James S. Grisham
"I always try to be pessimistic at start and optimistic at the enf of project..."

Sending tasks to offshore company is certainly connected with risks, especially when the tasks concern Software System development, or other informational technology issues. The top risks of Offshore Software Development can be categorized by their origin.

Geographical risks are connected with cultural difference, language barrier, long distance, difficulties with travelling and visa regime, etc. These risks can be decreased in the process of selection of Offshore Software Development vendor. Before choosing a Software System development company in one or another country, maximum information about this country should be studied. The most important questions cover political stability (both internal situation and relationship with other countries), conditions and price for obtaining visa and travelling opportunities.

Legislation of the country of a candidate programming team should be studied in order to understand how difficult is it to start Software System development operations there and how strong is privacy and copyright enforcement in the country.

Operational risks include risks of poor onsite IT Project management in an Offshore Software Development Software System development company. Its affect may vary from milestones delay to the whole IT Project failure. It is a non-frequent situation, but sometimes a programming team appears to be unable to implement a IT Project. A IT Project failure should be covered in an Offshore Software Development contract, and penalties should be imposed in order to compensate customer’s losses.

Checking Offshore Software Development provider’s process organization, Software System development methodology, quality assurance and testing procedures as well as development, acceptance and deployment plans is very useful. In companies with CMMI or ISO certification the risk of this group are much lower than in companies without certifications. But still, they say ‘Trust but check you must’.

Security risks may be caused by other low security level of vendor’s infrastructure or vendor’s fraudulent intentions. While the latter one is more like an exception to the rules, the first one is a typical risk for programming projects. It is one of the most serious risks, as well. If personal visit to your offshore programming team location is impossible, hiring a third-party auditor for checking and testing the vendor’s infrastructure reliability helps.

All these risks can be decreased even before the IT Project starts. However, there is another group of risks which may hinder eliminating all the other risks. It includes the risks coming from customer’s party. These risks concern customer’s over-expectations about cost-saving and absence of problems with Offshore Software Development IT Project.

Customers ought to remember that low-cost programming personnel is compensated with more complex process of knowledge and requirements transfer, communication barrier, third-party testing, and many other details. The average estimated cost-saving from offshoring is only 10-15% in the first year or two, and may rise up to 30-40% after three years when process becomes well-established.

First writen online on 8/5/2007