in-house for its own
programmers to rework
[ 10].
While this story is
troubling, it is not atypical in the offshore outsourcing of software
development [ 1]. Unless
an organization is well-equipped to deal with
the challenges of offshore outsourcing, its
projects are bound to go
awry. Indeed, a survey
reveals that eight out
every 10 businesses that
have entrusted application development to an
offshore vendor have
experienced major
problems due to inadequate preparation and
ineffectual management [ 3]. Still, given
the significant economic benefits that
companies can potentially reap, it is not at all
surprising that offshore
outsourcing is growing in size and importance.
According to Forrester Research, 65% of American
and European enterprises (with 1,000 or more
employees) currently use offshore providers for application development; another 13% plan to begin
doing so in the next year. Two years ago, only 45%
of such organizations utilized offshore vendors to
develop applications [ 7]. Given this trend, there is a
clear need to better understand how to manage offshore projects more effectively.
Rank Risk Factor Rating*
1 Lack of top management commitment 9. 2
2 Original set of requirements is miscommunicated 8. 1
3 Language barriers in project communications 7. 7
4 Inadequate user involvement 7. 7
5 Lack of offshore project management know-how by client 7. 4
6 Failure to manage end user expectations 7. 3
7 Poor change controls 7. 3
8 Lack of business know-how by offshore team 7. 3
9 Lack of required technical know-how by offshore team 7. 2
10 Failure to consider all costs 7. 1
11 Telecommunications and infrastructure issues 6. 8
12 Vendor viability 6.0
13 Difficulties in ongoing support and maintenance 6.0
14 Low visibility of project process 5. 8
15 Cross-cultural differences 5. 8
16 High turnover of vendor employees 5. 8
17 Constraints due to time-zone differences 5. 8
18 Lack of continuous, face-to-face interactions across team members 5. 7
19 Threats to the security of information resources 5. 3
20 Negative impact on employee morale 5. 2
21 Unfamiliarity with international and foreign contract law 4. 8
22 Differences in development methodology/processes 4. 8
23 Political instability in offshore destinations 4. 4
24 Negative impact on image of client organization 3. 1
25 Currency fluctuations 2. 8
* The following rating scale was used to assign importance by the experts: 10=very important;
7=important; 4=slightly important; and 1=unimportant.
Table 1. Rankings of
risk factors.
While problems can develop in both in-house
and domestically outsourced projects, offshore-outsourced projects are especially prone to failure. This is
a significant concern for IT managers who are con-
stantly seeking ways to
increase the success record
of their development
efforts. To assist such
managers, we conducted a
study of the risk factors
of offshore-outsourced
development. These factors refer to conditions
that can present a serious
threat to the successful
completion of a project if
left unmanaged [ 9]. Given
the evidence linking project risk factors to outcomes [ 11], we believe that
a clear identification of the
risk profile of such projects
will help managers steer
their projects to successful
completion [ 1].
While prior studies
have examined the risks of
software development [ 9],
such investigations did not
specifically consider the offshore outsourcing context.
Rather, these studies focused on in-house and domestically outsourced initiatives. Due to the increased complexity and the distinctive managerial challenges that
exist in offshore outsourcing environments [ 1, 2, 4, 6],
we expected that the risk profile of offshore projects
would be somewhat different from that of non-offshore ones. Thus, our goal was to produce a set of project risks that specifically applies to offshore outsourcing
by building upon the earlier research.
To identify the risk factors, we sought the input of
the individuals that companies recruit to manage offshore projects: experienced senior project managers
and directors. To identify such experts, we contacted
certified project management professionals (PMP),
who are senior IT executives and members of the
Project Management Institute (PMI). We asked these
managers to complete a form summarizing their
experience. After screening the qualifications of 57
such individuals, we selected 15 of them to partici-
As a recent ACM report suggests, outsourcing “magnifies
existing risks and creates new threats.” 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.