errors to occur during coding, which in turn reduces the time required for testing & bug fixing. So, the resource might be able to finish the task quicker.

On the other hand, the resources that are given at much lower rates are far less experienced. Since, they don’t consist of system architects, business analysts & project managers, who are critical to ensure that the requirements are well-defined; they may take double the amount of time to develop the same.

But why does the cheaper developer takes nearly twice the amount of time compared to that of the more expensive developer? As I mentioned earlier, the more expensive developers are the ones with greater experience, needs lesser time to find solutions for any unforeseen problems eliminating the need of extraneous QA. The more expensive developer knows exactly what to do the first time, reducing the cost of development in the long run. So, it is needless to say that selecting a wrong partner (cheaper) will cost you profoundly in the long run.

When you pay for the more expensive resource, you are not only paying for the time s/he is going to put in your product, but also the productivity, quality, process, tools, and ultimately, the knowledge of the resource.

Tags: Outsourcing, Outsourcing Software Development
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