9 Vital Risks Associated with Software Development Outsourcing and How to Manage Them

Working with an outsourcing partner who remotely takes over your software development processes is very popular. At the same time, it’s a rewarding practice to both improve business processes and save money. However, it’s perfectly natural if you have some fears and doubts regarding the outsourcing risk before hiring an outsourcing service provider. After all, you share your confidential data and know-how with an external subject which may lead to e.g. data breach. On top of that, there are many outsourcing risks you should take into consideration. Let’s explain the most common risks of outsourcing and learn how to mitigate them.

What does an outsourcing model in software development mean?

By software development outsourcing we mean moving some parts of software development processes (or even entire processes) to development teams from outside the organization. Outsourcing companies help their clients in tasks at which they are best. Such services work great in projects that require knowledge that isn’t available in-house. Businesses usually delegate the entire software projects to outsourcing companies and their remote teams or hire human resources in the form of staff augmentation.

Why invest in software development outsourcing?

One of the most common benefits of outsourcing is cost reduction, standardization and improved process efficiency. Outsourcing helps in being focused on key priorities, thus, delivering better results. It gives you access to a huge talent pool. You can hire highly qualified specialists who don’t need to buy equipment for them or take care of their working space. This also means filling the expertise gap and powerful knowledge transfer for your business.

If you want to find out more, jump to the full list of the pros and cons of outsourcing.

Types of outsourcing

Usually, companies while looking for the best outsourcing partner, choose one of the following outsourcing models:

· Onsite – it’s when you hire a specialist for an open position and integrate them into the team for a specified period. Onsite outsourcing is usually a temporary solution.

· Onshore – when you collaborate with a local outsourcing provider from the same region/country. All tasks are performed by a development team outside the company. Such collaboration doesn’t have the operational risks of cultural differences.

· Nearshore – when software development tasks are delegated to a tech-savvy specialist or specialists from a country located nearby. The remote team is located within the same time zone.

· Offshore – it’s when you look for specialists in the international source. You get access to a wide pool of talents at a low cost.

· Multisource – your software development tasks are solved by several outsourcing providers from different countries.

Learn more about these models and the differences between them.

How does outsourcing affect quality?

If you are a startup or an S&M business, your main challenges often fall into two connected groups: lack of capital and the need for more resources and skills. If you need access to a talent pool of highly qualified professionals who will be able to handle detailed product specifications, but at the same time, you don’t have enough capital to invest, finding a development partner who will deliver the finished product code could be the option for you to consider. However, you should make sure that the service provider you want to hire has the core competency you need. This is the only way to maintain the highest quality of your services. Many businesses worry that outsourcing will affect the quality of their software in a negative way, but this is not necessarily the case. You just need to find the right partner – one of the ways to verify them is by looking thoroughly into their company’s portfolio or checking them on independent review platforms, e.g. Clutch.

What is the most common outsourcing risk?

Now, when we know what outsourcing services are and how you can benefit from them, let’s dive deeper into the most common risks of outsourcing. Over the years in software development, we have met many businesses, regardless of industry size, struggling to outsource their software development processes to an outside vendor. In most cases, issues were caused by internal factors at the company that ultimately prevented success. We have developed our way to discover red flags, or areas of risk, that fall inside three dimensions:

· Business – risks that don’t lie within the domain of the IT department, but within those areas of the organization where business stakeholders reside. They can have a massive influence on a company’s final product.

· Management – such risks are connected with managers and the way they delegate tasks. They occur when the management doesn’t take proper action to ensure that goals are pursued in the right way.

· Technology – those risks are introduced by flawed elements of the technology architecture, for example, frameworks & tools.

Top risks of outsourcing and how to manage them

When it comes to software development outsourcing, there are certain major risks associated with it. Here is what you have to know about them.

Reliability of your outsourcing partner

In outsourcing, trust is everything. Most outsourcing companies boast their extensive knowledge and experience that come with promises of perfect project deliverables. However, what you need is credibility. You have to be sure that your outsourcing partner is reliable to work with as your entire project’s success may depend on them. Remember that you can’t rely on face-to-face meetings and on-site visits, but only video calls.

Solution: verify the company website and their social media activity. Get familiar with their recent projects and case studies. Find third-party reviews and client testimonials.

Loss of control over your project

Many businesses consider it the biggest outsourcing risk. Software development partners often do not allow to be in contact with web developers, so you cannot verify if the most challenging tasks have been delegated to experienced programmers. Loss of control over your project can affect the quality of the final product and the entire outcome of your project. This may lead to a loss of money, time, and effort.

Solution: make sure you plan and strategize the whole project. Think of data security. Write a detailed plan and describe requirements and responsibilities. Set up proper communication channels and identify the person of contact. Finally, at each stage of the project, track KPIs and metrics.

Hidden costs

This is probably the second most often discussed among the outsourcing risks. Especially startups may worry that their outsourcing service provider will charge them additional fees at the end of last-minute changes. There may be unpredicted upgrades, bug fixes, redeployment, etc. All of these usually lead to an increase in the overall budget. In some cases, you can even pay extra for obscure overheads.

Solution: in order to avoid unexpected costs, always define the requirements and keep them clear with the outsourcing company. If possible, get a third-party law firm that will support you in decision-making while choosing the outsourcing service provider. The additional costs should be listed down to the nail in the contract.

Lack of domain knowledge

Before you decide to outsource your software development project to an outsourcing company, you should thoroughly check their portfolio of projects. Particular domains may require an understanding of industry business context and knowledge of specific technologies.  You should make sure your partner has experience in your domain and product expertise. If you don’t, you risk project delivery delays, missed obligations, extra changes, and substandard quality.

Solution: it’s recommended to get familiar with the company’s offerings and services on their website. Case studies and recent projects may always be helpful to verify the company’s previous experience.


Every time you start collaborating with a third party, there is a risk of a data breach. Chances of keeping privacy and confidentiality should be a standard, however, there is always a possibility of information leakage. You never know whether outsourcing firms will abide by the laws of your own country or not which means decreased security.

Solution: you should always sign a non-disclosure agreement since a service level agreement (SLA) might not be enough. Also, you should learn the third party’s data protection practices and policies. When it comes to the contract, make sure you have ownership of the source code.

Communication issues

Miscommunication may lead to very serious problems in outsourcing collaboration. Let’s say you’re hiring an outsourcing firm from a country with the opposite time zone. If you need to get into a detailed discussion about the changes in the project, one of the parties will have to clock in at night to join the meeting. Furthermore, there are language barriers and cultural differences that can cause gaps in understanding between the parties.

Solution: to avoid communication issues, you should start with allocating a single person of contact. They will be responsible for managing a smooth flow of communication between the parties. Additionally, set up regular meetings or calls including both teams. Finally, you can make sure to acknowledge where complicated factors make miscommunications likely. Provide your business partner with enough attention to learn your business as quickly as possible.

Unclear delivery expectations

The parties should be on the same page in terms of deliverables. It’s not enough to write down the project objectives. The best way to go is to prepare the project requirements specification — if you don’t have it, this may lead to lots of changes during the project execution, which can significantly increase costs or extend project timelines. This type of risk includes unrealistic expectations that are a huge barrier to success in software development outsourcing. You cannot expect an architect to let you know how much your house will cost without giving them clear and detailed specifications, right? It’s the same with building software.

Solution: be realistic about your expectations for delivery. Significant milestones and checkpoints are as important as a final deadline, so you need to be transparent with your partner. You should make sure that they are capable of meeting them. Make a proper list of all features your software product should have and share it with potential offshore vendors. Let them come back to you with their questions and doubts.

Quality of software

It’s the bottom line of everything in software development and one of the most obvious risks of outsourcing. If the software product delivered to you eventually has lots of bugs, your project will be delayed until you fix them, which can have a significant negative impact on your business.

Solution: test early and thoroughly. The earlier you detect bugs, the easier it is to deal with them. Ask your outsourcing partner to add a QA engineer to the team — a person who will be dealing with bugs on a daily basis. Regular testing makes it cost-effective to fix them in the earlier stage than later. Also, a thorough code review should be carried out to confirm the quality of the code.

Ineffective task management

Inefficient processes and delivery delays are typical problems for software development outsourcing. Usually, it’s a result of weak project management. A third-party contractor usually assigns a dedicated project manager for each project – they distribute tasks, control their distribution, and report back to you. However, there is always a risk that an external company will not manage your project properly, as it happens in all industries.

Solution: the best option is to interview the project manager personally before they are hired. You should carry out a full assessment – check their experience, the tools they use, and their task review process. Also, you should browse reviews on Clutch and conduct market research to gather opinions about the offshore vendor. As a contractor’s expertise plays a vital role in making your project work, you really need to get it right.

How to choose the best outsourcing service provider?

Software development outsourcing comes with risks and returns. Sure, there are some serious risks you have to take but on the other side, the benefits are worth the risks and obstacles. No matter what type of outsourcing services you choose, whether it is a project-based model or staff augmentation, it’s crucial to select the right outsourcing partner who will help you reduce the risks to the minimum.

There are some key points you should pay attention to when choosing an offshore company:

1. Be clear about your goals and business needs, so that it is easier for a remote team to understand what you want to achieve.

2. Verify the software development company’s expertise and experience – choose a partner who has already worked with the required technologies or your industry. You want developers who have ample experience, ideally with projects that are similar to yours, right?

3. Communication and chemistry – open communication is critical, and trust is an essential part of a business partnership. Lay out your expectations for the collaboration upfront and be honest from the very beginning. To achieve success, parties should develop a mutually positive working relationship.

4. Agreements – those are contracts including the billing model (Fixed-price model? Or maybe time and material?) and terms of collaboration. Make them complete and transparent, so that each party knows they won’t be cheated. Decide what type of agreement would be best suited for your project.

5. Define the scope of your project to ensure that your product can be successfully developed and launched on time. Learn how to write software requirements specification.

6. Find a partner with compatible company culture. It should be professional, but at the same time, open-minded and friendly. Get to know their values, behaviors, and work practices.

7. Check their company case studies/portfolio. Those are a powerful source of information about the previous clients, projects they worked on, and their previous experience. Check the number of their specialists, verify their fields of specialization and skills, and directly ask about the structure and management of their company.

Want to know more? Check out our 16 tips on how to choose the best software development company.

So, how to avoid outsourcing risks?

By planning in a sufficiently detailed manner and ensuring a high degree of transparency, you are able to mitigate most of the above-mentioned risks. Outsourcing is a very collaborative relationship between two companies or remote teams and communication between them is crucial to ensure good ongoing delivery. Therefore, it is recommended to have structured kick-off meetings and keep up the discussion throughout the duration of the relationship (meetings with PMs or even software developers, preparing contingency plans). If you are prepared well, outsourcing will allow your business to grow its delivery capability without any hidden costs and risks. Outsourcing risks shouldn’t, at any point, dissuade your growing business from adopting the outsourcing model.

The final word

Outsourcing comes with some pros and cons. There are also risks of outsourcing that one simply cannot disregard. However, with the right outsourcing company, a chance to reduce the costs of software development and get a huge pool of talented developers is worth the risks. With a carefully chosen development team, IT outsourcing will never turn into a disaster. The right vendor will guarantee high quality and significant cost savings. They will also shoulder all the challenges and responsibilities. At TeaCode, we know how to manage technical and non-technical risks. We’ve been doing it for ages for many clients from various industries. For years, we have been supporting companies in their development and creation of software.

If you want to know more about TeaCode and our experience, don’t hesitate to reach out.

Let’s start with a free consultation.

Customer Success Manager at TeaCode

Since 2016 Mike has been helping international companies to gather and analyse requirements for their apps-to-be and guides them through the first stages of the development process. He aims to help our clients reach their business goals by focusing on their target groups.

Having such a background, Mike shares his knowledge to help companies choose the best software developer that suits their needs.

Mike Popov
Mike Popov
Customer Success Manager

Since 2016 Mike has been helping international companies to gather and analyse requirements for their apps-to-be and guides them through the first stages of the development process. He aims to help our clients reach their business goals by focusing on their target groups. Having such a background, Mike shares his knowledge to help companies choose the best software developer that suits their needs.