6 major risks associated with IT outsourcing and ways to prevent them

Project Manager

Is your company taking steps to make part of the projects or give them away under the umbrella of an external IT provider? IT outsourcing certainly has many advantages, such as reducing operating costs or access to knowledge and experience that your team does not have at the moment, however, it also involves a certain risk, about which we would like to talk today. How to avoid this? We invite you to read this article.

Reliability of the IT provider

Before starting cooperation with an IT company, make sure that the company you choose will actually be able to meet your project requirements and thus achieve specific goals. To reduce the risk of getting involved with less experienced and unprofessional software house, you should do the basic research and carefully look at the following issues:

  • Maturity of the company – how long does the company exist on the market?
  • Size – how big is the company and how many employees it has?
  • Technologies – what technology does it specialize in?
  • Experience – what projects the company has accomplished last year and whether they are in the technology and sector in which your company operates.
  • The company’s website – how does it look, is it modern and shows full professionalism or rather suggests problems in cooperation?
  • Portfolio – is it rich enough in interesting, technologically advanced projects, so that your company would like to be listed there?
  • References – contact 2-3 companies that have appeared in the history of cooperation with this company and ask about the details of cooperation. If something went wrong, you will definitely receive an appropriate warning.

It is good to do the homework, because only such information is a good basis for choosing the best provider. Do not be afraid to ask, check references, even visit the office to see the atmosphere, management and conditions to avoid the risk of choosing an inexperienced supplier.

Fear of losing control over key IT processes and management

Transferring your projects to an external supplier will be associated with the natural necessity of losing the impact (real or perceived) over the leading IT processes, and also the way projects are organized. Until now, members of your IT team, as well as key employees have been managed by the company’s internal management, their functions and positions have been clearly defined, and the action plan for a given project is carefully planned by the management. In cooperation with an external IT company, these processes are being reorganized, the way of communication and project management will change. You must be prepared for it. What’s the best way to avoid problems that may arise at the very beginning of cooperation?

  • Define your expectations clearly and precisely. What will be the determinant of a good project implementation? Define project requirements.
  • Discuss the method of cooperation and methodology that will be used in the project. Sometimes the IT provider can recommend his own work process on the project and communication. Set it in detail.
  • Create the list of developers and their functions in the process of communication and works on the project. Each member of your team, as well as the outside team, must be informed about their tasks and responsibilities, your expectations, to avoid disappointments and misunderstandings.
  • Ask for full access to all the data related to the project (bug tracking, access to the code) as well as to communication tools, so that you can constantly monitor the development process and make the right decisions based on your knowledge.

All these activities, when planned in the initial phase of the cooperation, will minimize the risks associated with communication problems, and will also give your employees comfort of being fully informed.

Concerns about insufficient software quality and IT needs

No one knows his company or IT needs better than a company owner or CTO. When considering IT outsourcing, there are always doubts whether the new technology partner will be able to provide the same type of software quality that has been achieved within the organization. Questions also arise in relation to whether an external company will be able to fulfill 100% of our expectations and business requirements, implemented with the help of this software. What if we do not understand and the quality of the code will not satisfy us?

Most of the specialized IT companies will certainly provide us with high quality, but it would be good to dispel these doubts before cooperation and talk to several companies to which the company provides/provided services. We will find out in this way that all project requirements have been met by them, whether clients are satisfied with the quality of solutions, their conduct, the communication process and whether they are a company really worth recommending. References are a key factor when choosing and determining the quality of services provided by the IT companies on the market.

Hidden costs, not covered by the contract

One of the obvious reasons why you and your company decide to work with an external IT provider is cost control. It can lead to eliminating the costs of maintaining equipment and maintaining IT infrastructure or reducing the employment of programmers and related costs. Nothing worsens cooperation like sudden information that, in a given month, one will have to pay more than stated in the contract. How to minimize such a risk and avoid unnecessary disappointments?

  • At the very beginning ask about the costs which may increase when it comes to equipment updates, work environment updates, and additional hours outside the agreed man-hours, which were estimated for the project implementation in a given month.
  • Write down all these arrangements in the contract, and set notifications about such events. You should be informed about such changes 1-4 weeks in advance.

Protection and confidentiality of information

Cooperation with an external IT company requires the security of your organization’s data. It is important to protect all organizations’ strategic information and intellectual property. Anxiety, associated with the risk of data leakage or theft, applies to everything that your company has developed on its own and has labeled it, or just otherwise recognizes it and can certify it as a property. What does your company need to remember when deciding to secure your data?

  • Before starting cooperation, a confidentiality agreement (NDA) should be signed between the supplier and the customer. The IT service provider should sign a confidentiality agreement with your company to protect your business and protect confidential data from unauthorized persons. Such an agreement is a standard in the process of IT outsourcing.
  • Ask your supplier if he has experience in working with confidential data, e.g. from the financial, medical, and advertising sectors.

Time zones and geolocation

In the previous chapters, we tried to outline the advantages of cooperation with companies that do not necessarily have an office and programming team in your country or even on your continent. The price/quality ratio of the services provided by the companies from Central and Eastern Europe is currently one of the highest. Perhaps your company is based in the UK, Singapore or the USA and has decided to cooperate with a company from Poland or Ukraine? How to prepare for such cooperation?

  • Ask for a meeting (e.g. video call) and a detailed discussion on customer service standards performed by the external customer, taking into account your time differences.
  • Discuss accessibility- when and how you will meet (eg from time to time on site). Ask if there will be any problems with traveling?
  • Determine if there will be any language barriers (the provider must be able to communicate in your native language or in English).
  • Familiarize yourself with laws and regulations in your country regarding such cooperation, to better plan activities in case of problematic situations (e.g. Instability of the political situation in a given country that could affect long-term cooperation with this company or available cash transfer options).
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