BHS Technology News Bytes

Outsourcing Your Projects: Money Saver or Black Hole?

“Something is only worth as much as someone is willing to pay for it.”

Truer words were never spoken.

In the world of IT and software, it is often difficult for people to ascribe an actual value to the work that is done in that world. The deliverables are very seldom tangible objects, like a house or a car. However, much like a house, software can form the important foundation of a business, and without that foundation, the business is doomed to collapse.

One might think of the service a lawyer provides: Besides the documents created (which IT professionals will also create frequently, to which I can attest), a lawyer can provide expert advice and guidance through complex situations. This “guidance” is no more tangible than any software that is produced, but is still crucial.

If we were to compare the rate a lawyer might charge (one does not need to imagine all that hard), then we would likely come to the conclusion that IT and software companies should charge something comparable (though not necessarily as much, depending on the situation). This valuation of services speaks to just how critical the services an IT company provides usually is.

The Past 15-20 Years
In an effort to improve bottom lines everywhere of companies that require software and IT services, the past nearly twenty years have seen countless IT projects outsourced to India (for example). One need only look at the rise of Tata Consultancy Services and Mahindra Satyam, two Indian IT services companies.

Promises of $10/hour resources and a resource pool that seemed impossible to exhaust lured decision makers here in the West (and elsewhere) to send their IT projects to India to be completed. And why not? India is known for its technical prowess and high-tech post-secondary education institutions. What could possibly go wrong?

You Get What You Pay for
If something seems too good to be true, it usually is. That old idiom holds true to this day.

The economics of India notwithstanding, a reputable Computer Science education is expensive no matter where you go in the world. Furthermore, depending on the company, an entry-level salary for a CS grad can range from $40 000/year to $100 000/year. Taking the low end, that’s around $20/hour, and that’s just to cover someone’s salary, not to speak of company overhead and the like. Furthermore, that $20/hour covers a junior resource—someone who lacks experience and the ability to guide and lead a project.

Consulting is based on the principle that the consultants assigned to the project have substantial experience in the field in which they work, be it either navigating new business verticals and making recommendations, or creating a WordPress site for a new e-commerce shop, or implementing a mission-critical system on time and on budget.

So if one is promised $10/hour resources—even if a “more senior resource” is promised for, say, double that price—the quality of the work performed can be inferred.

While there have been some success stories of which I have heard, I have personally seen far more failures coming from such an outsourcing arrangement. Besides the economics discussed above, here is a summary of what can (and often does) go wrong:

Communication

While we do live in a global village, we do not all speak the same language, and even those who speak other languages well often do not understand or appreciate the nuances of said other languages. In the best case, this leads to misunderstandings that can go unnoticed as every outward indicator would seem to imply that all is well—until a deliverable is either completely missed or does not function in the expected way.

In the worst case, both parties can have extreme difficulty in understanding one another; this is a surefire recipe for disaster.

Management

In order to address the communication issue in recent years, outsourcing companies employ managers who are experts at both languages. Of course, this adds additional cost, and these managers are often times less-than-technical people, introducing yet another layer where something can go wrong or missed. Even companies who have managers routinely commute back and forth from their HQ to the outsourcing location have to shoulder the cost of doing so, not to mention the time lost spent in transit.

Accountability

When things go wrong, it’s always good to deal with a company that will accept responsibility and tend to the issue at hand in a responsive fashion. It isn’t very reassuring to have to pick up the phone, call halfway across the world, and have someone on the other end promise to have a look at it as soon as they are able (likely at your cost, of course). Progress, communication, and other hallmarks of accountability seem to be nothing more than lip service in such times when dealing with outsourcing firms.

Poor Quality Deliverables

Or, in a lot of cases, no actual deliverables. If you are handed back a final result that is broken, crippled, or doesn’t do what you wanted it to, then it is going to cost substantially more to have that result fixed. Worse still, if no deliverables are returned (either on-time or at all), then how much is that piece of work now worth? What is the ROI of a project that has no deliverables? The bottom line that was to be protected will now suffer.

If outsourcing companies grow so fast so regularly, the quality of the resource pool must also be considered.

The Return

The past five years have seen a return (or “repatriation”, as I like to call it) of many IT projects back to the nations in which the project began. Those businesses are beginning to realize the importance (and value) of having high-quality work done. The work might not be done at $10/hour, but it will likely get done on-time and on-budget (albeit a slightly larger one). But let’s consider that same project being conducted twice; once in India and once locally. This is a scenario which often occurs. How much more inflated is the doing everything twice budget?

What Are the Benefits of “Going Local”?
By keeping your IT projects “local” or “near-shored”, here are the prospective benefits:

  • Substantially increased ROI.
  • Higher quality of work.
  • Likely to be in a closer time zone.
  • Easier/cheaper to travel between locations.
  • Minimization of communication issues.

What Can I Do?

  • Don’t be fooled by companies that have a presence in North America but send all of their work back to another country. If you aren’t sure, don’t be afraid to ask!
  • For any work being done, ask where the actual development is being performed.
  • Be critical of any emails or letters sent to you from firms pitching their skills. If it seems like the prose is weak or messy, then that is a good indicator of the quality of work you can expect.
  • Remember: If it sounds too good to be true—especially the cost—it probably is!
  • Ask as many questions as you wish in order to feel comfortable with any prospective firm. Your comfort is key! A firm isn’t doing you a favour by taking your money! Especially if they haven’t the skills or intention of producing a deliverable.

Summary

This newsletter might seem self-serving from the prospective that we, BHS Consultants, are trying to bring work into our shop; however, the content in this newsletter is meant to serve as a warning based on our having been an IT consulting firm for the past twenty years. We want to ensure that our clients (both future and current) have as much information available to them as possible.

To that end, consider keeping your IT work “nearby”, even though the price might not be “pennies a glass”. In the end, though, comparably, it just might be.

Contact us for more information! We’d love to help!