Initial hype may hide the long-term costs and risks.
Research conducted by Meta Group found that for 53% of respondents
the primary reason for outsourcing application development and
maintenance projects was cost reduction.
Yet surprisingly, 28% of firms were unable to quantify the cost
savings they expected and 48% expected cost savings of less than
20%. Compare these figures with the hype surrounding outsourcing
and it would seem that something is amiss.
The problem is that organisations become blinkered by the
short-term cost savings of outsourcing and often neglect the longer
term implications. Measuring and understanding risk is critical
when considering offshore outsourcing. If businesses are not
careful they could end up with an application that does not meet
initial requirements in terms of quality, performance and
functionality.
Organisations need to think about whether short-term cost cutting
should be the main reason for outsourcing application development
and maintenance. Successful application development and maintenance
outsourcing requires that organisations understand, register and
mitigate associated risks and challenges.
Organisations must also take into account the fact that cost is not
a one-way street and there are additional costs that organisations
must bear when outsourcing. Of the respondents taking part in the
Meta research, 80% suffered problems ranging from time and cost
overruns to non-adherence to specifications and requirements.
Firms need to think about how outsourcing will work in practice.
For example, they need to consider different business standards and
processes, varying levels of skills and any cultural mismatch
between businesses.
If companies do not give these issues due consideration they run
the risk of the short-term cost savings becoming eroded in the
longer-term. Businesses must quantify the short-term savings and
analyse these in relation to the longer-term costs to get a true
picture of the benefits of outsourcing.
These issues can make managing outsourcing relationships
challenging and time-consuming. Typically, maintenance accounts for
80% of the cost of an application to business, and development
accounts for the other 20%.
In-house teams generally need to make regular changes to
applications. If the outsourced application has not been developed
to the organisation's standards and there is little documentation,
short-term cost savings will be wiped out with long-term
maintenance costs increasing dramatically.
It is therefore important that your staff have the skills to manage
the outsourcing relationship if projects are going to be
successfully completed and the true cost savings are to be
realised.
Outsourcing can be beneficial, and quite rightly businesses are
striving to reap the rewards. However, they will not be successful
unless they consider the risks as well as the rewards and put in
place procedures and processes to mitigate these risks.
Mike Lucas is regional technology manager at
Compuware