Software Development Outsourcing: All the Essentials in One Place

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Living in the 21st century, you obviously have heard about software development outsourcing. Despite the disputes about how and when to outsource software development and if it’s really worth the effort, in 2019, the IT offshoring market size amounted to $66.52 billion. So, is outsourcing something not worth your attention, or is it a huge opportunity you are not taking full advantage of?

We are Relevant — an international software development company that designs, builds, and delivers world-class standard products for Fortune 500 companies and promising startups.

In this article, we’ve summarized everything we know about outsourcing software development, the pros and the cons, and how to outsource software development in the right way.

What is software development outsourcing?

In its simplest sense, outsourcing is a practice by which you delegate certain tasks to an external vendor instead of using your in-house resources. Outsourcing is now a common practice in nearly every industry. When it comes to the tech field, software application development is the most commonly outsourced IT function, according to Statista.

Why should your startup outsource software development?

Without the need for renting office space, setting up an entire development infrastructure, and putting together a professional team, outsourcing is faster and more cost-effective than in-house development. But what are the other reasons to outsource software development for startups as well as established businesses?

Access to deep knowledge and experience

It is no secret that software engineering outsourcing is a great way to make up for internal resources you lack, enabling you to focus on your core tasks. But that’s only the tip of the iceberg. In fact, all you have to do is come up with a product idea, and you will immediately have access to a complete package of consulting, analytical, marketing, design, and development services. 

Depending on your product type, project specifics, and budget, you can proceed to development or you can start by creating a minimum viable product (MVP) to validate your idea and make initial changes as necessary. In this case, the marketing and design experts of the outsourcing company will help you design the most optimal MVP and then interpret the analytical data it yields.

Project planning, cost estimation, wireframing, software development, UI/UX design — outsourcing companies can do it all. And they do it all, all the time. That’s why they can put together the most optimal project plan for any project.

Access to superior tech talents worldwide

When you decide to outsource your product development, for example, your PLM software development project, or web design project, you are not limited by your geographical location. Your primary criteria can be the team’s skills and professionalism, not whether they happen to be near your worksite.

Browse the company’s portfolio, look up customers’ feedback, check the reviews, try the products that the company has delivered, and you will be able to find the team that is perfect for your project’s needs. No matter where they are located, whether they work together or remotely, this deep pool of development talent will maximize the creation of your product.

When contemplating collaboration with a team that is half a world away or distributed across many countries, we do recommend considering the cultural differences and taking steps to minimize their influence on the project development process.

Optimal balance of skills and rates

With outsourcing, you can create the perfect balance between the team’s development skills and its rates. The geographic reach of your outsourcing options is broad, with India and Eastern Europe among the best-known software development outsourcing hubs.

The countries of Eastern Europe, such as Ukraine or Belarus, are quickly rising in the outsourcing rankings. Software development companies operating in these countries have demonstrated that they provide quality service with the optimal balance of expertise and creativity.

On top of that, the development rates in Ukraine are significantly lower than those in the US or Western Europe. By outsourcing to Eastern Europe, you are going to get a high quality, professionally delivered product at a considerably lower cost.

Ability to gather the best professional team for the project

If you begin your project by putting together your own startup development team, this will likely throw you off schedule quite considerably.

Remember, for a successful product launch, you need not just developers to write the code and DevOps to deploy the product. To ensure a smooth product release, you also need business analysts, UI/UX designers, QA engineers, and copywriters. Additionally, your project may require highly specialized skills, such as virtual reality or AI. Finding such a broad range of experts may take quite some time. The time that could otherwise be spent doing the actual work on your project. 

Usually, software development outsourcing companies already have a complete team on board, or they can quickly recruit known and trusted freelancers to fill positions if they need additional expertise. At the early project planning stage, the project manager is able to propose a team capable of delivering your project and identify the approximate time required from each team member.

No need for micromanagement

When you assign your project to an outsourcing agency, the project is coordinated by a project manager whose job is, as the name suggests, managing outsourced software development. The project manager takes care of all matters related to your product development and launch and will be your main point of contact for any issues that may arise.

You will meet the PM in the very first stage of your project development and will work with them on its plan. Once you have approved the project plan and estimate, it is the responsibility of the project manager to keep to the agreed schedule and budget. Usually, the PM already has tried and tested methodologies for managing remote teams, as well as in-house teams.

It will be the job of the PM to plan the sprints, set the deadlines, control the delivery, schedule, and prepare feature demos. Changes, suggestions, comments, complaints – you can address them to the project manager and have confidence that the required actions will be taken.

Effective communication within the team

The importance of effective communication goes without saying. Fortunately, an outsourcing agency has the tools and platforms for effective communication and collaboration already established and functioning. Preparing a collaboration environment for your project will require minimum time and effort — a workspace in Slack, a project on GitHub, a board in Jira or Trello — and you are basically all set.

When a team is used to working together, all issues, big or small, will be handled in the quickest and the most effective manner.

Besides, in a well-established team, the project manager will have little difficulty finding replacements in the case of illness or another emergency since the primary and secondary skills of the team members are well known.

Application of the Agile methodology

For a startup, adhering to the principle of lean development is often critical. Doing so allows delivering a product with minimal unnecessary expenses or tasks resulting from incorrect management, poor communication, excessive complexity, or other issues related to the project coordination.

The Agile methodology favors the lean approach. In the most common model, the product creation process is broken down into sprints that are usually two weeks long. Each sprint has a goal (the product increment), which is typically a feature or functional component. After the product increment is developed, it is then tested and demonstrated at the end of the sprint.

Agile allows for revision on the go and adapting the development process to changed requirements. Over the lifecycle of a project, this reduces the need to redo finished components to a minimum.

Easy scalability

In the course of project development, the scope of the project may either grow or reduce, with resulting changes that need to be implemented. If this happens, the initially selected team should be scaled up or down. It’s arduous to do that with in-house development.

And anyone who has built an in-house team knows that it is not easy to quickly find another team member with the required skills, especially if those skills are needed only for a single project. If you need to reduce the team, you will either have to dismiss people and risk being unable to replace their skill set in the future or continue paying their salaries to keep them onboard for future projects. 

With software development outsourcing, you can avoid these problems because the agency usually has sufficient staff to cover your project needs. And when unique skills are required, they can contract a trusted freelancer or part-time team member on an hourly basis as needed. Similarly, reducing the team is no problem for an outsourcing agency since they may be running more than one project at the same time and can transfer the colleague to another assignment.

The practice of startup outsourcing has been around for quite a while, with a list of successfully outsourced projects easily in the hundreds, if not thousands, and the geographic scope covering the entire planet. Opera, Slack, and MySQL are great examples of successful outsourcing. Do you want to join the satisfied and successful crowd?

Cons of software development outsourcing 

Of course, outsourcing is not a panacea. Whenever you assign a project to a new team, you run a certain risk. Even with good reviews and positive first contacts, there is still a chance of miscommunications, delays, features developed differently than you expected, and other challenges. 

Critics of outsourcing point to a lack of transparency. With outsourcing or offshoring, information about quality control and labor conditions are often missing from your effort to gain insights into the company processes and activities.

So, how do you outsource the development of software to a third-party vendor with minimum risk? Start by contracting an agency for a small task. Make a detailed agreement specifying the quality, deadlines, rates, acceptance criteria. If you are satisfied with their performance, go ahead and sign a contract for a larger chunk of functionality or even for the complete project.

On the other hand, if you see that the agency is not up to the task, you can cancel the agreement at any time (just check the contract carefully, so you don’t run into legal troubles).

Under some contracts, you can terminate the agreement and still keep the developed project components. That allows you to start looking for a new software development outsourcing company to pick up where the first left off.

Software development outsourcing models 

The outsourcing software development process involves more than simply paying a third-party vendor to code something for you. In fact, the development begins with the selection of an outsourcing model. 

Here, we’ll discuss three main options: time and material (T&M), fixed price (FT), and dedicated team. Let’s explore each one in more detail. 

Time and material 

Using T&M, the client pays for the time spent exclusively on the development. This model is best suited for small or medium projects without predetermined requirements. It is also ideal for projects that require only limited resources (1-3 resources). 

Pros

• Flexibility. Since the initial specifications are unsettled, the client can quickly change the work plan if circumstances require. As a result, T&M combines ideally with various agile methodologies. 
• Client engagement. Due to the adoption of agile methodologies, the client can see all stages of development. This increases the likelihood that the end result will align with the client’s expectations. 

Cons

• Budget. Undefined requirements make budget estimations challenging. 
• Slow time-to-market. T&M involves lots of communication throughout the project, which slows down the process.

Fixed-price 

The fixed-priced model assumes that both parties agree in advance on the specifications, project scope, and of course, the price, hence the name. Since modifications are not an option, this model works best for small projects. FP is a perfect solution when you are testing the waters with a new software development vendor. 

Pros

• Specifications. You will get what you need, within budget.
• Time-to-market. Since the time frames are agreed upon in advance, the project is more likely to be delivered on time.

Cons

• Risks. The FP model doesn’t leave room for any changes, making risk management extremely difficult. 

Dedicated team

With the dedicated team model, throughout the project, the client pays a fixed monthly salary to the hired specialists in addition to administrative costs. This collaboration type is well-suited for long-term projects with vague requirements and large in-house projects when the client’s staff lacks specific expertise.

Pros

• Control. The client has full control over their dedicated team and the workload.
• No onboarding hustle. Since the vendor handles all the hiring and administrative tasks, you can focus all of your attention on the business aspects of a project.

Cons

• Unclear requirements. The lack of well-formed specifications gives a remote team room for creativity, which can result in discrepancies between the client’s expectations and the end result. You can leverage those experiments with a top-rated software development vendor. 

For ease of reference, Relevant’s dedicated software development team have summarized the key aspects of each model in the table below: 

As you can see, there are no right or wrong models. Your choice will depend on your business type and project requirements.

How to set up your outsourcing strategy?

Increasing productivity, improving product quality, and saving costs are only a few of the benefits outsourced software development has to offer. You won’t successfully outsource IT development without thorough planning, though, so having a solid outsourcing strategy is the first step toward hiring a vendor to cater to your needs. But how can you create one? Below are a few things for you to consider.

Define your goals

Reducing cost is a common reason to outsource, but it’s not the only good reason to do so — don’t limit yourself to searching for a vendor based solely on price. Capitalizing on advanced technologies, streamlining processes, and reducing the risk of business expansion are other benefits of outsourcing. Your goals should be realistic, well-balanced, and achievable. 

Define tasks for delegation 

While some companies are known for coding excellence, others offer stellar consulting services. To find a perfect outsourcing fit, it’s critical to define exactly which tasks you want to outsource.

Hint: at the beginning of your outsourcing journey, delegate tasks that are of less importance to you. 

Determine your technological profile

Since software development outsourcing usually takes place in a remote setup, it’s crucial that your vendor has a technological profile suited to your needs. To this end, we recommend making a list of the resources your project requires. And don’t forget about security and data protection features since data leakage is not uncommon.

Establish a good job climate

Foster good relationships between your staff and outsourced employees: inform them of the outsourcing goals, avoid rumors, and close any cultural gap between your team and your vendor’s team. Make sure your company is actually ready for changes. 

How is software development usually done?

No matter how complex a software product is, it needs to be flexible, easy-to-maintain, and upgradable. This can be achieved by planning each step in advance, from brainstorming to maintenance. Phases of the software development life cycle (SDLC) differ from vendor to vendor. At Relevant, they are: 

• Ideation
• Planning
• Design
• Coding
• Testing
• Deployment and maintenance

Let’s examine each one more closely.

Ideation 

Every project starts with an idea. However, ideas don’t come out of nowhere. First, you must identify a business need and then consider ways to bring it to life. In most cases, the project initiation phase includes the following: 

• Conducting a feasibility study to evaluate the likelihood of successful project completion and to minimize possible risks
• Determining the project’s scope
• Identifying deliverables (the project’s expected results)
• Identifying stakeholders
• Developing a business case that provides the justification for undertaking the project
• Developing a statement of work that specifies the project’s objective(s), scope, and deliverables

Planning

The planning phase typically includes the following components: 

• creating a project plan
• building your team
• identifying the role of each team member
• estimating the budget
• making sure everyone has the necessary resources (both hardware and software) 
• anticipating risks.

A critical component is to make sure that the necessary development tools, platforms, and communication channels are all available and accessible. Basically, you want to ensure flawless daily processing without draining resources from or interfering with your ongoing development.

Another cornerstone of your success is well-organized documentation. Consistency around documentation at every stage is vital for maintaining proper communication, work processes, reporting, and facilitating interaction between team members.

It’s strongly recommended that you summarize everything done during the planning stage with a software requirements specification (SRS) — a document that specifies what a product should do and how it should be developed.

Design

Design is a crucial component of the software project’s lifecycle. It may include the following: 

• Architecture — the overall design of the product
• User interface — the way users will interact with the product and how it will respond
• The definition of platforms on which the product will run (Android, iOS, etc.)
• Communications — ways the product will communicate with other assets (the central server, for example)
• Security — measures to protect the app from data leakages, such as SSL encryption, password protection, and the like

The design phase may also involve creating a prototype, the visual representation of how the project looks and works. 

Coding

As the backbone of the SDLC, this stage is all about ‘translating’ the product’s design into the actual software. 

While a small project can be completed by a single developer, for large projects, all tasks are divided among team members based on their areas of expertise. Thus, a front-end developer builds the product’s UI and its communication with the server; database administrators add all the necessary data to the database.

It’s vitally important to make sure that the code meets the project’s requirements and lives up to the stakeholder’s expectations. No wonder that this stage is the longest. Yet, if the ideation and planning were carefully completed, it’s also the easiest one. 

The goal of this phase is to build a working product and a source code document.

Testing

As soon as the development phase is completed, it’s time for QA experts to check if it meets all the requirements. For this purpose, the software undergoes several types of testing: 

• Functional testing, to verify that the software performs its stated functions in a way users expect
• Performance testing, to see how the software performs under a heavy workload
• Unit testing, to make sure that each module performs as expected
• Security testing, to ensure that the software is free from risks and threats that can cause data leakage
• Usability testing, to find out if the software is intuitive and responsive

Once an identified error is fixed, developers then forward the software back to the QA team for re-testing. This process repeats until the entire product is bug-free. 

Deployment and maintenance

As soon as the testing phase is successfully completed, and there are no identifiable bugs or other imperfections in the product, it is delivered to the market for beta testing. During the beta testing, the support team collects user feedback, and if any problems arise, the development team fixes them. 

Only after the product is fine-tuned in response to real-world feedback is it finally rolled out to the market. Its life cycle doesn’t end there: instead, the product is regularly updated to improve performance and cater to the ever-changing needs of its users.

You may find interesting how to hire iOS development team as well as Android.

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Where to outsource, and how much does it cost?

Cost optimization is one of the main reasons why people actually outsource. Factors such as taxes or the cost of office space vary from country to country. As a result, outsourcing the software development process to certain destinations may cost you a fortune. For example, while an average software developer in the US earns $77K annually, their colleague from India makes on average 11 times less.

The vendors with the lowest cost, however, may not deliver the best quality. Analyzing different countries based on the following criteria will help you identify the optimal balance: 

• Tech education opportunities
• Positions in global ratings of IT destinations
• Time zone difference
• The level of English proficiency
• Resources availability and tech competency diversity
• Cultural mindset

Based on these criteria, Ukraine is considered to be one of the best outsourcing destinations worldwide, and the affordable hourly rates (from $37 to $76) are not the only reason for that. 

Due to their extensive educational backgrounds and comprehensive skill sets paired with mature management teams, local dedicated software development teams have consistently demonstrated their ability to produce a high-quality end product and provide services to meet all the needs of their customers.

Moreover, you can find almost every cutting-edge technology or tool here, whether you need AI, robotics, or IoT, highly customized application development (e.g. equity management software development), predictive software development techniques, or modern mobile app development. On top of that, R&D initiatives are booming within the tech and software engineering sector in Ukraine. Companies like IBM and Microsoft have taken notice; they are already adopting the improved tech and field-specific advancements of the local IT market for their research and development needs.

Of course, there are other destinations to consider. The advantages listed above, however, make Ukraine an attractive country to outsource to. So, it is no surprise that tech giants, such as Intel, eBay, Apple, SolarWinds, are leveraging its rich IT and software development ecosystem.

You may also consider any other countries for outsourcing custom software development services. Here we prepared a list of articles dedicated to each country:

How to choose a software development vendor?

With 23 million developers worldwide, it may seem impossible to choose the right software development outsourcing partner. In fact, the selection process is similar to choosing any other service provider — with a few industry-specific amendments, of course. 

To find your perfect fit, you should take the following steps: 

1. Identify what you need (an app type, platforms to run your app, tech stack, estimated deadlines, etc.).
2. Search for candidates based on your identified needs.
3. Choose several candidates, explore their websites, browse case studies, try to find their profiles somewhere other than their own sites (LinkedIn, Clutch), read their corporate blogs and Google customer reviews.
4. Reach out to the candidates to learn about their rates, expertise, certifications, security measures, communication style, and the like. Sift your list in response to the information you receive.
5. Reach out to clients of the shortlisted vendors and ask for references.
6. Discuss your project with the selected candidates. Ask the potential prospects for estimates on time and budget.
7. Finally, ask the remaining candidates to do a test. The task shouldn’t take more than two working days. Whatever the result, always pay for the test assignment. 

The company that satisfied all the evaluation criteria listed above is likely to be a reliable outsourcing vendor. To learn more details on each of the steps, please read our blog post. 

Software development outsourcing contract details

Now that you found your perfect software development vendor, the next important step is to sign the software development outsourcing contract. 

Like an agreement for any other service, a software development contract includes general terms, termination conditions, dispute resolution, and so on. There are some specific sections to include for IT outsourcing, though: 

• The services. This section should describe in detail the services and the project scope that you expect your outsourcing partner to deliver, as well as the process for making changes to the scope.
• Project time and cost. Here, you should specify hourly rates, development phases, milestones and their deadlines, responsibility for delays, payment schedules, and the like.
• Acceptance testing (AT) is a test conducted to determine whether contract requirements are met. This section states which party is responsible for the testing, how long it takes, and how the results are communicated.
• Intellectual property rights. The end product is the customer’s property; it does not belong to the developer. Make sure the contract clearly states that. 
• Confidentiality. This section specifies which information is considered confidential, and the responsibility for, and ramifications of, its disclosure. 

Signing the contract makes your relationship with the software development vendor official. Now, your partner can start writing the code for your product. 

Relevant as an outsourcing partner

Finding a reliable outsourcing partner can be an arduous task. But if you are reading this here, at the official website of Relevant, going through all those circles of hell isn’t a necessity for you — you are in the right place. 

Relevant is an offshore software development vendor with highly skilled Ukrainian developers for hire. Our mission is to help existing businesses and startups build world-class software in a cost-efficient way. We’ve been successfully providing the following services since 2013: 

• Dedicated team
• Web and mobile development
• Quality assurance
• Digital design
• Cybersecurity
• DevOps
• AI/ML
• Salesforce development 

To date, there are more than 200 success stories under our belt, like this:

Summary

Outsourcing is definitely a complex issue. Yet, with the right service provider, scrupulous contracting, and clear communication of your business requirements, you will receive in-depth knowledge and the implementation of capital-preserving techniques that make it possible for you to achieve the best results within time and budget.

If you are looking for an outsourcing development team, let us know. We have no doubt that your idea deserves to succeed, too. Don’t hesitate to drop us a line! 

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