Choosing In-House vs Outsourcing Software Development

Outsourcing Software Development

Written by Roxanne

May 11, 2023

Not surprisingly, billions of dollars are spent on software development every year and it is a market that shows no signs of slowing down. A key driver of this expansion is the increasing desire for flexible workspaces to promote productivity, which is to be expected given the surge in remote work. Whatever your motivations for developing software, your organization is bound to thrive by embracing the trend.

Whether you are a seasoned business or an emerging startup, organizations often debate whether to develop software in-house or outsource it, and rightly so. Developing software is not something to be taken lightly. When done right, it is a major commitment that demands a considerable amount of time, talent and resources. Making the best choice can be a difficult decision, as each solution has their pros and cons.

In order to make an informed choice, we will look at all the factors involved in deciding whether your next development effort should be in-house or outsourced.

Weighing the options: in-house software development vs outsourcing

When comparing the two approaches, one of the key differentiators is the aspect of ownership and management. Essentially, the distinction lies in your amount of control and involvement. Let’s dive deeper to explore all of the implications and considerations.

What does in-house software development mean?

In-house software development, as the name implies, is the practice of developing software within your organization utilizing your own resources. Your employees, who are usually hired on a full-time, permanent basis, will be responsible for the project and will work directly under your supervision. You could call it the conventional approach.

What does it mean to outsource software development?

Hiring external software professionals to supply development services to your organization, usually through a third-party, is called outsourcing. Full responsibility is assumed by the experts for writing the code, and typically for managing the project as well.

Three common development collaboration models are:

Project mode: The total cost of the project is agreed upon prior to development, together with a well-defined scope of work.
Time and materials: You are invoiced for actual resources used to develop your project.
Dedicated team: You pay a monthly fee based on the hourly rate of each of the team members.

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Exploring the drawbacks of each approach

First and foremost, it is worth noting that each approach has its own set of challenges. These are likely to be the greatest influence on your decision to hire in-house or outsource your software development project.

In-house software development: the challenges

Potentially costly
Developing software in-house has the potential of being extremely costly, as it requires hefty investments in hiring and training staff, providing salaries and benefits, as well as acquiring hardware and software.

Limited resources
The resources you have available might limit your in-house software development. The size of your team, their skills and the tools they have at their disposal can all affect the quality of your code and the time it takes to deliver it.

Time constraints
Developing software in-house can be time-consuming, particularly if your team is new or lacks experience. Having to find developers or train existing staff might cause delays in development, prolonging your launch date.

Tedious recruitment procedure
The search for qualified developers can be a lengthy and costly process, particularly for specialized projects. You will need to dedicate notable resources to attract, screen and interview candidates, adding to your overall workload and responsibilities. Additionally, finding suitable developers may prove to be a challenge. The industry’s rapid growth has created a skills gap, resulting in a shortage of skilled professionals.

Outsourcing software development: the challenges

Limited control
Perhaps the biggest disadvantage is that you may have little control over the development of your software. Although you will agree to correspond with the outsourced team on a regular basis (daily, weekly, or at the conclusion of a sprint), you may not be able to contact them directly. This might make tracking progress difficult and result in communication failures.

Little flexibility
Many vendors adopt agile methodology and work in sprints. This means they follow a set schedule and have fixed periods of development, typically lasting about two weeks. Therefore, unless absolutely critical, most updates or changes are added in the next sprint.

Differences in culture or communication
If you outsource development to a foreign country (called offshoring) you may be presented with differences in language and culture that could hamper the development of your software, leading to confusion, quality control issues and setbacks.

Exploring the perks of each approach

Despite their challenges, in-house and outsourced software development both have noteworthy advantages.

In-house development: the benefits

Complete authority without restriction
An in-house team gives you ultimate control of the development of your software (vital in some situations). You have the ability to make changes, respond to issues, supervise tasks and track progress at your full discretion.

Unhindered collaboration
Your in-house development team is able to collaborate with you and other departments directly within your organization, allowing for greater flexibility and teamwork when needed. Employees working together in the same office and time zone can minimize setbacks and allow you to make decisions or perform changes quickly.

Long-term investment
By investing in an in-house team, your organization can acquire additional skills and knowledge, as well as enhance development procedures over time. Along with a solid understanding of your code and how it works, your development staff will be closely integrated into your organization, sharing the same values and motivations to achieve a common goal.

Outsourcing software development: the benefits

Outsourcing is a proven strategy for reducing development costs, especially for small and medium sized businesses with limited resources at their disposal. Offshoring reduces the cost of labor and has minimal additional expenses, making leveraging the expertise and resources of external vendors a cost-effective solution.

Accelerated and efficient development
External vendors tend to be more experienced and knowledgeable in developing software, saving you precious time by speeding up development, allowing you to launch your products quickly. Most outsourcing vendors also provide you with a dedicated project manager to efficiently handle every aspect of your project, including day-to-day team management.

Access to versatile talent
Outsourcing companies have fast, direct access to a large pool of talent, allowing you to quickly augment or scale your team as required. If you require specific expertise, or need to reduce the size of your team, you are able to add or remove members at relatively short notice.

Fewer commitments, more focus
If your project is likely to be completed within a few months, there is no need to hire a permanent development team. If you outsource, you can hire experts without long-term obligations and commitments, such as fixed monthly salaries and employee benefits. Additionally, delegating non-core tasks to an outsourced team allows you to continue to focus on your core competencies.

Crucial considerations before choosing between in-house and outsourcing

There are essentially five factors to consider when deciding whether to develop your software in-house or outsource. Before arriving at a decision, you need to ask yourself these questions:

  1. What is my budget?

As with most business decisions, budget is a primary consideration. Investing time and money to establish a completely new department within your organization to handle in-house software development is a costly task. On the other hand, the simple pricing models offered by outsourcing vendors can be an attractive and cost-effective solution.

  1. What are our expertise?

Another important factor to consider is expertise. In-house software development allows you to build expertise and knowledge within your organization, which can lead to more efficient and effective development processes over time. Outsourcing allows you to access the expertise of external vendors, who may be more qualified or specialize in certain areas.

  1. How much control do we need?

Control is another critical factor to consider. In-house software development provides you with complete control, allowing for greater flexibility and collaboration. When you outsource development, you may find that you have less control over the process, potentially resulting in problems communicating, collaborating, and controlling quality.

  1. How much time do we have?

You should also consider the amount of time you plan to dedicate to the project, and how quickly it needs to be developed. In-house software development can be a time-consuming process, especially if you need to source and build the team from scratch before writing a single line of code. If you need to develop something quickly, outsourcing is probably your solution.

  1. How much risk are we willing to take?

You must consider the risks inherent in both approaches. Developing your own software in-house requires a significant commitment of time and resources, with no guarantee of success. Outsourcing software development is also a risky proposition, as you have to rely on an external vendor to develop high quality, functional software (but this risk is typically mitigated by selecting a reputable vendor).

  1. Which project management methodology do we prefer?

Project management methodology is another key consideration. In-house development teams can adopt any methodology they see fit, however, outsourced teams are likely to have a set processes and procedures. Popular methodologies for reputable vendors are: agile, scrum and waterfall. Understanding their processes and management styles will give you a good indication if they are the perfect fit for the project you have in mind.

  1. What tech stack are we going to use?

As with methodologies, the tech stack used by your in-house or outsourced team is a crucial factor to consider. You should research and select the ideal tools and technologies (ie. the tech stack) that you would like to use. If opting for an outsourced team, you need to ensure that they are willing and able to work with your choices.

Creating an in-house software development team can be the right choice if you:

  • Need to invest in long-term growth.
  • Want more control over the development process.
  • Wish to make use of existing resources.
  • Require highly advanced or complex software.
  • Need to develop solutions with enhanced security.

Outsourcing your software development project can be the right choice if you:

  • Are budget-conscious and want to keep expenses to a minimum.
  • Want to speed up development and get products to market quickly.
  • Need to hire talent without making any long-term commitments.
  • Want to prioritize primary business functions and delegate all other tasks.
  • Require a specific expertise that you do not have access to.

Key takeaway

As you can see, in-house and outsourcing software development each have their benefits and challenges. The decision to choose one over the other is fairly subjective, and should be based on your particular requirements.

Several key factors should be considered during the decision-making process, especially regarding budget and resources. Only after you have evaluated each approach in terms of the challenges and benefits will you be able to determine which one is ideal for your organization.

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