We are experiencing a moment of economic uncertainty. Growth rates have slowed, and inflation has risen since the beginning of the year. Even various authors and organizations are beginning to anticipate a possible global recession in 2023. In the present circumstances, companies are trying to optimize their budgets in various areas, including the budget for technological development.
Why do you need to optimize your tech budget?
Considering how expensive software development can be, the need to reduce costs in building and maintaining applications has become one of the priorities for executives. Nevertheless, making a decision on an area that is fundamental to ensure business continuity and growth only on the basis of costs is risky and can bring unintended consequences.
In the following article, we will analyze some alternatives for companies willing to optimize their tech budget with confidence.
Why is custom software expensive and how can you save money?
It is known that carrying out projects that require software development costs a lot of money. But at the same time, they are essential for different business processes and to achieve customer satisfaction, increase sales or provide better services.
The reasons why software development is expensive are due to:
- They are complex work processes: They demand a high degree of specialization from professionals, in addition to a careful strategy and execution of the planned architecture.
- Each project is unique: The majority of projects require a wide range of knowledge and skills. Making a great software application implies more than just a few developers. UX designers, QA (Quality Assurance) testers, and project managers are also required on the team. The project manager’s role is crucial for coordinating team communication, ensuring that the project stays on schedule, and maintaining the budget.
Additionally, because many businesses need to create customized software, it’s essential that the development teams are aware of what the customers need.
- It implies research and feedback: Software products are created to satisfy a specific customer need. To avoid making wrong assumptions about these necessities, it is crucial to conduct research and then receive feedback to determine the insights of users.
Some useful cost-cutting strategies
Now that we understand the reasons why software development is a costly service, let’s look at some cost-cutting strategies that businesses use:
- Establishing projects with clear goals and requirements: It is necessary to present a well-detailed project of the process and the expected results. The planning phase and communication with the rest of the team are critical for reducing development time and avoiding unnecessary money expenditures.
- Getting solutions to market faster (MVP): A minimum viable product is a product that has enough functionality and features so that early adopters are likely to use or purchase it. This work methodology encourages the release of beta versions to the market in order to obtain the necessary feedback to guide future improvements and to shorten development times. The disadvantages of this model are that it can be difficult to determine the most important features to satisfy the needs of customers. Another flaw is that MVP projects may face difficulties in scaling their products in the future.
- Include pre-built features: Another method for lowering costs is to use templates and pre-built features. This reduces time and effort in some aspects of development. Furthermore, the pre-built features have already been tested, ensuring the software’s quality and functionality.
- Consider outsourcing: Outsourcing is one of the best options for optimizing your tech budget. Hiring a third-party developer for a specific project or to fill an open position is often more cost-efficient than hiring a full-time developer. Furthermore, outsourcing allows access to talent pools with no geographical restrictions and in countries with significantly lower wages. This enables the company to allocate more funds to other areas or to pay higher salaries to key executives and directors.
Key aspects of successful outsourcing
A good outsourcing provider should bring solutions to help clients achieve successful software development in addition to lowering costs. If a company’s outsourcing strategy is successful, there is a good chance that it will grow exponentially and effectively improve its core business functions.
Some of the advantages of safe and efficient outsourcing include:
- Cost savings: In an uncertain economic condition, cost reduction is one of the most important factors in deciding to outsource. Having a full in-house software development team is much more expensive due to higher salaries and other labor costs such as insurance, vacation, taxes, and others.
- Resource optimization: Outsourcing allows you to have access to a large pool of talent from all over the world for specific development projects, resulting in a better cost-benefit ratio. Even if the company already has its own development team, delegating the resolution of certain tasks is a good way to avoid burnout and errors due to work overload.
- Fast delivery: Outsourcing practices, in one sense, allow for faster recruitment and hiring processes by providing quick wins to technological needs. On the other hand, in this constantly changing market, outsourcing companies have the advantage of being flexible because they work with a variety of professionals to ensure successful change implementation. Furthermore, these teams use agile methodologies to significantly reduce a product’s Time to Market.
- Companies can focus on the core business: Businesses can focus their efforts on their primary activity (in cases where the core of their business does not involve technological products). Although it is a good option for technological companies to outsource some of their projects in order to occupy their best talent in other areas that require more time, such as brand development or research and innovation. It can also be beneficial for industry leaders to have access to the guidance and expertise of outsourcing technology experts.
- Products with great quality: Companies require solutions for applications for multiple users and any issue with the functionality may result in the loss of hundreds of customers. A competent outsourcing team or a staff augmentation can make a big difference in a product’s usability and customer satisfaction.
How to choose the best software outsourcing model for you?
Taking into account the benefits that outsourcing offers to companies that are looking to reduce their tech budget, it is no coincidence that this service has grown enormously in the U.S in recent years.
To achieve the success of a project effectively, it is also important that companies consider the different ways of outsourcing, taking into account the needs and characteristics of their organization.
Once a company chooses to hire an outsourcing service, the next question that arises is: Which model should we opt for? There are different ways of classifying outsourcing companies, but in principle, there are two broad categories: by the vendor’s degree of responsibility in the project or by the vendor’s geographic location.
To assist you in selecting the model that is most appropriate for your project, we will outline the differences between these models below.
Staff augmentation or project outsourcing
These outsourcing models focus on how the client and their third-party provider handle ownership and responsibility.
The main difference between the two models is that project outsourcing contracts a service in which an outcome is previously agreed upon and the risk is shared with the vendor since responsibility for certain business operations is delegated to it. Instead, staff augmentation is hiring engineers to perform some tasks while maintaining control over the development team.
Nearshore or offshore
The usual definition of nearshore and offshore refers to the geographical location of these companies, but with the increasing popularity of remote work following the pandemic, this definition has changed. The main factor in considering another country as “near” is the time zone. Although Latin America is several miles away, it is considered close because it is only 1 or 2 hours apart from the U.S. On the contrary, other regions such as Eastern Europe, Asia, and Africa have more than 7 hours of difference and that is why they are considered offshore.
In general, nearshore providers tend to have greater advantages than companies that offer offshore with respect to the following items:
- Workday Overlap: Overlapping work hours is advantageous for companies that prioritize real-time collaboration between teams.
- Cultural Alignment: There are fewer cultural barriers with countries considered nearshore. For example, LATAM countries tend to have lifestyles and traditions influenced by the US, facilitating interactions between teams and the rapid incorporation of the teamwork ethic.
- Communications skills: Professionals from these countries tend to speak English fluently because they have had contact with this language from their initial education and it is usually a fundamental requirement for their professional career.
Want to choose a reliable partner? Pay attention to these warnings
In addition to the different outsourcing models, another key factor that companies have to take into account when hiring an outsourcing provider is reliability.
Some companies that carry out “cheap outsourcing”, usually have prices below the market to offer a resource or a team of developers. But while this may sound appealing to finance departments, they likely won’t provide a reliable service
Before contracting an outsourcing service, it is important to investigate some of these red flags that may indicate that the provider is untrustworthy and will struggle to achieve the desired results. This implies not only a failure to follow the established development plan, but also additional costs associated with the need to hire new professionals, extend the project over time, or even hire a new company to complete the job. Furthermore, delivering a low-quality or bug-infested product has a significant negative impact on user satisfaction.
It is fundamental to conduct preliminary research, verify the company’s certifications and reviews, and require success cases. These are some of the warnings to which you should pay attention if you want to make the right decision when it comes to outsourcing:
- Developers’ prices are below market rates.
- By assigning developers/designers/project managers to several projects at the same time.
- By offering inexperienced junior-level developers or interns who are just gaining experience.
- Missed deadlines and the vendor’s inability to deliver the product on time.
- Quality issues discovered at the postproduction stage.
In an uncertain economic context, outsourcing is a proven and effective method to reduce costs in the software development budget. But it is critical to make a good choice so that the chances of success are much higher. If the desired goals weren’t accomplished, the reduction in the tech budget would have been in vain. Companies must find a balance between cutting costs and hiring a reliable and efficient outsourcing vendor in order to take their business to the next level and survive the coming economic crisis.
And for that, it is essential to have the right professionals, with technical experience, excellent communication skills, and who can work in real-time with U.S. teams thanks to overlapped time work.
To make the best decision, it is necessary to seek appropriate advice. You can contact us if you want to learn more about the advantages of nearshore or about our staff augmentation and project outsourcing proposals.