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This is part 2 of "Why outsourcing software makes sense". In part 1, we talked about the different examples and reasons why it is worthwhile to outsource your software development services, from a business standpoint. If you agree with the keypoints showcased before, and your company is not in the business of making software, then it makes sense for you to outsource your software development (this goes a long way, you can be a technology-driven company and not be in the business of making software but of leveraging it, marketing it, etc.) In our experience with over 1,000 clients that we have served, a mature software services firm can produce software twice as fast as a client team composed of talented individuals, but lacking process engineering know-how. Furthermore, the error injection rates derived from a good software development process are orders of magnitude different than those existing in haphazardly assembled teams.
On a poll of more than 8,000 software development projects, Carnegie Mellon's Software Engineering Institute found an average Field Error Rate of 6 to 9 bugs per 1,000 lines of code (technically, the amount of bugs found in a software after 18 months of operating it, per every 1,000 lines of code). PSL, for example, injects only 0.3 errors per 1,000 LOC, or 20 orders of magnitude less than the average company. The implications of this are tremendous for software development: better quality means faster deployment (debugging takes time), less cost (debugging costs a lot of money), and a better image with clients (a buggy software can cost you more than just correcting it, it can cost you your client's business if a fatal error occurs!) It is our frank opinion that outsourcing your software development is worthwhile even if you do so to a more expensive company in a developed world economy. However, the value proposition of outsourcing becomes exponential when cross-border wage differentials are included in the equation and you resort of offshoring IT needs.
This has been for many years the appeal of outsourcing IT services to Asia, where at one time during the 1990's, wages for a software engineer were as low as one sixth what they were in the United States. This is no longer the case, but undoubtedly, developing economies still offer the chance for wage arbitrage. Of course, there are no free lunches, and offshore outsourcing does not come without risks, and whether in the final analysis it is a winning proposition or not, will very much depend on how the vendor you select handles the risks –something we will discuss in our next post. Stay tuned!