Effectively managing IT offshore outsourcing projects

By Manjeet Singh

IT Outsourcing is hot! Countries like India have projected 50 billion USD in software exports for 2008. Companies primarily outsource to cut costs. Other reasons are access to specialized skills, lack of in-house expertise, refocusing resources on the companies’ core business. Even though outsourcing to India is now a mature discipline, horror stories about projects that spiralled out of control abound. Therefore,

when outsourcing IT work, apply rigorous project management discipline. If you do not have proven IT project management processes already in place, outsourcing/off-shoring can become a nightmare. Here are some thoughts regarding the management of an outsourcing project :

• Pay particular attention to the requirements specification. Granted high-quality requirements should be always written whether the project is outsourced or not. That being said, the risk that your requirements will be misinterpreted increases considerably when your software is being developed 20,000 kilometers away. Make the requirements document part of the contract. A detailed requirements document will also allow you to accurately estimate the workload ensuring that you can check whether a vendor’s estimate for completing your project is realistic or not.
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• Perform a thorough cost-benefit analysis. If the benefits are slim, consider getting the work done in-house or through a local vendor. Make sure that everyone is aware of the risks involved in outsourcing such as loss of visibility, transfer of knowledge and confidential information outside your organization.
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• Write a request for proposal (RFP). Your RFP should typically contain the detailed requirements, management procedures, etc. If required hire an independent consultant experienced in negotiating outsourcing deals. Such a consultant will be able to help you choose the right vendor, ensure that you have tightly written your RFP, and perform a thorough evaluation of the vendors.
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• Put a reliable, senior manager in charge of the outsourcing project. Outsourcing generally requires more skilful management than in-house development. While selecting the manager, take into consideration cultural elements. For example, if you outsource to Russia, it is a good idea to have a manager who understands the Russian culture.
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• Establish clear lines of communication with your outsourcer. Just like in any well managed project, have review meetings, steering committees, and a system to share documentation.
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• Careful of vendors who put in a significantly low bid than the others – this can mean a number of things: the vendor might have misunderstood your requirements or wants your business at any cost. Compare very low bids with your estimates for developing the software in-house. Also, if the bid is low, the vendor might be considering your project as a low priority one.
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• Get references from the vendor, and contact them. Also, check up whether the vendor has long-term customers.
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• Ask the vendor for a detailed project plan covering all the phases of the project – if something is missing in this plan, alarm bells should start ringing. Also, make sure that there are no assumptions in the project plan. Any assumptions in your final agreement will create issues later on.
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• Use SLAs to monitor your vendor’s performance. A SLA typically contains the list of deliverables expected, criteria (metrics) used to determine the performance of the vendor (cost, efficiency, quality, etc).
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• There an increasing number of vendors who claim to have attained CCM level 5 – check up which unit in the company has attained this level, and whether that unit wil be handling your project.
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• Factor in the time required to transfer knowledge to the vendor. In offshore outsourcing knowledge transfer is obviously slower compared to transferring knowledge in-house (culture, emails, conference calls, different development methods) .
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• Indian vendors are experiencing high turnovers in the range of 15% to 20% thus loosing time in training and transferring knowledge to new employees. Your project will be impacted by such a turnover. In your contract with the vendor, make provisions for this high rate of turnover.
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• Do not expect to achieve high cost reductions straightaway. Offshore outsourcing is a process that will take time to streamline. The fact that an Indian software professional will cost you 40 to 50% less than his or her western counterpart does not mean that you will achieve 40 to 50% savings straightaway. You have to add costs related to travel, training and staff that will be dedicated to manage the relationship with the outsourcer. You also have to take into consideration hidden costs such as time spent on the learning curve.
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• You will be hard pressed to get the same level of service from a vendor as you can get from in-house staff. The reality is that your own staff will go the extra mile to ensure swift problem resolution whereas for the vendor you might be one among many customers.
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• Retain the intellectual property rights of the source code.
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• Do a thorough due diligence/evaluation of the vendor before signing
Conclusion: an IT outsourcing offshore project constitutes a higher risk than getting the same project done in-house. However, by using tight project management discipline in all phases of your project from vendor selection to delivery acceptance, and by putting a capable manager in charge, your outsourcing project can be successfully completed.