The concept of outsourcing stems from the idea of comparative advantage first postulated by Adam Smith in his book "The Wealth of Nations". Smith suggested that individuals, firms, and nations are better at producing certain goods and services and thus must concentrate on producing those over others. This idea is the root behind current developments in management theory; in particular the concept that each company has a few "core competencies" in which it specializes. This theory suggests that managers and key decision makers should focus on perfecting these core competencies, and hire other firms with their own core competencies to perform other tasks. Here enters the concept of outsourcing.

Organizations have realized the advantages to outsourcing are twofold: not only can their vendors perform the service more efficiently and economically, but it also allows the host company to put more focus on its core business. As a result, an increasing number of companies are deciding to outsource software development projects. In fact, the Diamond Cluster International's Third Annual Global IT Outsourcing study showed over three-quarters of the Global 1000 companies plan to increase their use of IT outsourcing, with software outsourcing being a large portion.

Although software outsourcing holds a lot of promise for businesses today, organizations often struggle with the complexity that outsourcing can bring. For example, outsourcing can reduce the amount of internal management required but it may increase the degree of management sophistication needed because the challenges involved with managing a project across the hall are magnified when you have to manage a project across the country. This document includes some steps you can take to help ensure success the next time you outsource a software development project.

Because a requirements document often becomes part of the legal contract between you and your outsourcing vendor, it will be important to document your business and technical requirements. If you do not have the in-house resources available to complete this step, many software service companies can help you define and document your requirements. Once this document is complete, the outsourcing vendors you are considering will be able to provide a firm project budget and timeline.

This step is critical to the success of your project. There are many outsourcing options available and you will want to select the company that will best meet your needs. Following are some factors you should take into consideration during your evaluation process:

• Experience – do they specialize in your vertical market or the technology you require?
• Approach – do they have a proven methodology for completing projects on time and on budget?
• Infrastructure – do they possess the necessary technology such as hardware, software, telecommunications and networking equipment to complete your project?
• Quality – do they have a formalized testing process to ensure the software they deliver meets your exact specifications?
• Reputation – are they willing to provide customer references to prove they are a leader in their field?
• Stability – do they have the financial security and business longevity so they will be around to support your application well into the future?
• Culture – will they fit with your corporate culture and provide a team-based approach?

Many companies expedite the vendor selection process by creating a Request for Proposal (RFP) for distribution to potential vendors. Following are some items you can include as part of your RFP document:

• Project requirements – To ensure you get accurate proposals from all vendors being considered, it will be important to provide detailed business and functional requirements for the software you want to create.


• Deliverables and timelines – You should also explain the specific deliverables and timelines expected within the scope of the project. This will ensure that each vendor understands what is expected and when it needs to be delivered.


• Documentation and training – Including a list of the documentation and training requirements is also important. Documentation could include design documents, operating manuals and reports. You may also require training for your operations staff and system users.


• Ongoing support – It would be useful to provide a description of how you would like the software to be supported once it is deployed. For example, do you plan to support the software internally or do you want the vendor to provide ongoing support?


• Evaluation criteria – Be sure to include the criteria your company will use to evaluate each vendor. Some examples include industry expertise, reputation, project methodology, and quality assurance.


• Customer references – A very powerful way to identify the strengths and weaknesses of each vendor is to talk with their customers. This will allow you to further identify which vendor is the best fit for your business.


• Pricing – If you provided detailed requirements, each vendor should be able to provide an accurate project estimate. Be wary of companies that want to charge you by the hour. Paying by the hour means you will assume the pricing risk for the project. Reputable software service companies will eliminate the pricing risk for your company by providing a fixed project cost.

Once you have selected an outsourcing vendor, you will want to activate a formal contract between your companies. The contract should include details about management and technical requirements, warranties, intellectual property rights, contract termination conditions, payment schedules, and any other important issues. The contract should also include a Service Level Agreement (SLA) that outlines the specific deliverables and timelines within the scope of the project. To ensure the contract is complete and legally binding, it is recommended that you have it reviewed by legal counsel before it is signed.

Prior to starting the project, it will be important to recognize and define the roles and responsibilities of both companies. Management roles such as Project Managers and Acceptance Test Managers are important to ensure the timely delivery of your project's deliverables. In addition to management roles, a project team typically consists of people specializing in requirements elicitation, architecture design, software development, testing and quality assurance. It will be important to agree upon these roles and which company will perform each function

Proactive project management is a critical element in any outsourcing project. Since your project manager will not be able to walk across the hall to talk with each team member, it is advised that you establish some formal mechanisms to track the project's progress with your outsourcing vendor.

Research shows that outsourcing software development projects continues to grow due to the intrinsic benefits of cost reduction, speed to market, and quick return of investment. If your company is considering an outsourcing strategy, please consider Baldwin Hackett & Meeks, Inc. (BHMI).

For more than 20 years, BHMI has been completing large-scale and complex software development projects for companies in a wide range of industries. Following are just a few benefits of partnering with BHMI:

• Competitive rates – BHMI understands you must select the option that offers you the most value for your money. BHMI offers a pricing model that is very competitive and an attractive alternative to offshore outsourcing.
• Dependable pricing commitments – Upon contract signing, BHMI will not exceed its capped estimate. As a result, BHMI takes the risk of any project overage – not you.
• Vertical and application expertise – Ranging from small start-ups to Fortune 500 companies, BHMI has implemented solutions in a significant number of vertical markets and understands what it takes to develop primary software applications.
• Condensed project timelines – Using its proven project methodology and state-of-the-art software development environment, BHMI completes projects in less time with fewer resource hours.
• Continued support – Nothing is more important to BHMI than creating a trusting and long-term relationship with each of its customers.

BHMI would be honored to talk with your organization about how it creates low-risk, high-quality software applications that are both timely and cost-effective. BHMI's skills, experience and commitment ensures the company will deliver what it promises, and will provide support as long as you need it.