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Outsourcing and Risk Analysis

Outsourcing is one of the most popular terms in business nowadays. A company is frustrated by the difficulties of managing in-house software development and chooses to assign some of its tasks to outside company, in case to save money and to get special business project. However, with successful outsourcing process, company faces with a number of risks and visible, expensive failures, which prevent company from expected results.

“Companies need to continually develop if they are to survive. Introducing technology in support of new business and implementing new technology can be difficult to run alongside daily operations that support current business activities.” (Sparrow 2003, p. 19). Outsourcing can help them to cut costs, introduce new technology or applications, quickly reorganize business and lead to increase competitive ability. Many business companies are buying value-added services on an as-needed basis to assist with specific projects. Thus they open up new opportunities by being able to spend time looking for new business opportunities rather than solving operational problems (Sparrow 2003). However, what is the right way to outsource a good deal, with the smallest risks for company?

Outsourcing creates a partnership between two companies (vendor and the client company) and can attend different risks. There are many kinds of outsourcing, each of them has its own risks. Eleven’s Keith Morrow shares such types as Commodity outsourcing, Tactical outsourcing and Transformational outsourcing. Before a company chooses one of the type, it should determine the most significant risks for a particular company. In turn Commodity outsourcing includes services that are sufficiently common and reliable (e.g. call center operations), and that may be more cost-effective to outsource than to do in-house. However, the process may be more to manage than it’s worth. Tactical outsourcing is good for companies, which lack the resources or expertise to undertake specialized activities (e.g. Web site hosting), however a short-term fix may bloat long-term expense levels. In addition, Transformational outsourcing helps a company to transform its business with a help of provider’s comprehensive package of services, typically involving consulting and change management. The risk is that your outsource partner will not be best in all areas of delivery (Strategic Directions 2003).

Outsourcing a software development has some specific features. That is why when companies transfer this type of activity to an external vendor they should know all the negative consequences. There are four types of software outsourcing contracts: time and materials (is best used when the amount of programming required to create the agreed-upon deliverables cannot be estimated, such as when new algorithms or techniques are required); fixed price (is best used when the amount of programming required to create the agreed-upon deliverables can be accurately estimated); revenue share (lowers the risk for the customer--if the product does not sell, they have not paid as much for the software as under a time and materials or fixed price contract); and hybrid (is one that combines several of the above approaches). These contract types are listed in order of increasing risk for the customer and decreasing order of risk for the service provider firm. Before finding the proper software outsourcing partner carefully look at their experts, streamlined communication, flexible team.

It is important to find an outsourcing partner that helps in providing regular cheap and quality service, in this way company mitigate the risk of extra costs. Finding an offshore partner you need to sure that the vendor has understood your necessities. Appraise what projects the possible outsourcing partner has completed successfully. Successful deals are often based on clearly-defined goals, measurement metrics, and strategic ideas, as software development is a complex process and should not be taken on without proper strategy and processes (The way to lessen risk in outsourcing development of software? 2012).

It is good to have particular agreements with vendor company, in case to avoid losing privacy. Also, it is necessary to control professional skills of your workers, who should follow the innovations.

Minimizing risks is a key business technique in outsourcing software development, that is why before companies decide to turn to outsourcing they should think about all pros and cons of this process, which helps them introduce new technology and quickly reorganize business. Choosing the type of outsourcing, both parts of the process should also arrange the optimal plan of saving means, improving professional skills of workers and protecting their privacy.

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