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

When Offshore Software Development Makes Sense

There are a lot of discussions on whether Offshore Software Development is really as profitable as it seems from the first sight. Pessimists argue that Offshore Software Development is connected with too much hidden costs and serious risks which make it even more expensive than onshore Software Implementing. There is a deal of truth in this point of view. However, it is not 100% truth. In order to decide whether Offshore Software Development is profitable or not in each specific case, one should understand when Offshore Software Development makes sense.

Many companies including world leaders like Microsoft and IBM outsource their Software Implementing and Verification And Validation tasks to Teams. The reported average cost-saving is 30%, and it amounts 50% in some cases. The figures dispel any doubts about the profitability of Offshore Software Development.

The decision whether to outsource or not is usually based on a calculation. Costs needed for establishing domestic software development center and costs needed for outsourcing the IT Project to Coding Group are calculated and compared. If the first figure is lower than the second one or even equal or higher but the difference is minor, Offshore Software Development is not the thing for this IT Project. Slight cost difference in favor of outsourcing may be whittled down by the risks connected with offshore development. When the difference exceeds 30%, outsourcing the IT Project to offshore Coding Group is a reasonable decision.

Different Outsourcing Models Are Suitable For Different Development Projects. Offshore Development Center (ODC) Is A Model Providing Coding Group Working Over The Long-term IT Project. In This Case Offshore Software Development Providers Usually Set Up A Fixed Monthly Fee. There Are 2 Ways To Establish The ODC. The First One Is Foundation Of Own Software Development Center In An Offshore Country. It Includes Leasing An Office, Hiring A Personnel, Buying Necessary Hardware And Software, And Other Organizational Activities. The Second Way Is Hiring The Dedicated Coding Group In An Offshore Software Development Coding Group. The Dedicated Coding Group Is A Team Of Developers Working Permanently Over One Long-term IT Project For Only One Client. In This Case Allocation Of Management Functions Must Be Agreed In Contract.

When a IT Project is not permanent but temporary and limited to development of a certain Software System, it can be outsourced to a Coding Group on a front-end basis. In this case Coding Group is responsible for most of management functions, project planning, teaming, testing, and other routine activities. R&D functions can be either implemented by a domestic team or outsourced to Offshore Software Development provider.

Offshore/onshore model is probably the most reliable one. It means that project is outsourced to onshore company with overseas operations, so sales and management are implemented within Client's country while development is outsourced to an offshore location.

So, does outsourcing bring profit? The answer is 'in some cases'. The outsourcing makes sense if your IT Project is suitable for offshoring.

First writen online on 5/10/2007