Outsourcing Software Development Steps


If you’ve ever tried to run a business, then you likely understand that it requires time – and lots of it. Owning and operating a company is difficult enough as it is, especially when you take the IT aspect into consideration. For instance, suppose you don’t yet have an established IT team, or perhaps the one you already have is busy with legacy projects.  In this case, it’s a safe bet that your business will find it challenging to reach its full potential.

Fortunately, there’s a reliable methods that can help you reach your goals while saving you time and money. Throughout the following article, we’ll cover the basics of outsourcing software development, the potential risks, and how to avoid them.    

What Does It Mean to Outsource Software Development?

Outsourcing software development is a process in which a business hires a third-party software development contractor to handle specific IT tasks. Most companies with an online presence will take up this method for several reasons. For one, it’s a great way to discover highly-qualified candidates that are best suited for the job at hand. Many outside development companies have domain knowledge and have built a number of products, which means they understand the intricacies of the process and tech stack. In addition, it’s much more time and cost-efficient than having an in-house IT team. Basically, it allows for a business to focus on what’s important – the business.

Suppose that you are a small business with an accounting system that needs to integrate to your supplier via API.  If you’re unfamiliar with programming or IT in general, then you’re going to need someone who can take care of the complexity that is software development for you. In this case, you’re left with two primary options: you can recruit an in-house IT team, or you can outsource to a third-party software developer. If you’re seeking to minimize costs, gain a competitive advantage, and enhance your customer service, you’ll want to go with the latter.        

What Are The Risks of Outsourcing Software Development?

Unfortunately, outsourcing software development does not come without a few potential risks. Before you make the decision to outsource, it’s very important to analyze these risks so that you can determine whether or not it’s right for you. Keep in mind that these are possible risks and are not likely to happen as long as you understand how to avoid them. Still, it’s very beneficial for every business to stay as proactive as possible. Read below to discover the most prominent risks you should heavily consider before proceeding with outsourcing.  

Data Exposure

The first and most significant risk to be aware of is data exposure. Keep in mind that when you decide to bring on a third-party software developer, you’re going to need to provide them with confidential information relating to your company. This will require that you setup the necessary controls and contracts to enable them access to your environment. In some instances it is possible to give them access to the application environment, but only allow access to test data. This way you create a separation layer between your customer data and application environment. This is commonly done with HIPPA or financial type applications. 


Assuming your business operates in-country, outsourcing to foreign countries can sometimes lead to miscommunication between you and the third-party. For instance, your selected software development contractor may not be very fluent in your native language or not fully understand business processes within your industry. In addition, there are other factors to consider as well, such as the difference in certain time-zones and cultures. Miscommunications can often lead to disagreements, poor management, and an overall sense of frustration for both parties.   

Lower Quality

Cost-efficiency is something that every business looks for. However, sometimes lower costs can mean lower quality. Third-party software development contractors who charge significantly lower rates than the current market price might deliver a slower, less effective performance for your business. In addition, they may only be charging such low prices due to the fact that their skills are entry-level. In this case, you may end up paying for software development that doesn’t meet your standards and could have been handled far better by an in-house IT team.  

Failure to Establish an EMP

Your company must establish an exit management plan (EMP) with your third-party software developer. In fact, your EMP should be established and finalized before you agree to any sort of contracting with your provider. If not, you expose yourself to the risk of possible litigation costs should they decide to take legal action in the case of a misunderstanding. The last thing your business needs is a lawsuit that could have easily been avoided beforehand.

Improper Evaluation

Improper evaluation of your selected third-party software developer can lead to all of the risks listed above and more. If you end up hiring a developer who seems fit for the job at first, but ultimately lacks the skill or work ethic that you seek, you’re going to place your business into an unstable predicament. In addition to the risks above, hiring a less-than-average contractor can result in fragile software solutions, unauthorized data usage, and even possible legal action being taken.   

How to Avoid The Risks of Outsourcing Software Development

While the listed risks of outsourcing software development may sound intimidating, there’s no need to avoid the process altogether. We’ve gathered a list of tips and strategies to help you avoid each and every one of them. Take a look below to discover some of the most reliable precautions you can take to minimize the risks. 

Avoiding Data Exposure

Avoiding data exposure should be at the top of your list of priorities when outsourcing software development. This is one of the more dangerous risks involved in the process, but it can still be easily avoided by following these simple precautions:

  • Make sure that you can trust your contractor with your livelihood.
  • Reach out to their previous clients to determine if they’ve ever had an issue regarding crucial data.
  • Always remember to back up your data for an effective recovery method.   

Avoiding Miscommunication

Generally speaking, you should be able to detect flaws in your provider’s communication right off the bat. However, in the event that you overlook this, there are a few tips to consider before finalizing an agreement.

  • Schedule weekly/monthly one-on-one meetings via Slack, Skype, etc.
  • Familiarize yourself with the culture of your provider.
  • Make sure to point out and address any issues immediately.  

Avoiding Lower Quality

Everyone wants to avoid paying for something that they’re not satisfied with, especially business owners. You can avoid low quality altogether by taking a few of the following precautions:

  • Ask for references from your provider
  • Have your provider complete a POC or Pilot project
  • Observe previous projects that they have completed to gain a better insight into their final products.

Avoiding Failure to Establish an EMP

The obvious solution to avoiding the failure to establish an EMP is to establish an EMP. However, you’ll need to include a few factors within your EMP to ensure that there are no loose ends between you and your provider. Some of these factors include but are not limited to:

  • Expected deadlines
  • Knowledge transfer policies
  • Clear definitions of the scope and longevity of the project 

Avoiding Improper Evaluation

Although improper evaluation can be one of the most crucial risks, it’s also one of the most easily avoidable. You can steer away from inadequate evaluation by following a few simple precautions, such as:

  • Evaluate the contractor’s website, experience, and amount of successfully completed projects.
  • Evaluate your provider’s references and testimonials.
  • Make sure that your provider has all of the necessary skills and requirements needed for the project. Reviewing their resume should tell you everything you need to know.

Overall Summary

Outsourcing software development is a process in which a business hires a third-party software development contractor to handle specific IT tasks. It can be a valuable marketing strategy in the sense that it helps a company with time and cost-efficiency, customer service, and gaining a competitive advantage. However, outsourcing software development does not come without potential risks. 

The most prominent of these risks include data exposure, miscommunication, lower quality, failure to establish an exit plan, and improper evaluation. Although these risks can be quite severe and oftentimes damaging to your business, there are many reliable precautions that you can take in order to avoid them. Once you learn to steer away from these risks successfully, you’ll be able to remove the weight of software development off your shoulders and place it into the hands of a contractor you can trust.

How Daxima Can Help You. 

Looking for custom software or mobile solutions?

Founded over 15 years ago, Daxima’s team of experts will work with you to create a solution that can help you achieve your business goals and bring your ideas to life.

Whether you need web, mobile, or custom software development, we’ve got you covered with optimized results at an affordable price.

 Ready to get started? Get your FREE consultation today, and leave everything to the pros! We’ll provide reliable software development solutions that fit your budget, meet your goals, and are delivered on time.


/ relevant articles

Get Free Consultation

share your thoughts with us and our experts will help you achieve your goal.