Challenges of outsourcing software development

12 min read
December 12, 2022

In 2007, the Queensland Health Department hired IBM to create its payroll system, with an initial budget of $6.19 million

However, delays caused the actual expense to balloon to a staggering $1.25 billion. 

Even at that price tag, the system still didn’t perform flawlessly, eventually leading the Queensland government to sue IBM.

It perfectly illustrates that outsourcing truly is tricky and challenging, so much so that even a tech giant like IBM isn’t immune to failures.

The good news is that you can get around these obstacles with the right strategy and planning.

So stick around to see how you can overcome outsourcing challenges.

Finding a reliable outsourced team

One big benefit of outsourcing is the wider talent pool available. But on the flip side, it also means that it is harder to find reliable people to work with.

It’s easy to encounter service providers with poor skills, bad work ethics, inadequate communication skills, and many other unprofessional characteristics. 

Then there are those so-called service providers who will just scam you.

Thus, due diligence is crucial when hiring potential candidates.

image 13

Source: Net Solutions

First, find out if the team is legit in the first place. To do this, perform a background check on their papers or business license. If they lack such documentation, it could be a red flag.

You can also check websites like Trustpilot or the Better Business Bureau to look for complaints against the firm.

There are other signs of bad business you should watch out for.

One example is an unsecured connection when visiting their website—indicated by an open padlock or warning sign in your browser’s address bar. 

A software developer’s website shouldn’t have such a blind spot, which shows that they’re either fake or incompetent.

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Source: Panda Security

Next, evaluate the skill level of the development team to see if it’s in line with your requirements. 

For instance, if you’re working on a fintech app, ensure they have the expertise and experience in handling fintech projects.

The easiest way to determine this is by checking their portfolio and case studies. Reading these will also give you an idea of their work ethics and professionalism.

Lastly, check the experiences reported by their past clients and look for any red flags. 

Most software development agencies will list client reviews on their website. However, your best bet would be third-party review sites like Clutch, since they can give you unbiased accounts. 

Ensuring the quality of service

Every new outsourcing relationship is a risk—there’s no way around it. And there’s never a guarantee that you’ll get high-quality software that fits your requirements perfectly.

It doesn’t help that most clients outsource their projects to the cheapest developers available to save on costs. 

Unfortunately, they end up hiring developers with inadequate skills and experience, resulting in an inferior project.

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Fortunately, there are ways to improve your chances of getting a good result.

When hiring a development team, it’s best to balance cost and quality. 

In other words, look for developers that give you great value for money, meeting your requirements for an affordable price.

For this reason, Eastern European countries like Croatia are gaining a reputation as great outsourcing destinations—more so than Asia or Africa.

Just take a look at this statistic from Eurostat.

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Source: Eurostat

The above graph shows the wage-adjusted labor productivity ratio of major European nations. 

The higher it is, the more value-for-money developers in that country are. Notice how Croatia (DECODE’s home country) is in the top five.

It’s also crucial to have the team sign a Service Level Agreement (SLA)

This document outlines project expectations, including roles and responsibilities, scope, deliverables, costs, and performance metrics. 

An SLA can help protect you in case there’s a dispute over software quality down the line. 

For instance, you can specify that you require an app response time of two seconds or less. If this isn’t met, you can request a revision.

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Source: Tech Target

Finally, it might be a good idea to have someone with high technical expertise oversee the development team’s work and ensure its quality. 

It could be an in-house senior developer or a third-party consultant.

Making accurate project estimates

Estimating the development time and cost of any software project is difficult enough on its own. 

Keep in mind that only 51% of software projects are completed on time and only 57% on budget, according to this study:

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Source: Mobile App Daily

But estimating becomes more challenging with an outsourced team. 

That’s because you have no idea how long the developers would take to complete software development tasks, which makes predictions difficult.

The best remedy for this dilemma is to create clear and detailed project requirement documents

This should include everything relevant to your software, including the app idea, must-have features, scope, technology stack, and deadlines.

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Source: TechTarget

The goal of a project requirement document is clarity. With all details laid out, an experienced development team can guesstimate the time and effort needed to complete a project. 

This will lead to better project estimation.

Of course, even the best team can’t predict everything 100%. Thus, the best advice is to include some buffer in your estimation—around 20% is a good ballpark.

In other words, if you think the team can complete a task in two weeks, add around three more days to that estimate to account for delays.

Avoiding hidden project costs

Costs are another tricky aspect when outsourcing development work. Just look at the statistics below:

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Source: Finances Online

Notice that only 67% of projects are completed within budget. In addition, another study pointed out that the budget of software projects tends to go over by 45%

That means for a $100,000 project, it’s an additional $45,000 out of your pocket.

Mostly, these overruns are caused by poor estimation and hidden costs charged by the development team. So, how do you avoid them?

First, clarify everything at the beginning of the project, especially revisions and overtime work. Determine the cost these will incur. Then, have everything in writing to avoid any hidden costs.

While you’re at it, be aware of tactics that could bump up your cost. Examples include adding new team members or swapping experienced developers for newer ones. 

These could end up stretching development times.

Lastly, use the pricing model appropriate for your project. You can choose between fixed pricing vs. time and materials.

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Source: Tigo Software

In a fixed pricing model, you and the team set the fee at the beginning of the project. This is suitable for simpler projects that have static requirements. 

However, if the workload shifts over time, you’ll either underpay or overpay the dev team. In such cases, a time and materials model is better.

Here, you pay the team based on their actual hours worked. It’s a fairer model since it better reflects the effort put into the project.

Handing over control to an outsourced team

One of the biggest hesitations of outsourcing is a lack of control. 

And it’s quite understandable—after all, it’s a big leap to entrust a critical project to an outsider you’ve never worked with before.

While not having to micromanage a team is a big benefit of outsourcing, it’s also a huge risk.

The key to reducing this perceived risk is to establish a way of working that encourages trust and accountability. And a great way to do this is with a RACI matrix

A RACI matrix defines the people responsible for each task with four labels—responsible (R), accountable (A), consulted (C), and informed (I).

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Source: Power Slides

The person responsible (R) for a task is the person who does the actual work. An accountable (A) member assigns this task. This is often a team lead or supervisor. 

They’re also responsible for checking the work before marking it complete.

Someone can also be consulted (C) for the task, as they can provide input and insight on how to perform the task better. 

Lastly, some people can also be informed (I) of the overall progress of the task, but not the nitty-gritty details of it.

The RACI matrix works because it gives autonomy to your team but also provides a way to oversee their work to ensure quality. 

Ensuring the security of your data

Working with an outsourced team carries security and privacy risks. For instance, they may leak sensitive project information to your competitor. 

Or they could also expose your customer’s data to hackers.

The best way to approach this is to be on the defensive.

First, make sure to have the external team sign a non-disclosure agreement (NDA). This legal document prohibits either party from revealing project information to any outside party.

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Source: SketchBubble

An NDA can help protect customer data, proprietary technology, and even your app idea. 

Thus, it’s a good idea to use it even as early as the consultation stage before you reveal anything confidential.

It’s also crucial to look into the data security practices of your development team. 

Ask them if they follow regulations (like GDPR or PCI-DSS) and use technologies like encryption and biometrics. 

Relevant certification (like DECODE’s recent ISO/IEC 27001) is always a good sign.

Adjusting to different time zones

Working in different time zones is one of the inescapable obstacles of outsourcing. Even a few hours off will make real-time collaboration difficult.

One great approach is to adopt nearshoring or hire a development team from a nearby country. 

This ensures that there will be a significant time overlap between your and your team’s working hours.

For instance, a developer in Mexico and a client in New York will only have a one-hour time difference. 

That means they have a potential seven-hour overlap during the day for real-time collaboration.

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Source: Revelo

If there’s no time overlap during the workday (for example, if the dev team is in an opposite time zone), then major adjustments are needed.

For example, a team in Poland would have a nine-hour difference from a client in Los Angeles. 

That means either the US or the Polish side would need to schedule time beyond the regular working hour to communicate with the other party.

With a small overlap, the downside is that you’ll have a few hours at best for effective collaboration. Thus, you need to make them count.

Minimizing barriers to effective communication

Time isn’t the only obstacle to effective communication with an outsourced team. There are other barriers you’ll need to contend with.

The biggest is language. Despite many considering English as the universal language, that’s hardly the case. 

In fact, based on the EF English Proficiency Index, most of the world has moderate English skills at best. For clients in North America or the UK, this could pose a problem.

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Source: Statista

Then there are also cultural differences. People have various working styles and norms around the world. If your team’s style doesn’t align with yours, it could cause issues.

The best way around this is to hire a development team with good English proficiency and an understanding of Western business practices and norms. 

European countries like Croatia fit the bill, which makes them an excellent outsourcing destination.

Also, during meetings, make it a point to confirm understanding with participants. This ensures that everything discussed is communicated clearly.

Managing unanticipated project delays

Delays are unavoidable in any software development project. But when working with a remote team, the chances of delays can shoot up.

For instance, developers might suddenly drop out in the middle of the project or run out of resources, and the team will have difficulty replacing them.


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Unfortunately, there’s very little you can do once situations like these happen. So your best bet is to hire a reliable team to ensure it never happens.

For example, DECODE has a ready pool of 70+ talent we can tap into. That way, when someone drops out, we can replace them immediately.

As we said, delays are normal and inevitable. But when you’ve hired the right team, they’ll work with you—not against you—to resolve it.

Let’s help you overcome these challenges!

Ultimately, all of the challenges in this article all boil down to one root cause—a bad team.

With the wrong team, your project is at risk of falling behind schedule, going over budget, or failing outright. Not to mention that managing such a team will be a struggle.

That’s why it’s best to stick with a reputable agency like DECODE, with a long list of successful projects and positive client testimonials.

Get in touch with us today and find out how we can help you minimize these challenges in your next project.

Written by

Marko Strizic

Co-founder and CEO

Marko started DECODE with co-founders Peter and Mario, and a decade later, leads the company as CEO. His role is now almost entirely centred around business strategy, though his extensive background in software engineering makes sure he sees the future of the company from every angle. A graduate of the University of Zagreb’s Faculty of Electrical Engineering and Computing, he’s fascinated by the architecture of mobile apps and reactive programming, and a strong believer in life-long learning. Always ready for action. Or an impromptu skiing trip.

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