In-House vs Outsourcing Software Development: Differences, Advantages, and Risks

Check out the complete comparison guide to help you choose between in-house and third-party software development.

The digital age dictates its own rules to businesses requiring them to follow their customers. Regardless of what the company needs to build – a web platform or an application – one of the key questions is which approach to choose: create an in-house IT department or use outsourcing services? Both options have their advantages and disadvantages that must be considered when making a decision.

In-House Development vs Outsourcing: Visible and Hidden Differences

To understand the difference between the two popular approaches, it is necessary to define the comparison criteria, because this is the only way to see the full picture. Although different companies independently determine the value of a particular advantage and difference, general indicators can be used. Comparing in-house vs outsourcing software development, the most obvious difference is on the surface and underlies their definitions.

The development of applications and platforms of the company by an in-house department implies the creation and maintenance of its own development team. Outsourcing is the exact opposite – companies give their idea to a third party for implementation in accordance with their requirements and expectations.

Choosing in-house development vs outsourcing you should also pay attention to costs, time to market, management options, employees’ expertise, stuff turnover, team flexibility. Most of these criteria will show you the strengths and weaknesses of the chosen approach to software development.

Another important point that requires attention from the business is the calculation of risks. And this can be classified as hidden differences since along with the general risks of financial and time losses, there are bottlenecks inherent to each of the approaches.

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In-House Software Development: Advantages, Bottlenecks, and Risks

It is quite convenient to have an in-house software department on hand. Many companies rely entirely on their employees, entrusting them with the implementation of ideas and projects.

Here are some important facts to know about this approach.

1. Costs. Be prepared for substantial financial investments if you decide to build your team. Since this process will take place from scratch, part of the budget should be allocated to hunting for talent, as well as operating expenses associated with opening a new department in the company. You also need to budget for the ongoing maintenance of the department (staff salaries, maintenance of equipment, and necessary software). However, from a long-term perspective, this investment pays off in the first couple of years.

2. Time to market. As a rule, when looking for an employee in your in-house software development department, you choose narrow specialists to solve specific problems. This can be an advantage if you already know who you are looking for and has access to a talent pool. In this case, the time to market will be short and the efficiency of the team will be high. Unfortunately, this is where one of the weak points of this approach hides.

3. Management options. When your team is in front of your eyes, you have more opportunities to observe, control, and manage. This means regular face-to-face meetings, quick feedback from the team, and deeper involvement in the project. You can also customize the processes in the department as much as possible, adjusting to the internal rules and ideology of the company, which synchronizes the departments and allows the company to develop uniformly.

4. Employees’ expertise. You have two paths: scouting experts or growing them within your company, providing opportunities to develop and deepen knowledge in a particular area. When creating a department from scratch, remember that the higher the expertise of your employee, the higher the quality of your product will be.

5. Stuff turnover. Staff turnover can be a real challenge for in-house software departments. Among the main reasons for the high indicators according to this criterion are unsatisfactory working conditions and wages, the lack of prospects for growth and development, projects of the same type. To avoid this, it is necessary to monitor the status of employees and constantly make improvements.

6. Team flexibility. The development of new projects may require new specialists who have yet to be found. Hunting experts can take up to two to three months, and this will entail a loss of money and time.

There are also important issues to consider, exploring this approach. For example, in-house developed software would be maintained by the same team, meaning developing updates and debugging will be faster. Also, among the advantages of in-house software development, the cultural closeness is also worth to mention. Most likely, you will select personnel from your city or country for the internal IT department. This contributes to better understanding and communication within the team and the company, to stay on the same page and literally speak the same language. This ensures that expectations and the finished product are better matched.

Risks of In-House Software Development

The main risks when building your own team are directly related to the process of finding suitable experts. If you are inexperienced in sourcing technicians, you run the risk of hiring an incompetent employee and failing. Get professional help: hire an HR that specializes in finding this type of candidate, or contact an agency.

Another factor that significantly increases risk is the skill set required to work on your project. If you do not have an understanding of what exactly you need, you can hire an employee who does not satisfy your needs at all, and when it becomes clear it will be too late.

As mentioned above, staff turnover is also a weakness and risk. You can face this problem at the most unexpected moment, which is why it is so important to timely monitor the level of satisfaction of your employees.

By choosing this path between in-house development vs outsourcing you take responsibility for all possible risks, so make sure that you have hired the best specialists for your team.

Programmer working in a software developing company

Outsourcing Software Development: Advantages, Bottlenecks, and Risks

Trends and forecasts indicate that IT outsourcing is gradually gaining momentum and becoming more popular. It is believed that this development method is suitable for startups, small and medium-sized companies, however, well-known market giants Google and Alibaba regularly use the services of outsourcing companies.

So, what are the outsourcing software development strengths that businesses will find attractive?

1. Costs. The benefit everyone is talking about is significant cost savings since you don’t need to invest in finding the right talent. You are not wasting money on your budget. In other words, this is a price-wise investment.

2. Time to market. Since you are not limited by the capabilities of your team and you do not need to train every new employee, work on the project begins instantly after all the formalities are settled. You get a team of experienced professionals at your disposal and you can expect to get a quick and high-quality result.

3. Management options. Previously, this could be called a weak point of outsourcing software development since the customer was not too involved in the development process. However, the application of the latest techniques and the Agile approach minimizes any negative consequences associated with dedicated teams. By choosing the optimal schedule of meetings and reports, you get complete information on the project and the ability to monitor its implementation.

4. Employees’ expertise. By hiring an outsourcing company, you gain access to an expert pool of talent. This allows you to use the best minds to implement your idea. Companies invest in the development of their employees, and you can enjoy the finished result.

5. Stuff turnover. In short, this is not your headache. The truth is that outsourcing software development companies also face staff turnover problems, albeit not as often as other companies. And their indicators are significantly lower. But if an employee of the company you hired disappears, another is instantly assigned to his place, that is, neither you nor your project are at risk of losses for this reason.

6. Team flexibility. Flexibility is the undoubted advantage of outsourcing. The team can be supplemented by any specialist at any time if such a need arises. Thanks to this, time and budget are not wasted on finding an expert, and the work on the project continues with minimal delays (it will take a little time to bring a new specialist up to date)

While listing the advantages of outsourcing software development, it should also be noted that this approach allows you to focus on the core needs of your business, while the outsourcing team takes care of the high quality of your product. In fact, by choosing outsourcing development, you are not exposed to the risks that are inherent when creating an in-house department. However, this method also has its own.

Risks of Outsourcing Software Development

One of the main risks in outsourcing is in cooperation with an unscrupulous company. This concept includes several definitions at once: a company that deliberately overestimated its success, trying to attract customers; the company is on the verge of collapse, which can go out of business at any moment; scammers who will take your money and disappear. In order not to fall for the bait of one of these firms, carefully study your potential partner: portfolio, customer reviews (check if they are real), ask for additional recommendations if something is in doubt.

Also, when choosing outsourcing software development, there is a fear of data leakage and other security issues. Loss of trust can arise due to the lack of total control over the development team and poorly organized project management. The solution to this situation will also be to find a reliable company with a high level of trust in the market.

In other words, you need a company with a top reputation, experience, and a high level of employees’ expertise. Feel free to check it all out before collaborating.

Exploring in-house vs outsourcing software development comparison hold in mind the requirements, budget, and goals of your business. The common rule says that the chosen approach should perfectly meet your individual criteria. Before making a decision define vital characteristics and check put each approach.

If you have already decided or need a consultation, please contact a Computools’s expert via email or using the form below.


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