pate in our study. Each of the selected executives had managed multiple offshore projects in the past; in total, the panelists had managed 135 such projects. On ² average, each panelist had over 17 years of IT-related experience and over 15 years of project manage- ₃ ment experience, and had managed 51 projects, nine of which were offshore development ones. This level of expertise suggests that the selected panel was well- ⁴ qualified for the task.

To solicit the input of these

5

experts, we utilized the Delphi survey method. A brief description of how their input was collected and analyzed is provided in the sidebar “How the Study was 6 Conducted.” Table 1 summarizes the risk factors as identified and rated by the experts. ₇

The results of our study represent a set of conventional risk factors that have been previously identified by well-cited research [ 5, 9, 11], as well as threats that ⁸ are more distinctive to offshoring. On average, the risks that relate to long-established factors (risks 1, 2, 4, 6– 10, 12, 13 and 16) have been ⁹ ranked higher than the factors that are relatively unique to offshoring (risks 3, 5, 11, 19– 21 and 23– 25). This suggests that, for the most ¹⁰ part, offshore initiatives experience the same fundamental issues that affect non-offshore ones. However, as the panelists’ ratings and insights reveal, these traditional risks are likely to pose more severe threats in the offshoring context due to the complexity and the specific challenges that are inherent in multinational, distance-based working teams. While the novelty of some of the risks could be questioned, their importance to effective project management should not be discounted. As a recent ACM report suggests, outsourcing “magnifies existing risks and creates new threats” [ 2]. Thus, offshoring clients will be well advised to spend the resources needed to assess the increased exposure to risk and its sources, and to identify ways to mitigate it [ 2].

Rank Risk Factor

1 Lack of top management commitment

Without meaningful top management support and commitment, projects face challenges that can lead to political battles, delays and even rejection. Top management support is essential in securing the needed resources and cooperation across organizational groups, and for enhancing the legitimacy of the project.

Original set of requirements is miscommunicated

Ensuring that the developers and the end users have a consistent understanding of the requirements can be a challenge in offshore development because of the reduced face-to-face, informal communications between these two groups. No matter how specific the requirements report is, there is often a window for assumptions to be made. This is especially true in development situations that are based on long-distance collaborations.

Language barriers in project communications

Language differences make project communications difficult and can lead to delays and conflicts. Even when all parties speak English, there may be misunderstandings because much of our language is based on cultural assumptions. Also, slang terminology and accents can create problems and may slow down communications. Conducting reviews over the phone can be problematic (due to the linguistic differences among team members). Frequent give-and-take may be needed to reach understanding. Overall, it takes more time and effort to communicate effectively in offshore projects.

Inadequate user involvement

Effective user involvement is a critical success factor in any project. However, many offshore projects are stewarded by IS groups without significant participation by users. This can lead to conflicts, delays and other problems. Participation helps educate users about the risks and challenges of software development.

Lack of offshore project management know-how by client

Offshoring is new to many companies. Many of them don’t have the in-house expertise that is needed to adequately monitor offshore work and to incorporate effectively the new technology into their existing portfolios. In addition to traditional project management factors, offshore development requires effective management of several specialized issues. For example, the need to delineate responsibilities across the duplicate project management structure is not always fully understood. The lack of project management know-how can lead to cost and time overruns.

Failure to manage end user expectations

Expectations must be managed to ensure that the project deliverables will be consistent with the perceptions of the users. This is a difficult task in all projects, but it is especially challenging in offshore situations because the users are not in direct contact with the developers. If expectations are not managed properly, the software may not be accepted by the end users.

Poor change controls

Changes to the initial set of requirements can cause delays, overruns, and other problems if they are not managed properly. Even when changes are documented and justified properly, there may be delays due to the exchange of questions and answers that must take place before the change is understood. Also, remote offshore resources may not obtain the sense of urgency for the changes without extended effort. If scope modifications are not managed well, they can result in overruns and hostile situations, especially in fixed price or penalty contracts.

Lack of business know-how by offshore team

Frequently, overseas resources do not have an intimate understanding of the client’s business context and don’t get sufficient training on it. Lack of business know-how and lack of access to key business contacts (to get things done) can cause delays. Choosing a vendor (with good technical skills) without regard to domain expertise can lead to trouble. Domain understanding is critical in offshore projects as normal workflow in one country may be inappropriate (even illegal) in another.

Lack of required technical know-how by offshore team

Ensuring that the development team consists of quality resources can be a challenge. Sometimes the skills and knowledge of offshore resources are misrepresented by vendor management. In other situations, the level of technical sophistication in a country is lower than that of the USA, limiting the pool of expert resources. Moreover, good vendor resources may be overcommitted. Even though some vendors are “process capability” certified, their depth of expertise could be limited.

Failure to consider all costs

Typically, firms do not consider all the costs associated with offshore outsourcing. Many hidden costs can exist in such arrangements. For example, travel expenses for moving and hosting development resources on-site in the U.S are often underestimated. Costs associated with delays and rework due to miscommunication also tend to be ignored. Finally, costs associated with the “duplicate” project team structure (for having a manager onshore and another offshore) are often overlooked.

Table 2. Top risk factors.

IMPORTANT RISK FACTORS IN OFFSHORE PROJECTS

While we recognize the significance of all identified risks, we concentrate our discussion on the top 10 factors as described and ranked by the experts in our panel (see Table 2). These 10 were rated as “very important” or “important” by the expert panel in its final evaluation. Given the significant level of consensus among the experts, we believe that this list represents the most notable set of risks salient to offshore projects.

As the findings indicate, the risks focus on three major areas of concern: the communication between the client and the vendor, the client’s internal man-