Offshore Outsourcing Services

Types of Outsourcing

1. In-House Building (No outsourcing)
   Many organizations have their own Information Technology departments catering to their needs of software. These organizations develop the required software and information systems within their own capacity and limits.
2. Product Component outsourcing
   In Product Component outsourcing, the developer is contracted to develop a part of an overall system. In case of large and complex systems where the organization does not have the capacity or required skill to develop a particular thing is outsourced.
3. Process Component outsourcing
   In Process Component outsourcing the customer organization simply contracts for an external group to perform all or part of the functions of one or more of their process steps or components.
4. Software Acquisition (Total outsourcing)
   In this type, the organization outsource each and every activity associated with the software which includes design, development, programming, testing and maintenance .The main reason for such type of outsourcing is to focus on the organizations core values.

 

What are the typical kinds of financial contracts for software development projects?
Financial arrangements for software development payment usually fall into one of three

Categories: fixed-bid, time and materials, or function point contract.

What is a fixed-bid contract?
With that type of contract, the client agrees to pay a fixed amount of money for delivery of fixed software functionality. The positive thing about a fixed-bid contract is that you know in advance what it is going to cost you and it puts pressure on the vendor to be efficient.

The negative side of a fixed-bid is that the vendor needs to build in additional costs to cover the expense of items that might come up. You also may not be as motivated as you should to cooperate with the vendor when he needs questions answered or any kind of assistance because you will think it won't affect the cost since it is a fixed bid.

What is a time and materials contract?
With that type of contract, the client agrees to pay by the hour for the effort put into their project. With this kind of project, you will not have to worry about the issues of what is included and what is not, like you do with a fixed bid. You and your vendor can make decisions and press ahead with the project. It will also be easier for you to have a say in how things are done since you will have to pay the price if the least expensive route is not chosen. A time and materials contract also puts pressure on you to do everything possible to assist the vendor do a good job. This usually makes for better projects. The negative side of this type of contract, however, is that you will not know your exact cost ahead of time - so, if you do not pick a good vendor, your costs can get away from you quite easily. If you opt for that kind of contract, it is crucial that you keep track of what you are asking for and insist on good faith estimates so you can control your budget.

What is a function point contract?
With that type of contract, the client agrees to pay a set cost per function point. Once you agree on a scale of costs per function point, the industry standard Function Point Analysis

can determine the price. Scope changes are automatically priced by changes in the Function Point Count. With this type of contract, a lot of minor changes can result in inordinately high costs for changes. Function Point Analysis might not cover non- functional items properly. For example, your failure to provide required technical information to the vendor may result in additional Fixed-bid or Time-and-material charges that cannot be handled by your Function Point contract.

In a software development situation, how would you describe the optimal client/vendor relationship?
You need to develop a partnership relationship with your software development services company. Designing and developing software requires a lot of creativity and cooperation.

The us-versus-them mentality would not be of great help. Look for a company that will work with you over the long process of development to make you be a real success in your marketplace, and not just promise to meet your current need at the lowest price.

A good working relationship is like any good relationship -it takes time and efforts to develop. As both sides learn to know each other's needs, tastes and requirements you will be better able to work together to produce the software you really need.

How much "free consulting" can I expect a potential vendor to spend while preparing a project cost estimate and plan?
The software industry has just started to build up experience. There are still no standards set . Things have yet to be standardized to the point where you can give a vendor a written specification and expect your needs to be fully met and understood and a price to be quoted.

To do a proper job, your software vendor will require to spend quite some time, at your expense - to work through your requirements and specifications with you, so that they can understand your needs fully and precisely, and be able to provide a credible cost and project plan. Both sides benefit from a better time-and-cost offer.

Sometimes the companies in need of a software outsourcing team would issue a RFP (Request for Proposal) and expect vendors to do a lot of free upfront consulting to gain sufficient understanding to be able to prepare a proper professional proposal. This approach usually produces results equally unsatisfactory to both client and vendor.

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