Steps to follow while Outsourcing Software development – a guide for founders

Software development

These days, all major companies outsource their software development to vendors. That’s because outsourcing has many benefits like cost reduction and containment, downtime support, reduced time to market, and access to an expanded skillset. It also helps the organization focus on its core competencies. That’s why software outsourcing is at the heart of many successful business ventures.

But there are also risks associated with outsourcing the project, such as loss of control, transaction costs, and organizational distrust. For effective software development, you must make an informed decision about your outsourcing strategy. Follow a particular set of processes to ensure excellent execution of the project. 

So what is the exact process by which you can outsource your software development? 

1) Understand your requirements

You have to understand the scope of the project. Defining the scope helps you to focus on your requirements. It also minimizes additional expenses as pricing can be fixed based on your requirements. You need to divide your project into functional and nonfunctional requirements.

Functional Requirement: Functional requirements define systems and their components. Functional software requirements help you understand the primary responsibilities of the system. These are the tasks and services the system should perform. 

Functional requirements are a part of performance analysis. Hence these can be measured.. Examples of Functional requirements are record tracking, record updating, integration with APIs, etc.

Non Functional requirements: These judge the operation of the system. These define how the system should work. These ensure usability and effectiveness for the system.

Non-functional requirements also ensure enjoyable user experience. Examples of non-functional requirements are Privacy of information, I.P. rights drafts, etc.

2) Find the right vendor

You have to decide which vendor-partner will best serve your interests. There are a few things that you have to check while reviewing them. 

  • How many projects have they done? What tech stack have they used?
  • How much experience do they have?
  • What are the reviews other clients have about them? If they have a portfolio, is it updated?

While doing your research, make sure that the vendor you’re targeting does provide the kind of services that you require. Make sure that the team supporting you is knowledgeable and experienced. For example, BairesDev, a Latin American firm that works with top 1% resources in the region to provide end to end delivery of tailor-made software solutions.    

3) Set Expectations and cost

Once you have chosen the right vendor, have a conversation with them about your requirements. Most software companies have different service models for different types of clients. 

There are different type of service models such as 

Project-based: Where you set predefined results and it is your vendor’s responsibility to finish the project by the tech stack available to them.

Dedicated team: Here you get personal management, dedicated resources, and quality of the process. There is a full-cycle team that dedicates their time to your project. Team leaders ensure work deliverance and manage the work at a higher level.

Extended team: In this model, you assign tasks to the outsourced team as well as the setup required to complete them. This helps in managing working time and regulating the delivery process. This setup is more suitable for companies that have their CTO or Product managers, someone who can assign tasks, provide audit and guide from a technical standpoint. 

Once you have decided your service model, clearly define your goals and objectives to your vendor.  Clear objectives will help you better plan your software development strategy and measure your results. Make sure that the defined goals have business value. Provide a working framework for the vendor to use. Use both functional and non-functional goals to make this decision. 

Also, make sure that your proposed expectations are realistic. As your team will mature, they will better acclimate to your business directions. The advantages that a well-managed outsourcing vendor will create for your software are huge. 

Just like project expectations, you have to set realistic cost expectations too. Yes, outsourcing software development helps with reducing costs, but you should never underestimate the other expenses involved with this. There are hidden costs along with the most explicit ones.

 There are many components of these hidden costs such as

  • Knowledge transfers (KTs)
  • Redundant management and infrastructure costs
  • Process refinement costs.

The right approach and a careful strategy are required to keep the hidden costs low. Instead of individual budgets, centralize your costs. That will help to create a layer between the development team and the budgeting department. 

4) Risk and Reward

Managers should be well informed about the risks associated with the project and with risk-mitigation techniques. You need to prioritize and manage the risks (hidden costs, lack of innovation, etc.) based on their impact on the system.

Monitoring risk, proactive planning, and mitigation strategies are all part of a successful risk approach. If the risk does arrive, make sure that everyone is looped into it (adherence to escalation strategy) so that the correct action associated with the risk can be applied. 

Divide risk into categories by impact and probability. 

Just like risks, you should also measure the benefits like skilled expertise, staffing flexibility, cost-cutting, etc. associated with the project. Based on the numbers, take corrective actions. Overhead costs and hidden costs should be accounted for while calculating profit. Don’t just focus on the bottom line but understand the entire highs and lows of the project. Make sure that you’re not inflating the numbers to show savings. Limiting liability and optimizing best practices will be the roadmap to a successful outsourced project.

5) Progress evaluation

Senior management should decide how quickly or slowly the project should proceed. You have to set the pace for the project based on the successful project reports. The project should grow organically. The vendor and your company’s management should show a mutual commitment to your goal.

A pilot project with less cost minimizes your risk and helps teams with understanding each other. 

Once the project execution begins, you have to evaluate it too. Perform meaningful measurement for the project to track success or failure. Choose metrics based on your goals and outcomes and assess the project on that. SLA (Service-Level Agreement)  should be adhered to and referenced while tracking the progress for the project.


The benefits of project outsourcing far outweigh the risks. Outsourcing increases productivity and keeps the project on schedule. 

Different sized companies may have different collaboration requirements. Understanding the shortcomings in your current software stack and clear communication between you and your vendor is the best route to effective software development. Following the correct selection procedure and measuring growth will ensure that your business is benefitted by your vendor.

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