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6 Main IT Outsourcing Risks and How to Avoid Them4 min read

Risks of IT Outsourcing

Like any other work model, IT outsourcing is accompanied with certain risks and difficulties. To minimize the impact on the company’s efficiency and to avoid financial and reputational losses, these risks have to be managed. Moreover, it would be better to try and minimize the likelihood of their occurrence in a real-case scenario.

If you understand the main risks connected with IT outsourcing and know how to minimize them, you will be able to turn this work model into an efficient tool used to develop your business. In this article, we will talk about this issues in more detail and share some useful tips for you could take advantage of them.

Confidentiality Risks

When outsourcing the work, the customer supplies developers with various kinds of information on both the project itself and the company as a whole. That is why data security and protection always remains relevant.

How to reduce risks? The contract should clearly define the confidential information and specify parties’ obligations to protect it. For the ideal scenario, a separate non-disclosure agreement (NDA) is required.

non-disclosure agreement (NDA)

It is worth noting that the outsourcing company’s reputation is also among the factors reducing confidentiality risks.

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Communication and Control Issues

There is no need to try controlling everything and spend time on micromanagement. At the same time, too weak control can also lead to negative consequences. When you lose control over the development process, the project cost may increase, and as a result, you, being a customer, may get a product that fails to meet your expectations. Loss of control and poor communication are among the most common risks when working using the IT outsourcing model.

You can avoid things like that by building team interaction processes, planning them clearly, documenting works, and keeping regular reports. You, as a customer, cannot hold aloof but have to be closely involved in the work on the project.

Performers’ Low Skill Level

A more affordable cost of services is the main argument in favor of hiring a remote team. However, a reduced price should not entail a loss of quality. Otherwise, your reputation losses can significantly exceed your financial gains. You can, of course, replace a service provider. Nonetheless, it is better to initially make a competent choice.

Development Service Provider

You can reduce risks if you carefully select a development team. Check both their compliance with technical skills and their work methodology, read feedback on the company from its previous customers and study its portfolio.

Insufficient Customer Experience

Not only developers but also customers may lack experience. This may lead to inflated expectations, the product which is actually unclaimed on the market, and too high costs caused by the development of useless features.
You can avoid all this by selecting one of the two options:

  1. Hire a responsible person who will take over your project management.
  2. Find an experienced team capable of providing such a specialist on their side (for example, a project manager).

Customer Experience

Vendor Lock-in

There are situations when only one outsourcing company meets customer criteria or, while doing the project, the developer resorts to technologies making it a monopolist toward the customer. This factor creates a risk that the service provider will start abusing its exclusive position, and the customer may suffer significant losses when refusing to cooperate with the developer.

You can consider an acceptable level of risk when the market features three or more service providers capable of attending and supporting your business needs.

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Hidden Development Costs

Regardless of the project type, the degree of planning/control, and the parties’ expertise, unforeseen expenses, which the customer did not budget, may always arise. This theme is rather extensive and important, so, we have dedicated a separate article to it and recommend you read it on our blog.

Hidden Costs of software development

You can easily reduce such risks: you have to be aware of potential hidden costs, and this knowledge will give you a clear sense of how to avoid them. Cooperation with a reliable contractor will allow you to do so.

Summing up

Before you outsource your project, you have to clearly comprehend all the risks. You can completely prevent them if you accurately plan everything in advance and establish cooperation with an experienced development team. Such preparation will need additional time and effort, but in the end, you will get a result that complies with your expectations as much as possible.

If you are looking for a reliable technology partner, cooperating with which you will protect yourselves from the above risks, contact us. Transparency of cooperation and focusing on achieving our customers’ business goals are among the basic principles of our work.

Lvivity Team
Lvivity Team

Flexibility, efficiency, and individual approach to each customer are the basic principles we are guided by in our work.

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