Today, companies have no doubts that outsourcing in IT brings many benefits, including time savings, cost reductions and allowing staff to focus on more important tasks, thus increasing their efficiency and productivity. 

As a result, the number of enterprises that outsource software development in whole or in part to software houses is steadily growing. According to the results of the “Global outsourcing survey 2022” conducted by Deloitte, as many as 72% of the surveyed companies outsource their IT work, and 31% plan to increase the scale of outsourcing in the future. 

When deciding to outsource, however, you must decide what you can do with your internal team, and which part of the project will be outsourced to the software house. In this article, we will answer the question of what is project-based outsourcing and how to check if it is the best solution for your company? 

Introduction – types of outsourcing in the IT industry

In our series of articles devoted to outsourcing in the IT industry, we will try to answer the most important questions that often appeared in conversations with our Clients.   

We will explain not only what types of outsourcing services are offered by a software house such as SOFTIQ, but also what are their pros, cons and scale of possible savings.   

In our articles, we will characterise following types of outsourcing services:

1. project-based outsourcing
2. dedicated teams
3. managed teams
4. team augmentation / staff augmentation

In this article, we will focus on project-based outsourcing, its advantages and disadvantages, and we will try to answer the question in which projects this type of outsourcing will work the best. 

So what exactly is project-based outsourcing? 

What characterizes project-based outsourcing?

Project-based outsourcing is when a partner you choose, such as a software house, oversees and manages the entire process of developing a system or application based on your specifications. 

The outsourcing partner therefore takes care of all design and development work to provide you with a finished product, in accordance with your requirements and within the agreed time, and budget.  

What are the characteristics of project-based outsourcing?

1. Your internal team is less involved than in the case of other outsourcing models.

Since the software development company is responsible for the entire project, you and your team’s participation in it may be limited only to receiving current progress reports and communicating to clarify your requirements and expectations. Of course, if you want to get more involved in the project, no problem. You just need to set the terms of cooperation with a software house so that each party feels comfortable. 

2. Most of the responsibility for the success of the project rests with the outsourcing company.

Responsibility for the project rests with the outsourcing company. Of course, you are responsible for preparing the requirements and specifications. However, you are not responsible for the development and implementation. For many companies, this solution is the most optimal. 

3. The project has a transparent work schedule, which the outsourcing partner has to follow and deliver the product on time.

The outsourcing company is responsible not only for the development and implementation of the final product, but also for its timely delivery. At the beginning of the cooperation, a clear work schedule should be prepared, so that you and software house would know when the key dates and the deadline for completing the work fall.  

It will depend on your preferences whether the date of completion of the project will be tantamount to launching the product on the market, or whether it will be the date of completion of development works and the product will be launched on the market at a different date. 

Why do companies use project-based outsourcing?

Savings have been the main motivating factor for companies using project-based outsourcing in software development for years. According to Deloitte research published in the “Deloitte Global Outsourcing Survey 2022” report, almost 58% of companies use outsourcing to reduce or control costs. 

Other reasons why project-based outsourcing is very popular include:

• the ability to focus on the main activity that is important for the company,
• improving the quality of the created software,
• access to a large pool of qualified specialists.

In addition to the reasons listed above, problems with access to experienced specialists are also mentioned more and more often, which makes it difficult to build the right team to carry out the project internally. 

Impact of shortages in the market of IT specialists on the popularity of outsourcing 

The demand for specialists in the IT industry is steadily growing. According to data published by Gartner, as many as 58% of IT department directors declared that they have already increased or are planning to increase the level of investment in new technologies in the near future. 

At the same time, there is a lack of candidates on the labor market for such ambitious plans. 

The scale of the problem is illustrated by the following data, collected by leading research institutes and consulting companies: 

• global demand for developers will increase from 1.4 million in 2021 to 4.0 million in 2025 (source: IDC – International Data Corporation),
• the number of job offers for developers, QA analysts and testers will increase by 22% between years 2020-2030 (source: BLS – U.S. Bureau of Labor Statistics).

Staff shortages on the labor market vary from country to country, with the largest ones occurring in highly developed countries: 

The situation is critical and for many companies, using the potential of a Polish software house, such as SOFTIQ, which provides professionals for the IT industry, may be the best solution. 

In May 2022, the number of specialists employed in the IT industry, according to the Polish Investment and Trade Agency, was over 400,000, which makes Poland the largest source of professionals in Central and Eastern Europe. 

Establishing cooperation with a software house experienced in project outsourcing is a more optimal solution for many companies than trying to recruit and train employees on their own in the in-house formula.  

What are the advantages of project-based outsourcing?

Project-based outsourcing can significantly reduce costs because the company only pays for the services used. It also allows the company to gain access to a vast number of specialized developer talents from around the world for their projects. 

Other benefits of using project-based outsourcing include:

1. Flexibility – offers the ability to scale up or down as per project requirements.
2. Access to specialized skills – outsourcing provides access to qualified specialists and skills that your internal team may not have, and their recruitment is associated with higher costs.
3. Increased efficiency of your own employees – thanks to project-based outsourcing, the current members of the internal team can focus on other tasks, important from the business point of view.
4. Better quality – thanks to the use of specialized skills, as well as Quality Assurance and Quality Control procedures, outsourcing allows us to deliver products of higher quality.
5. Shorter time-to-market – because the project is managed by an experienced team, time-to-market is often shorter than for in-house projects.
6. Risk Management – outsourcing helps to reduce the risks associated with incorrect requirements, deadlines, and other potential issues.
7. Lower overhead costs – no need for additional staff or office space can help reduce overhead costs.
8. Proven processes – a software house such as SOFTIQ has established processes and procedures to implement the project quickly and efficiently.
9. Greater competitiveness – project–based outsourcing can help companies stay competitive in their industries, thanks to the quick delivery of the product to the market or its efficient update with new features that are attractive to users.

Although project-based outsourcing has numerous advantages, we have to remember that it will not be an ideal solution in every project. Therefore, when analyzing which form of outsourcing to choose for your company, you should also take into account the limitations of this outsourcing formula.

What are the disadvantages of project-based outsourcing?

The main disadvantages of software development model, based on outsourcing the entire project include more complex communication, resulting in possible misunderstandings and possible limitations in project visibility. 

Other examples of the disadvantages of project outsourcing include: 

• increased risk of misunderstandings leading to costly delays or errors, 
• difficulty in assessing project progress,
• difficulties in enforcing confidentiality agreements,
• increased risk of intellectual property theft with many outsiders having access to them,
• the need to take into account various restrictions and regulations, depending on the country from which the software house is located,
• the possibility of misunderstandings due to language and cultural differences,  
• potential difficulties in monitoring possible subcontractors. 

When does project-based outsourcing work the best?

This form of outsourcing works best in situations where the company needs to access specialized human resources, reduce costs or quickly meet changing customer requirements. 

It is of particular interest to companies with a limited number of employees who are not able to perform all the tasks needed to complete the project or when the project requires specialist knowledge that none of the in-house team members have. 

In what other cases is it worth choosing project outsourcing? 

1. When you have limited software development capabilities in the company.  
   As the outsourcing service provider is responsiblee for finding staff and delivering product on time, this outsourcing approach is suitable for companies with limited engineering/IT knowledge. Companies of all sizes can create unique software by outsourcing development to a specialized software house. 
2. Simple projects that have predetermined needs that are unlikely to change. A project-based outsourcing company can do these tasks without your input or with very limited involvement on your side. 
3. When you need a product created quickly and efficiently – without the burden of management.
   Again, project-based outsourcing works best with Clients who know exactly what they want. You can successfully hand over your project and free yourself from management tensions. 

What to look for when choosing a software house that create your system or application?

When choosing a software house for project outsourcing, consider not only factors such as cost and security, but also the aspect of customer service, reputation and portfolio of the company. 

In addition, make sure that the software house is well suited to your specific project and the type of services you need. At SOFTIQ, I know how important it is to feel comfortable with team members and have a sense of how well they communicate. 

Among the things that are worth considering when choosing a software house for project-based outsourcing we can mention:  

• software house experience and portfolio, 
• the cost of a software, such as an application or system, 
• project completion date, 
• processes under Quality Assurance and Quality Control, as well as appropriate testing procedures, 
• communication quality, 
• availability of resources – personnel and technology, 
• competencies in the field of integration with existing systems. 

You can learn more about how to choose the best software house for your project from the first and second part of our article devoted to this issue. 

If you have additional questions, please contact our consultants. 

What costs should be taken into account in the case of project-based outsourcing?

You should remember that in the case of software design and development services, so many factors come into play, both on your side and on the side of the software house, such as SOFTIQ, that we cannot give you the costs before performing a detailed analysis of your requirements.  

We will certainly advise you to focus on those companies, which, like SOFTIQ, are ready to adapt the cooperation and contracting model to the specifics of your business and your project. 

Often, during consultations with our Clients, we hear that many companies are not even willing to consider working on the project in the Fixed Price model, but only Time&Materials. 

While, in the case of some projects, this may actually be the best contracting model, it is certainly not universal and for some industries or types of software it is not optimal from the customer’s point of view. 

One of the reasons for such favoring of the Time & Material contracting model by some software houses is, especially in the case of large projects, the lack of experience in optimal estimation of the risk margin. As a result, the project budget may be too low to protect the supplier in the event of unexpected complications or too high from the Client’s point of view when the margin of error is overestimated. 

Summary

The undoubted advantage of project-based outsourcing is usually a lower degree of your involvement.  

Software house takes care of all aspects of the project, such as design, development, testing, deployment, and maintenance of software. It also recruits and hires programmers, engineers, and additional staff.  

Project-based outsourcing in the case of custom software development affects not only the pace of work on the project, but also reduces costs by transferring part of them to the software house that employs employees. 

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