Is It Really Possible to Minimize Development Cost With Offshore Development?
New ideas pop up left and right today, people are not afraid to try and bring their business ideas to life and are not afraid to fail and try again. The overwhelming spirit of entrepreneurship has been ruling the world for at least a decade now. Naturally, such rule begets competition and provides for the most developed form of market economy yet.
Said fierce competition pushes companies to consider their budgets more closely and become creative with what they invest in and how. Since barrel anything exists outside of the realm of digital today, software development makes up a big part of almost any business’ operations.
Outsourcing and specifically IT outsourcing offshore and nearshore outsourcing has become a leading trend in software developers hiring.
This model accounts for plenty of benefits: a higher level of effectiveness, work that doesn’t stop around the clock, hence an opportunity for faster results, outsourcing allows companies to hire programmers, manage the business and cut costs by 20-30%. This ability to snip off close to a third of costs can make a big difference for a company and put it in the lead of the race.
What is outsourcing and what are its types?
Outsourcing is a business practice in which a third party is hired to perform job functions or provide services for your business.
In information technology, an outsourcing initiative can involve a range of operations, from the entirety of the IT function to specific, easily defined components, such as network services, software development, or QA testing.
Companies can choose between several types of outsourcing depending on their needs, restrictions, and capabilities: one can outsource IT services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country).
Offshore outsourcing has traditionally been pursued to save costs and create an around-the-clock work environment where there’s always someone available to address issues.
Is offshore development the best choice for your company?
If you’re on a tight budget, your sole goal is to cut costs, you’re losing sales due to an inefficient process or your resources are not utilized in the most efficient way, chances are, outsourcing offshore is something to consider for your business. Let’s take a look at the pros and cons of offshore software development:
- Cost-efficiency and flexibility: Offshoring provides an excellent opportunity to access high-quality talent anywhere in the world and without extra costs. You should learn about offshore software development rates in different countries.
- Quality: Unlike their onshore competitors, offshore software development companies work on a perception that they are allowed no mistakes as a single mistake can deal irreversible damage to both the project and the client relationship. That means each developer on the team will usually hold themselves to the highest possible standard.
- Speed: As previously mentioned, offshore developers rely on their good reputation with clients, so they put extra effort into the timeliness of their work. Due to lower costs, offshore development companies can afford to keep a larger full-time highly skilled staff that can react and start working immediately. It’s a level of responsiveness onshore companies can’t compete with.
- Saving resources other than Time and Money: Having your developers overseas and usually having a team manager who takes on a lot of responsibilities in terms of communication and reporting, you can direct some more of your time, energy, and imagination elsewhere and focus more on the grand scheme of things.
- Industry Awareness: Thanks to a broader spectrum of clients with diverse needs, offshore software development companies have to be on the cutting-edge of technology and up to date with what’s happening in the software industry at all times.
- Still takes time and attention: Unless you appoint a dedicated lead for the project on your side, this will still take your time and attention. Working with a team outside of your office always means you need to devote extra effort to make sure the developers understand what your goals and obstacles are in order to roll out an effective solution at the end.
So, perhaps delegating the project to someone on your team is a good solution to any communication and transparency issues that might arise in the process. Who you appoint to manage the project on the internal end doesn’t really matter (they don’t even need to be in IT), just as long as they possess a clear understanding of what your company is looking to accomplish through the partnership with the offshore developer.
- Mistakes and setbacks: While this con is pretty universal, it’s important to remember that no matter who you outsource the job to, no matter how professional and skilled they are to take on the task, there will still be setbacks, mistakes, and misunderstandings. You aren’t going to be able to flawlessly convey everything you want to your offshore developers, and they won’t be able to perfectly understand everything you want. At least not from the get-go.
Patience, clear communication, and tempering your expectations will be good partners on the journey to the final product. Here’s an article on “How to Effectively Communicate with the Offshore Development Team for Best Results” to help you through the whirlwind and pitfalls of remote work and online business communication.
- Time Zones, Cultures, and Languages: These three factors can create tricky situations but are in no way insurmountable issues. A good professional will do their due diligence to make sure the language barrier doesn’t get in their way of work, while the clearly stated goals and processes established at the very beginning will help you avoid misunderstandings. Here are a few tips on how to work with your remote team across time zones in one of our recent articles.
Calculating the cost
Since we’re talking about cutting costs and saving money, we should go through the following steps and calculations to determine the offshore development cost for your project:
- Analyze the core operations to be outsourced and specify them in terms of quantity and quality with respect to business preferences and priorities. This helps you know what your core and non-core tasks are.
- Outline tasks that you have to outsource and what quality standards you are looking for each along with priorities again. Your savings will include hiring costs, salaries, software equipment, supplies, benefits, etc.
- The next step is to calculate the overall cost of outsourcing all the development work you need to be done. This will include the hourly rate, multiple hours of work, transition cost to the cost of administration, etc. From the total calculated amount, deduct the amount you receive from selling existing supplies and software if that’s something you can do.
- Time to calculate the actual savings. This is done by getting the difference between the total in-house costs and total outsourcing cost. Being unaware of the actual cost of services may lead to false savings. Never assume potential savings. Be calculative and do your maths. It is important to know how much your company can save by outsourcing to offshore firms.
- To make sure you’re getting the actual cost, however, it’s imperative to know if there are any hidden costs.
One of the most precious resources in today’s competitive environment is time. So, making sure that the whole operation is not wasting time is of utter importance. If your developers are 10 hours ahead or behind you, you might run into a lot of waiting for each end to do what they need to do before they can proceed with their part of the task. According to Meta Group, lags in productivity due to communication issues can add as much as 20% in additional costs to an offshore contract.
To come back to business culture and the ways people in different points of the world go about work, not sharing the same culture and time zone increases communication gaps between teams. Without the benefits of a solid communication basis, your teams won’t be able to understand one another’s perspectives and way of business. To make sure you’re not losing time, and hence money, on this, establish a clear communication structure.
Bureaucracy can sometimes most times rain on your parade and get you into some unnecessary spendings. Make sure you can hire the developers you want to hire without extra documents and visas as that will more often than not turn into a tedious and lengthy process.
Sometimes for a more functional working process, a virtual environment for collaboration and communication will need to be acquired or created and that will also have to come from your company’s pocket. So do yourself a favour and put effort into establishing your communication channels from the very start. Perhaps this will help you avoid another hidden cost such as having to visit your offshore team wherever they are, cause those flights might cost you a pretty penny.
How offshore development actually minimizes cost
- Cuts the hiring cost
One of the most spending-incurring parts of every project is the hiring process. When working with an offshore development center, you minimize the cost and the worries while optimizing the talent recruited for each task as oftentimes you will need an array of different professionals.
- Leverages low wages in offshore countries
Once you’ve chosen your offshore development company, you can hire dedicated teams at the rates of their base country and at hourly rates, too.
- Improves in-house operations
Once the hardcore tasks are handed over to the offshore team, the in-house team can start focusing on other core company operations, driving sales, and improving the customer experience.
- No Training Cost
Since their “hire-ability” depends on skill and professionalism, offshore developers keep themselves up to date with tech trends and programming novelties to always deliver the best and fastest results, so you’ll definitely save on training.
- Latest technology stack at less cost
Hiring developers in every country comes with a price tag. In the US and Western Europe, you may have to pay $250-$850 per hour. Direct your gaze a little eastward and you will find highly skilled IT professionals at rates that are 10+ times lower.
- Pay Per Project without Commitments
When hiring onshore you pay for the resource and everything connected to it regardless of whether this resource is used at all times and frequently. No such problem will arise with offshore outsourcing. You can hire a developer or a dedicated team specifically for a project, you can increase or decrease the number of developers you need as the project progresses and you can shake virtual hands and bid your goodbyes once the project is finished.
Cost VS. Quality
Many examples have proven that often in pursuit of cutting the most cost companies end up paying more because hiring cheap backfires and you end up paying to fix the mistakes or even re-do the whole job. Finding the quality/cost balance is perhaps the most important in hiring offshore developers for your project.
This brings us to something we should always look for an estimate in an offshore development company before hiring it. Intellectual capital is an intangible business value but is usually ranked above finances. It is one of the most valuable assets, especially in software development. This covers the skills of individual employees, the whole organization, the business process, and the organizational system.
Intellectual capital is usually split into three essential elements namely; organizational, human, and customer. Organizational Capital refers to the value of the company as a whole and how they are able to deliver quality service or product output. In relation to software development, Human Capital covers the technical knowledge and commitment of the developers in an offshore team. And lastly, Customer Capital is an element of intellectual capital that refers to the organization’s value measured through satisfactory rates of customers or past clients.
What are other potential ways to reduce costs?
Put some extra effort into choosing your outsourced software company. Look for quality and intellectual capital. You can consult these tips we’ve drawn upon How to Hire a Programmer Even If You Are Not a Techie.
Spend extra time on figuring out exactly what you need and drawing up an in-depth analysis of all your company’s software needs. It’s almost like preparing a pitch – don’t be shy with details as they will be exactly what helps your potential offshore suitors estimate their capabilities and determine the most time- and cost-effective approach to your task.
According to the Standish Group report, 52.7% of projects will cost 189% of their original estimates. This is due to impractical and unrealistic project spec, constant changes in project direction and management and lack of communication. This happens so often that scientists even gave it a name — “Black Swan“. A lesson to learn from this: Communicate better!
A good practice is involving the QA team in the works as early as possible and starting testing from the get-go. Involving QA in the initial stage identifies many issues prior to development and avoids poor application quality, the cost for redesigns mid-project, and even a red flag for the release.
Set your priorities straight. As we’ve mentioned before, the first version of your product will not be impeccable. Neither will it be too close to what the final product will eventually look like. In order to save on extra worries and costs, prioritize the absolutely necessary features and eliminate “ the so-called nice to have “ features for Version 1. Focusing is key in this part of the task.
To draw the initial line here, as there are more ways to make your project more and more cost-effective, let’s make a couple of general conclusions. One: communication is key and will save you a lot of money that you weren’t even planning to spend. Two: when there is a proper foundation for the application and a very clear idea in mind, software development can be more affordable than most people realize. Three: only looking for cheap backfires – invest research time, save money.
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