The Risks Of Outsourcing & How To Avoid Them

“Should this IT project need outsourcing” is quite a decision for every business, especially start-ups, when financial concerns, vendor quality, and so on are put on top.

Building an in-house team requires significant time and financial investment for start-ups. However, outsourcing may appear dangerous, particularly for firms that have never done so.

Scroll down to learn how to mitigate significant outsourcing risks and make decisions.

What is OUTSOURCING?

Following the Great Recession, which pushed numerous countries to outsource teams for cost reduction and company continuity, outsourcing became a trend. 

Outsourcing in business can be familiarly known as a process of employing a third party to carry out duties, manage operations, or offer services on behalf of the corporation. Jobs that are typically outsourced include those in data entry, journalism, marketing, accounting, human resources, and the industry most well-known attached to the keyword, technology. 

Why did companies FAIL at outsourcing? 

Though the benefits outsourcing provides companies, there are potential risks that lead to its failure, causing heavy losses for the company.

1. Lack of supervision

When a business function previously carried out by the in-house team is outsourced to external agencies, you will also lose control over it. And when the service provider mismanages it, it might have an impact on the quality of the outsourced service.

Furthermore, the level of control is determined by the vendor’s geographic location. In-person meetings and inspections become more challenging as the distance increases, forcing you to rely on virtual communication services, which makes offshoring more challenging.

You can incorporate project management measures such as considering using sage project management solutions like Trello or Slack and determining the point of contact and their region’s holidays.

2. Unexpected and Hidden Costs

While the financial aspect is vital to consider when outsourcing, additional funds frequently occur as a result of poor management or miscalculation. A detailed financial forecast will assist you in avoiding budget overspending due to unforeseen software updates, extra hardware and integrations, inexact timetables, and overtime.

To reduce the risks of outsourcing due to inaccurate cost estimates, you can:

- Calculate the total scope of work, and specify project needs.

- Select the best rates, and consider the pricing models of the selected third-party source.

- Sign a clear and exact service agreement to avoid conflicting commitments.

3. Contract misalignment 

If both parties neglect to address each assignment in advance, there is also a chance that expectations will be overly optimistic or unreasonable. Because the service provider ought to have given more consideration to anything that was not expressly covered by the contract, it can result in overly critical feedback and break the partnership.

Task interpretations can also differ, which is why it’s best to urge team members to speak up on any issue that appears imprecise or overcomplicated. However, no promise can be made that problems will not develop; hence it is preferable to have at least one representative from each team appointed to deal with such concerns.

Also, do manage your process and timeline expectations. You can avoid potential confrontations and misunderstandings by doing so. For example, management can determine how long a project will take to complete, which may differ from the developers’ expected timeframe.

4. Vendor Failure to Deliver or Constant Delays

Because the modern market is flooded with IT outsourcing firms, making a decision might be difficult. Outsourcing puts your security at risk if you work with a dubious third-party firm, which can result in reputational and financial damages. You may wind up with a substandard product, missed deadlines, lost customers or jobs, and even security infractions. Whether it’s because a vendor embellished their self-presentation or you under-vetted your prospects, YOU CAN AVOID IT!

First, look through their website’s portfolio and contact some of their prior clients for more specific comments beyond what you see. Also, ​ask around in the outsourcing community for references, evaluate platforms for references, and always demand proof of how they interact, treat less experienced clients, compete, and so on.​ You can also look into their partners if they are experienced and have a good reputation; however, the cover of the book should never be the most important element.

Wrapping up

Although outsourcing is an appealing way for a firm to get the job done, there are some drawbacks. However, being forewarned is being forearmed. You are already halfway to mitigating IT outsourcing risks if you are aware of them.

The most important step in making outsourcing profitable for your organization is working with a reputable provider. Melisoft offers extensive industry software development experience, a superior technology stack, and a devoted staff. We easily manage projects of any complexity and introduce new ideas to meet the needs of our customers.

Contact us if you are looking for a trustworthy outsourcing partner to work on your particular project!