How to Outsource Software Development Projects (10 Steps to Build Your Strategy)

Outsourcing software development is big business these days because, when done right, it provides tremendous ROI. According to a report from Accelerance, companies are expected to spend $133.3 billion USD collectively on outsourced development by 2025, and many of them will consider that money well spent. Some, however, will regret the decision.

The cold, hard truth about outsourcing software development is that some projects won’t succeed. The root cause of these failures can be a weak outsourcing strategy, choosing the wrong outsourcing partner, or a failure to communicate requirements.

Let’s take a real-life example of a software outsourcing catastrophe. Cambridge University NHS Foundation Trust outsourced the development of an online patient record system. After the first launch, the software’s performance dropped by 20%. The system was error-prone and gave out inaccurate information, risking patient privacy and data security. The IT project cost Cambridge University £200 million GBP (equivalent to around $300 million USD) and led to several funding-related investigations.

The first step to avoiding outsourcing issues is to create a robust strategy, planning everything in detail and taking a systematic approach to finding the right software development partner. This guide will outline how to successfully outsource software development projects and maximize your odds of success.

10-Step Process for Successfully Outsourcing Software Development Projects

The following process will improve your odds of success when outsourcing software development—whether you hire developers close to home or on the opposite side of the globe.

1. Develop clarity Around What You’re Building

It’s imperative to have clarity around what you’re trying to build. Once you’re clear about what you want, you’ll have an easier time communicating requirements to your development partners.

At a very high level, ask yourself:

• Is the concept tried-and-tested or is it brand new?
• Does the idea have a Proof-of-Concept (PoC). Do you have technical validation for it?
• What technology will you base the software on?
• What problems will your software product solve for its intended audience?

A fundamental idea of what you want to build is essential before diving into your search for an outsourcing partner.

2. Write a Scope Statement for your Software Project

Before choosing a software development outsourcing partner, you’ll want to dig a little deeper, fleshing out questions like objectives, deliverables, scope, content, and budgets. This will become the foundation for your project roadmap.

Here’s what a project scope template helps answer.

3. Decision Time: To Outsource, or Not to Outsource

It is time to decide between in-house development and outsourcing. Making an informed decision will require you to weigh a number of factors. And while price isn’t the only factor to consider, competitive pricing is one significant benefit to outsourcing your software development offshore—especially if you find a competent team that understands your vision.

The following chart from Accelerance Analysis compares the cost of in-house vs. outsourced software development for U.S. companies.

What other factors should you consider? Take a look at our post about how to hire a dedicated development team for a deep dive.

4. Decide Between Onshore, Offshore, and Nearshore Outsourcing

When choosing an outsourcing partner, each potential vendor’s location is a significant factor that can affect not only price, but communication, efficiency, and the overall quality of the end product. As a way to review and weigh options, companies that outsource software development have identified three different categories based on company location: onshore, offshore, and nearshore outsourcing.

• Onshore Outsourcing (i.e., onshoring): Choosing an outsourcing partner based in your country.
• Offshore Outsourcing (i.e., offshoring): Choosing an outsourcing partner based in a distant country.
• Nearshore Outsourcing (i.e., nearsourcing/nearshoring): Choosing an outsourcing partner based in a nearby country.

Here are some of the pros and cons of each model. Keep in mind that many of the factors pertaining to nearshoring and offshoring can vary greatly from one company to the next, which we explain in more detail below.

Why do cultural alignment, English communication, and expertise vary?

Simply put, it’s a big, wide world out there. Certain countries, like India, have a massive English-speaking population—and a huge portion of Indian professionals have attained an exceptional level of fluency. Many also have an in-depth understanding of cultural differences and know how to solve communication gaps.

How can you determine if a potential outsourcing company has the communication skills, cultural alignment, and technical know-how to deliver a high-quality product? It’s simple. Look at their track record.

Have they worked with a range of companies, including international brands? Do they have case studies featuring client testimonials that back up their claims of superior service? Any outsourcing partner (whether onshore, offshore, or nearshore) should be able to demonstrate a history of achievement, otherwise, you’re risking a great deal by working with them.

5. Choose an Outsourcing Model

Relationship-based outsourcing comes in three forms: staff augmentation, managed teams, and project-based outsourcing. Choose the best model to fit your requirements, budget, and long-term plans.

a. Staff Augmentation:

This model involves outsourcing staff from an outside organization on a temporary basis, usually to complete a project. This is mainly done to bridge the talent gap at your organization. The outsourced staff works under your direction and helps your team cross the finish line.

We wrote another blog post where you can learn more about staff augmentation and the benefits it provides.

b. Managed or Virtual Teams:

The managed teams model is a hybrid between Staff Augmentation (see above) and the Project-based model, which we’ll discuss below. With Managed Teams, you are in fact hiring a full team of experts that might include Business Analysts, Designers, QA Engineers, front-end and back-end developers, and more to handle some or all of your project.

This team will often work in tandem with your in-house team, and will often answer to your in-house Project Manager. This model typically does not involve day-to-day management of individual employees on your part, unlike the Staff Augmentation model.

c. Project-based Model:

This outsourcing model turns team management over to your outsourcing partner’s Project Manager, who will work with you to create timelines and communicate your needs to their colleagues.

Project-based outsourcing doesn’t mean giving up complete control. You will still be involved in key decisions, including feature development and prioritization. It simply means you won’t have to worry about managing the outsourced team. It’s the most hands-off option available.

6. Shortlisting Companies

Once you know what country you are going to outsource software development to, you can narrow down your search.

Vetting software development agencies start with an in-depth internet search. The following tools will help you do just that.

a. Software Development Review Websites

Websites such as Clutch, GoodFirms, G2 Crowd, Agency Spotter, and Crowd Reviews provide a curated list of companies for software development. You can search for the best software development agencies and filter them based on location, reviews, hourly rate, talent pool, and more.

b. Consult Industry Colleagues, Clients, and Friends

Talk to your friends and colleagues in your industry who have outsourced software projects in the past. Their experience can help you shortlist a few agencies with experience in your sector. If they’re familiar with what you do, and they have a proven track record, your odds of success will greatly increase.

c. Freelancing Portals

Looking for software developers in freelancing portals is also a good idea. Some popular freelancing portals include Toptal, Upwork, Fiverr, Freelancer.com, and People Per Hour.

Some require you to list your project’s requirements and budget, others have you reach out to specific providers with your requests. In many cases you can search through profiles and apply filters based on location, budgetary requirements, and other factors.

7. Evaluate Providers

Once you’ve shortlisted your providers to a select few, it’s time to interview them and evaluate each one on a deeper level. Here are a few things to consider.

a. Company Size

How big is the development firm? Do they have enough developers to deliver what you need?

b. Business Longevity

How long have they been in business? We recommend a business that has been around for at least five years because you don’t want them to fold in the middle of your project.

c. Experience with the Technology

Does the company have experience with the technology your software product will employ?

d. Software Development Process Maturity

Does the agency have in-depth knowledge of the Software Development Life Cycle (SDLC) process?

e. Software Development Methodology

What software development methodologies are they prepared to use based on your requirements? Are they open to using Agile, Waterfall, or some other methodology based on your current processes (if you’ve already got an internal team in place) or based on your preferences?

f. DevOps Maturity

Does the company have experience with executing Continuous Integration/Continuous Deliver (CI/CD) pipelines? Have they executed projects using the DevOps model in the past?

g. English Proficiency

What is the company’s collective level of English proficiency? This is more important than you might imagine because software development requires nuanced discussions about strategy, planning, design, usability, and more.

h. Time-Zone Flexibility

Will a company on the other side of the world match your work hours if you need them to? Sometimes you may not want this (for example, we worked with one company that had us perform QA testing while their in-house developers slept). That said, if your outsourcing partner is willing to adapt to your work hours, should you require it, that’s a huge plus and it speaks to their dedication.

I. Industry/Vertical Experience

Has the company developed software for an industry similar to yours?

j. Pricing Structure

Does the pricing structure match your requirements? Is the cost structuring transparent with no hidden charges involved?

k. Work Portfolio

Who has the agency worked for in the past? Have they worked for recognizable brands?

l. Compliance Certifications

Does the software outsourcing company abide by compliance requirements such as PCI-DSS, GDPR, or HIPAA?

m. Github Contributions

Are there any Github contributions for your shortlist of potential partners?

n. Business Continuity Plan

Does the company follow a business continuity plan for emergency situations? Is it safe to do business with them?

8. Request a Free Consultation

Once you have shortlisted 4-5 software development agencies, you can move ahead with contacting their sales team. Talk to their experts, request free consultations, ask for their work portfolio and case studies, and discuss their software development process, methodologies used, programming language preferences, technology implementation, etc.

These conversations ideally involve discussions around:

• Software requirements
• MVP development criteria
• Collaboration term: short-term or long-form?
• Cost and development-time estimates
• Development strategy and roadmap

9. Draft and Sign the Paperwork

Once you have chosen a software development outsourcing partner that matches your requirements, the next step in the process is to draft agreements, such as:

• Non-Disclosure Agreement (NDA)
• Master Services Agreement (MSA)
• Services Level Agreement (SLA)
• Statement of Work (SOW)

Here’s what each of them comprises:

a. NDA

An NDA is an agreement between two parties that acts as a promise that none of the parties will share confidential and critical data or information with a third party.

The primary components of an NDA document identifies:

• Critical and confidential information in the document
• Information that is not confidential and can be shared
• Software project’s Intellectual Property (IP) rights
• Duration for which the NDA is valid
• The consequences of breaking the NDA

b. MSA

An MSA lists out the basic terms and conditions that will define the long-term relationship between the two parties. If the MSA is in place, the two parties won’t have to renegotiate the terms in the future and can quickly move on with the development.

The primary elements of an MSA include:

• Project audit process
• Payment terms
• Dispute resolution process
• Support term: product lifecycle vs. project lifecycle
• The general confidentiality terms

c. SLA

An SLA is an agreement for software quality assurance. It measures the overall software performance based on industry-specific metrics.

The primary elements of an SLA spells out:

• Key Performance Indicators (KPIs) for measuring software quality and performance
• Communication, reporting, and process monitoring
• Support, maintenance, hosting, infrastructure, and development terms
• Information around backups and recovery protocols

d. SOW

The SOW acts as a formal project-level agreement that sets expectations regarding deliverables.

The primary elements of an SOW include:

• Project overview along with a mention of its Unique Selling Points (USPs)
• Overview of the software development stages and what each will include
• Key performance indicators that help measure the success of the software project
• Deliverables (e.g., MVPs, full-fledged products)
• Development and deployment timelines

10. Choose a Communication Tech Stack

With everything finalized, the last step in the software development process is to choose communication channels for keeping a track of the development progress.

Some of the most trusted communication channels include:

• Basecamp, ClickUp, and Trello for project management
• Zoom, Google Meet, Microsoft Teams, Webex for live meetings
• Slack, Rocket, Chanty for chat-based communication tools
• Emails for managing formal communications

The Value of Outsourcing

Whether you are planning to start a SaaS business or create internal software, outsourcing software development to the right partner is not only cost-effective—it can produce exceptional products.

According to a Deloitte report, cost reduction is the number one objective for companies choosing to outsource, but others include: flexibility, speed to market, agility, and technical expertise surrounding the tools and languages used to create some of the most successful products on the market today.

Are you thinking about outsourcing some or all of your software development? Net Solutions has designed and developed thousands of exceptional software products over the past two decades.

Contact us to learn more!