How to avoid the 3 key risks of low-cost software development

With inflation rising and the global economy tipping into a recession, IT leaders are looking for ways to reduce the cost of building, maintaining and evolving software. While the lowest price can be tempting in the short term, there are hidden risks that can negatively impact business and cost much more in the long run. Cost-effective quality software delivery is the goal, and it is crucial that IT leaders consider more than the rate card when looking for ways to reduce costs.

“The bitterness of poor quality remains long after the sweetness of low price is forgotten.” 

– Benjamin Franklin

3 key risks of lower-cost options

When IT leaders want to reduce their spending, they usually review their current arrangements with outsourced partners and consider an alternative vendor offering lower fees. In Australia, due to labour costs, this often means looking to nearshore or offshore providers that offer attractive low hourly rates. 

When choosing an offshore partner for software development, maintenance or evolution, careful attention must be given to the actual value delivered by the vendor relationship. According to Forbes, it’s essential to understand the total Cost of Engagement (TCE).

“TCE must take into account the different time zones, degraded communications, management overhead, the cost of always travelling to keep everything in check, the hassle of turnover and every other inefficiency that comes with outsourcing talent to offshore locations.”

When calculating TCE, it becomes clear that there is a world of difference between upfront lower prices and long-term cost-effectiveness. Heavily discounted offshore offerings typically bring with them 3 key risks:

 

  • low skills/low quality
  • increased technical debt
  • cultural/communications issues

 

That’s not to say that offshoring should be dismissed as a strategy to control costs. In an increasingly globalised economy, it must remain part of an IT leader’s toolbox. It simply means these risks must be factored into the equation when deciding on the best offshore partner for a business.

As a software development company with many years of experience working with onshore, off-shore and near-shore teams, we have learned how to mitigate these risks to help our customers achieve the best possible outcomes while optimising their TCE.

Lower skills produce lower quality

Finding the sweet spot between quality and cost is a perennial challenge when it comes to tech talent. Many offshore vendors keep their prices down by employing entry-level developers with limited skills and experience. Higher-skilled talent knows their value anywhere, so they don’t stay long in companies offering poor salaries and working conditions. 

Most of these vendors are generalists in many different software platforms, meaning companies get the same basic skill set regardless of the nature and complexity of their tasks,  ecosystems and tech stack. Entry-level developers take much longer to complete tasks, with many do-overs, decreasing productivity rates and increasing the TCE.  Due to high staff turnover in vendors with poor employee experiences, any investment in training is unlikely to add lasting value to the business

In software development, people are key. Swapping out quality tech talent for a lower-skilled workforce can lead to quality concerns, such as bugs, longer delivery times, technical debt, performance issues, security issues and poor UX, which have costly financial and reputational implications. 

Projects delivered by lower-skilled developers typically require much more stringent quality assurance measures to monitor service levels closely and ensure everything is on track. If the worst happens and the project goes seriously wrong, the lower price paid can be infinitely expensive if the business gains nothing tangible in return. 

A PhoenixDX customer, a wholesale trade distribution business, came to us for help getting a mission-critical application project back on track. At first, the company selected a lower-priced offshore vendor to build their new application. They wanted to innovate in the market by helping their clients manage their entire business via end-to-end automated processes. However, the application was plagued by bugs and performance issues, so it never went live. 

PhoenixDX rebuilt the mobile solution in just 13 weeks using the OutSystems high-performance low-code software development platform.

Pedro Carrilho, Managing Director of PhoenixDX, explains how IT leaders can avoid the risks of offshoring tech talent:

“We have onshore, nearshore and off-shore teams that allow us to tailor the right professional with the right skill level to the right task, helping keep quality up and costs down. We are extremely careful in how we build each squad. The tech leaders are all experienced, and the BAs and project managers are always in Australia to enhance communication. Our recruitment process is equally rigorous in all our development hubs. Our turnover is less than 4%, and we have the most qualified team specialising in OutSystems in South East Asia.”

Lower skills create more technical debt

Another hidden risk associated with engaging lower-skilled tech talent is increased technical debt. When a developer has only basic skills, they are more likely to make errors and take shortcuts to meet deadlines, necessitating bug fixes and code correction further down the line which is time-consuming and expensive. Over time, this technical debt adds up, decreasing the agility and performance of the application and the ability to make enhancements.

One of our customers spent seven digits building an Android application with an offshore software vendor. The app ended up with so much technical debt and related performance issues that the only option was to rebuild it.

The company’s Global Technology Director explains the tipping point:

“We were investing heavily each year in an application where features were hard and costly to add. The developers were afraid to touch it because as soon as they did, the whole thing fell down, and we had thousands of people unable to use the application. It was unstable, unresponsive and slow. So we decided to rebuild.”

The company partnered with PhoenixDX, and together we delivered their mobile application with 3 specialist OutSystems developers in just 10 weeks. Their savings from rebuilding the application with us was equivalent to 6 months of maintenance costs for the previous Android solution. The rebuild paid for itself in less than one year and lowered the company’s ongoing maintenance costs by 50%.

Another PhoenixDX customer commissioned an independent study to compare a PhoenixDX delivery squad with the delivery squad of their offshore vendor. It found that technical debt when using our services decreased by 160 points per day, while that of the other vendor increased by 700 points per day. Although the hourly cost of the other offshore vendor was lower, they created 5 x more technical debt compared to PhoenixDX, making them more expensive in the long run.

Pedro Carrilho explains how PhoenixDX keeps a tight lid on technical debt:

“The best way to approach technical debt is to get your house in order early. We ensure our applications are built right, built fast and for the future the first time around, which keeps technical debt to an absolute minimum. Highly-qualified developers with many OutSystems certifications know how to get the most out of the platform. They are more productive and capable of meeting tight deadlines without compromising quality and leaving a multitude of tasks behind that need to be dealt with further down the line.”

Cultural and communication issues hamper quality

The third key risk associated with low-cost offshoring is the impact of poor communication on the quality of outcomes. Different time zones can result in meetings scheduled at times that are inconvenient, unproductive or both. Over-reliance on email rather than face-to-face online meetings can lead to misinterpretations, misunderstandings and delays. 

Cultural fit is equally important. There may be language barriers to overcome, as well as divergent business cultures between the offshore and onshore teams. For example, if offshore talent feels uncomfortable speaking up or disagreeing with a project manager, risks and issues may go unidentified, which can derail a project. When a development team doesn’t gel – due to different languages, business cultures and practices –  it can be very difficult for them to be productive and deliver great work. When communication is poor, the quality of the output is likely to suffer. 

Pedro Carrilho outlines how PhoenixDX overcomes communication and cultural barriers when offshoring:

“At PhoenixDX, we employ more than 26 nationalities in our onshore, nearshore and offshore hubs. We believe that diversity is a key strength because it brings worldwide experience to our team. However, we work hard to create and maintain a culture-first backbone that delivers a multicultural, multi-skilled team that can work in sync. It goes beyond methodologies and frameworks. The way we mix soft and hard skills in each squad - bound together by a shared business culture, common values and a commitment to best practices - is the secret of our software delivery success.”

Compare TCE rather than rate cards

IT leaders must be wary of the allure of offshore vendors offering bargain basement costs. If it sounds too good to be true, it’s probably because it is. Trading a highly-skilled team for a low-skilled workforce typically results in sub-standard outcomes, greater technical debt and incohesive and unproductive teams. Significantly, poor quality software development leads to delayed time-to-market, customer friction due to poor user experience, low productivity and foregone revenue, which all push up the Total Cost of Engagement (TCE).

Cost-effective quality software delivery is the goal. Although these hidden costs are hard to measure, they can be much higher than the false economy offered by an attractive hourly rate.

To find out more, talk to us –  Let’s talk.