Top 20 Risks Associated with Offshore Outsourcing


You may be sur­prised to find out that some fig­ures sug­gest the fi­nal sum up will leave your ex­pen­di­ture 65% higher than es­ti­mated.

In any good busi­ness man­age­ment strat­egy it is im­por­tant to com­plete a thor­ough risk as­sess­ment to iden­tify and mit­i­gate po­ten­tial dan­gers. Just like cre­at­ing soft­ware within the bor­ders of Australia, out­sourc­ing your soft­ware from off­shore also in­volves risks. However it is im­por­tant to recog­nise that when weigh­ing up the ben­e­fits be­tween the two, we are not com­par­ing or­anges to or­anges.

The dif­fer­ences in le­gal frame­works as well as busi­ness struc­tures mean that per­haps we are not able to as read­ily recog­nise the po­ten­tial risks over­seas soft­ware out­sourc­ing may have on our bud­get. My goal is to make you aware of these sub­tle nin­jas and help you re­duce the chance of be­ing smacked in the face with a fi­nan­cial hit. To help you start your risk man­age­ment, here is a list of 20 risks as­so­ci­ated with off­shore out­sourc­ing.

1. Lack of a risk as­sess­ment and risk as­sess­ment plans.
2. Failure to eval­u­ate lo­cal laws pro­tect­ing your in­tel­lec­tual prop­erty
3. Outsourcing with­out pre­vi­ous ex­pe­ri­ence
4. Not clearly defin­ing the re­quire­ments of the pro­ject and de­liv­er­ables
5. Not con­sid­er­ing com­mu­ni­ca­tion chan­nels
6. Not spend­ing enough time and re­sources on the due dili­gence of ven­dors
7. Inaccurate cost­ing and time­frames
8. Not es­tab­lish­ing processes to deal with chang­ing re­quire­ments
9. Failure to set mile­stones and clear de­liv­er­ables
10. Using poorly planned pay­ments upon de­liv­er­ies at mile­stones
11. Not un­der­stand­ing the time­frames work­ing across time­zones
12. Inadequate de­vel­op­ing of a pro­to­type
13. Not con­sid­er­ing a han­dover and on­go­ing main­tain­abil­ity
14. Lack of a feed­back loop to in­flu­ence out­comes
15. Poor use of key per­for­mance in­di­ca­tors to man­age the pro­ject
16. Underestimating the ef­fort to have all le­gal agree­ments in place
17. Not con­sid­er­ing the geopo­lit­i­cal risk
18. Lack of in­cen­tives for provider to give con­tin­u­ous im­prove­ment
19. Not train­ing the provider on crit­i­cal el­e­ments of the com­pany prod­uct line or on ser­vice ex­pec­ta­tions
20. Using poorly de­vel­oped and doc­u­mented ser­vice or prod­uct spec­i­fi­ca­tions

These are only some of the ob­vi­ous 20 to con­sider. There are even more ad­di­tional fac­tors that mean per­haps out­sourc­ing your soft­ware is not as cost ef­fec­tive for your busi­ness as you may have ini­tially an­tic­i­pated. In fact over 76% of cus­tomers re­ported that the pro­ject ad­min­is­tra­tion and ven­dor man­age­ment costs of off­shore soft­ware de­vel­op­ment were far higher than ex­pected. While the aim of your busi­ness is to “increase rev­enue, de­crease cost and in­crease cus­tomer sat­is­fac­tion”, with­out con­sid­er­a­tion and proper man­age­ment strate­gies these risks may pose a threat to this goal.

We also should not for­get that there are some great perks to com­plet­ing soft­ware de­vel­op­ment pro­jects within Australia. Increasing cus­tomer sat­is­fac­tion is about a great user ex­pe­ri­ence (UX) with a value propo­si­tion to back it up. Recently Australia has been listed as the most glob­ally cre­ative coun­try ac­cord­ing to this pub­li­ca­tion that was re­viewed by a world eco­nomic fo­rum. While off­shoring soft­ware de­vel­op­ment car­ries a va­ri­ety of risks, there is a trend for busi­ness process out­sourc­ing.


In sum­mary, there are a lot of risks to con­sider. If you are dili­gent and can mit­i­gate these risks you could have a suc­cess­ful off­shoring pro­ject. However, con­sid­er­ing there is no firm ev­i­dence that off­shoring in­creas­ing rev­enue or de­crease costs, de­vel­op­ing your soft­ware lo­cally will au­to­mat­i­cally help mit­i­gate a lot of these risks. Not only will you will be within the same le­gal sys­tem but also the same time­zone, po­ten­tially putting you in an eas­ier po­si­tion to man­age your pro­ject. Furthermore, to in­crease your cus­tomer sat­is­fac­tion you need a great UX and Australia is a great place to make this hap­pen.


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Eban Escott

Big pic­ture thinker and Star Wars fa­natic

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