Successful outsourcing and the Total Cost of Engagement. Compare costs and build software development outsourcing budgets with total costs and not just vendor quotes.

1. Successful Software Development
Outsourcing
Total Cost of Engagement?

2. What is TCE?
• Total Cost of Engagement (TCE)
– If you are budgeting for an outsourced software
development project – you want to know the total of all
costs, beyond the vendor’s quote, for the engagement.
– You know what your internal staff costs and what it costs
to recruit, pay staff overhead and related costs.
– You can quickly search job boards to see what hourly rates
are for a given set of skills and experience in various areas
throughout the country or the world but…
– You also know that the hourly rate of your outsourced
resources aren’t all the costs you need to include for a
realistic budget.

3. Leveling the Playing Field
• You can get quotes from vendors easily, but be
sure you are comparing apples to apples
– Staffing companies, depending on your specifications
and the availability of resources will have a price, but
it will be different than a “full-service, software
development” provider.
– The overhead, services, resources available, location
and other factors will vary the end cost of each
vendor.
– Your problem is not to eliminate vendors. Instead you
need to be sure if you are not comparing apples to
apples, you add the costs that will complete the
picture for comparison and budget purposes.

4. What Does Your Project Need?
• Separately from vendor quotes, do you need?
– IP protection?
– Assurance that work will be completed regardless of resource
availability and other difficulties?
– High levels of security? Proprietary technology? Etc. Everything
has a cost…
• Do you know what you are taking on in terms of risk and
costs in the case of each vendor you are considering?
– What do you have to do to mitigate risks? What are the costs?
They may be different for each quote you have, but if you don’t
consider them, you aren’t comparing apples to apples
• The key is to assign the costs of mitigation to the
differences between quotes when the limitations of the
offering impact your needs.

5. Where is My Team?
• Assuming you are not planning to collocate your
outsourced team in-house – distance has a cost.
– How complex is your project? Is it a new application?
Maintenance of an existing app? Is your in-house team
involved? Each situation is different and can have different
needs for team interaction.
– Offshore providers in Asia or Eastern Europe may have
lower costs, but what are the travel costs, communication
overhead, productivity costs, etc. ?
– Nearshore providers are better positioned to work in real-
time with less overhead, but their costs may be higher per
hour. Are they actually comparable with offshore?

6. 6 Areas to Consider in
Your TCE
1. Travel Costs
– To start a project successfully, it is important to get at least
key members of the team together.
• Build trust, clear operational issues, start knowledge transfer, etc.
• The amount of time needed will be different depending on team
size, type of project, cultural affinity and other issues.
• Consider visa costs and time delays, round-trip airfares, hotels,
meals, surface transportation, time to deal with paperwork and jet
lag.
• Consider the cost of lost productivity for yourself and your team in
your costs. It is not unusual to have to include up to a week of
travel time in each direction for offshore locations.
• For longer engagements and special situations, it is wise to
consider more than one trip.

7. 6 Areas to Consider in Your TCE
2. Risk and contingency management
– Release system: Is this an existing application? Is it part of
a suite of applications managed by a release system? How
do you merge your releases and data? Can you back out of
a release seamlessly?
– How much time will the development team need to
allocate to manage releases? If your team will handle the
release, how will you handle issues after release without
impacting ongoing development and productivity?
– Do you need to protect application data? Do you have
plans to ensure that test data duplicates your live data
characteristics?
– Do you release in phases to different data centers or
clients? What is the risk that one phase will be different?

8. 6 Areas to Consider in
Your TCE
2. Risk and contingency management
– Changes in Direction: Does your team and the
outsourced team practice with agile methodologies?
Can they handle opportunities to change direction
without a serious loss of productivity?
– Do you have plans in place to handle changes
efficiently? Can they be handled in contract and
project startup so there is an understood basis for
making changes through the project without lengthy
negotiation and planning?

9. 6 Areas to Consider in Your TCE
2. Risk and contingency management
– Response to Issues: Not all issues require a change in project
direction.
– Spot clarifications, technical decisions, etc. should be responded
to quickly so they don’t mushroom into bigger problems.
– Direct communications in an atmosphere of openness and trust
are key. Every team member must understand they have the
ability and responsibility to raise issues directly, seek
clarifications and ask questions without repercussions.
– This level of communication takes planning and interaction. It
has a cost but as a mitigation against larger issues, it more than
pays for itself.
– Using layers of technical and operational intermediaries instead,
raises costs much higher, increases the time to action, and
lowers communication fidelity.

10. 6 Areas to Consider in
Your TCE
2. Risk and contingency management
– Geopolitical Risks: Consider more than political upheaval –
catastrophic weather events and climate change are also
issues to consider as part of your risk management. .
• Political issues have hit locations (like the Ukraine) that were once
growing outsourcing centers.
• Extreme weather is possible all over the world, but data centers in
the eastern seaboard of the US have been threatened several
times in the last few years.
• Geopolitical risks can mean the loss of access or data for days or
weeks and sometimes longer. Progressive backups of code can be
automated to multiple locations, data centers can be setup to
failover to other locations. These mitigations and similar actions
have a cost, and they won’t replace staff, but they will help to get
projects back online quickly in an emergency.

11. 6 Areas to Consider in Your TCE
2. Risk and contingency management
– IP Protection: There can be and generally is
intellectual property in any outsourced engagement.
Data, business rules, methods and procedures,
security and technical systems used can all be areas
that need protection.
• The first level of protection is in properly drafted contracts
with specific language to cover IP.
• These should be backed up by international treaties and
agreements that provide a realistic basis for enforcement.
• Security and the technologies that support it should be
considered and employed where it is required. These
measures have a cost, but they are usually minimal
compared to the exposure created by a loss.

12. 6 Areas to Consider in Your TCE
3. Knowledge Transfer
– Documentation is only one part of knowledge transfer
and when it is relied on too heavily, it can create
situations where it would be better to do without it.
Users may not read contextual information and
misunderstand information. Highly detailed
documentation can be hard to maintain efficiently.
– Person-to-person knowledge transfer, when done in the
context of the moment and with respect and honesty, is
the best medium. But both parties have to make the
effort to ensure questions asked and fully answered.
– Setting up meetings and systems that ensure knowledge
transfer is open and direct takes time and has a cost. But
without it, risks can become unmanageable.

13. 6 Areas to Consider in Your TCE
4. Productivity Loss
– When development teams do not have significant
overlapping work hours, work in different languages and
terms, or their ease with direct communication is
compromised, productivity can suffer significantly.
– In these situations, intermediaries are often used as a
bridge to relay, translate, route or prioritize
communications, but in most cases they only add to the
delay, cause a loss of fidelity in the messages and create
friction.
– In addition added layers of communication add to head
count and have a real cost. Find ways to allow direct
communication rather than creating barriers.

14. 6 Areas to Consider in
Your TCE
5. Team Attrition and Churn
– The longer an engagement is, the more likely it will
be to suffer some team turnover. Individuals will get
new opportunities, life events will cause them to
have to move and other issues will require them to
change their working situation.
– Understand that this will happen at some point and
consider the cost of recruitment, training, knowledge
transfer, and lost productivity while the new
resource is brought up to speed. With that in mind,
put in place the plans and agreements necessary to
assure that the least amount of disruption occurs.

15. 6 Areas to Consider in Your TCE
6. Management Overhead
– Often, the response to dealing with the issues and
risk around outsourcing is to add more management
to the project.
– Intermediaries, even when combined with very low
base labor costs, add cost, friction and lower
productivity. They lower team responsibility and
create barriers to direct communication.
– Instead, enforce responsibility and team
commitment with methodologies like agile and
scrum. Don’t initiate overhead that takes it away fro
the team.

16. TCE is a Moving Target
• Using TCE as a way to compare costs of various
vendors and situations is of course important, but
it is also a way to benchmark a project and
ensure it doesn’t balloon out of control.
• Every team and project will have some unique
aspects to its costs. This is just a starting point.
Like the costs of your last project, they are
recommendations of where to look at costs, not
template.
Scio is a full service provider of nearshore-based software development services
to our clients in North America. Please contact us for more information about
our services and recommendations for your project.