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.