Businesses often struggle to find the right balance between outsourcing and in-housing development. While both methods have their merits and demerits, it all comes down to a cost benefit analysis to find which is suitable for your working model.
Now more than ever, businesses are taking unique business solutions to quell the challenges of a competitive environment. With secure IT infrastructure and cloud computing, outsourcing has become a viable option for many. Before that, in-house development had been the norm, and not in vain.
Let us dissect both the models of development with the help of an extensive cost benefit analysis. A cost benefit analysis is a corporate practice of analyzing the expected or estimated costs and benefits (or opportunities) of a project choice to see if it makes business sense.
Outsourcing vs In-House Development
Outsourcing involves hiring external firms or individuals to handle software development tasks. This can range from hiring freelancers to engaging with specialized software development companies. The primary goal is to leverage external expertise and often to save costs.
In contrast, an in-house development is the practice of building and maintaining a software development team within the organization. So while you have the direct contact with the team on the office floor with in-housing, you can get a cost effective solution with outsourcing resources.
Since both development methods have their advantages, it is better to find out more about them before doing a conclusive cost benefit analysis.
Pros and Cons of Outsourcing
Pros of Outsourcing
According to a recent Deloitte study, the main reason companies use traditional outsourcing (for simple tasks that can be automated, like network administration) is an overall need to cut costs. As the corporate culture evolves with millennial and Gen Z employees, we are seeing a hike in employee retention as well as the talent pool getting super-saturated. It is primarily why companies choose to go with outsourcing. Other such benefits of outsourcing include:
- Decreased labor costs
- Savings on infrastructure
- Reduced workloads
- Focus on high-priority tasks
- Risk mitigation
Cons of Outsourcing
With the implementation of an outsourced team, there may be some disadvantages that need constant mitigation or avoidance, resulting in it to be more expensive for some businesses than expected. These drawbacks include:
- Loss of oversight on business goals
- Security risks
- Protection of intellectual property rights
- Quality control issues
Cost Benefit Analysis of Outsourcing vs In-House Development
If your company is considering shifting to an outsourcing model, they need to assess their footing to begin with – firing off with initial setup costs.
Phase I: Assessing the Expenditure
When compared with in-house development, outsourcing has a lower initial setup cost. It is because with an in-house, more time is spent on hiring, training and setting up infrastructure for the said team. The businesses also go a step further and figure out the potential long-term operational and hidden costs with the shift.
In contrast, with long term expenditure, in-house teams fare better than their outsourced counterparts. Because of deeper integration and increase in loyalty, we see in-house teams bonding well and reducing the overall long-term cost trajectory. Outsourcing is very rewarding in the initial setup costs.
Phase II: Quality Analysis & Adaptiveness
Outsourcing allows businesses to incorporate highly skilled and expert people in the team without going through the hiring process. However, with in-house teams, you get a straightforward quality assurance as compared to outsourcing.
When it comes to adaptiveness, outsourcing has a better handle at scale development up or down based on the business needs. In-house teams may struggle to adapt quickly to changing project requirements.
Phase III: Security & Collaboration
Ensuring data security when outsourcing involves selecting reputable partners with strong security practices and possibly employing additional safeguards like data encryption and secure communication channels. In-house development allows for more direct control over data security, with the ability to implement and enforce strict security measures within the organization.
In-house teams often benefit from stronger team cohesion and a unified company culture, which can be harder to achieve with outsourced teams. On the other hand, outsourcing relies on collaboration and communication tools such as Slack, Trello, and Zoom.
Phase IV: Risk Management
Both outsourcing and in-house development come with risks. Identifying these risks early and developing mitigation strategies is crucial for project success. With outsourcing, businesses can mitigate the risks with clear contracts and communication.
In Summary
Deciding between outsourcing and in-house development requires a careful analysis of costs, benefits, and potential risks. Both approaches have their advantages and disadvantages, and the best choice will depend on your company's specific needs, goals, and resources.
For additional information on outsourcing development best practices and how to implement them in your company, go to our website for a free quote.
