How to Manage Software Development Outsourcing?

How to Manage Software Development Outsourcing: Must-know Tips

Does the question of outsourcing your software development or not give you sleepless nights? 

If so, we understand completely. 

While many companies outsource software development, it has its fair share of challenges. If not planned or managed properly, it can create more problems for you than you started out with. 

Software outsourcing, regardless of the size of your organization, isn’t just about seeking out software development companies and picking one. 

Efficient software development requires coordinated efforts from the technical, project management, quality testing, and assurance teams—and you need an A-team to solve your software problems. 

If you’re trying to decide whether software outsourcing services make sense for your organization or looking to optimize your outsourcing strategy, keep reading. 

We explore comprehensive strategies and insights that will successfully guide you through managing software development outsourcing.

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What is Software Development Outsourcing?

Software development outsourcing involves engaging an external software developer or development company to manage all or part of a software development project. 

This approach is often adopted to leverage specialized skills that are absent in-house, reduce operational expenses, and free up the internal team to focus on core business tasks.

Outsourcing services can vary widely in scope and range from building and deploying entire software solutions from scratch to undertaking specific tasks within a larger project. These tasks might include user interface design, software testing, security testing, system integration, etc.

The tech landscape is rapidly changing, and remote work is becoming the norm. At this time, tapping into a global pool of resources through outsourcing services allows companies to gain access to top industry experts without sacrificing flexibility and scalability. As a result, companies that outsource software development can accelerate their growth and innovate more effectively by focusing on their core capabilities.

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The Process of Software Development Outsourcing

1. Assessing project requirements

Before you choose a software development company, have clarity on the requirements and the deliverables you expect, the timelines for delivery, and the project’s overall scope.  

  • Do you need to build a new solution or want to add new features to an existing solution?
  • For whom are you developing or upgrading the software? What problems will software outsourcing solve?
  • What are the constraints of your in-house development team? 

Factor in cost, project complexity, internal expertise, and resource availability to discover the stumbling blocks in your software development process.

2. Evaluating potential software development outsourcing companies

Your vetting process for the outsourcing service provider involves the following steps:

  • Compile a list of relevant software development companies and assess their domain knowledge, experience with projects similar to yours, and prior work history; their website should give you basic information about them
  • To gauge their industry reputation, check their customer ratings and reviews online—Google My Business, TrustPilot, G2, and Capterra are good places to start

When you’re in talks with an outsourcing company, here are some questions you should go over:

  • What’s the hiring process for their software engineers, designers, testers, and others involved in building and implementing the software development project?
  • What is the technical expertise of their development team and the experience of developers who’ll be working on your project?
  • Have they provided software development services to companies similar to yours?
  • What software development tools do they use? 
  • Understand the pricing structure, whether it’s fixed-price, time and materials, or another model, and what’s included in the software development contract
  • Inquire about their quality control and testing processes and security measures when third-party service providers are involved (such as hosting the prototype, product, and the tools the team would be using) 

To simplify the selection process, ask each candidate for proposals that detail their project approach, timelines, and cost breakdown. Additionally, request demonstrations or prototypes to better understand their capability.

3. Establishing the partnership

After selecting the outsourcing company, the next step is establishing the partnership. This involves drafting agreements, such as:

  • Non-Disclosure Agreement (NDA): Outlines what’s considered confidential, what isn’t, the rights over intellectual property, and provisions for terminating the agreement
  • Master Services Agreement (MSA): Includes clauses on project audits, payment terms, dispute resolution, and confidentiality
  • Statement of Work (SOW): Specifies project deliverables and roles and responsibilities
  • Service Level Agreement (SLA): Details industry-specific KPIs, communication protocols, and terms for support, maintenance, and hosting

A properly drafted contract acts as a roadmap for outsourced contractors and safeguards you from bearing the brunt of losses if things go wrong. 

4. Managing the outsourced work and project ownership

At this stage, you must ask the software development company how they will maintain quality, who owns the project, and how to ensure productive communication. 

The biggest downside of outsourcing software projects can be the lack of ownership. For example, if the outsourcing partner has hired three programmers on a contractual basis, ownership can become dicey. Without a project manager or a consistent team accountable for the work, timelines and deliveries will be messed up. 

Ensure a consistent project management team is accountable for the development, understands the process, and is present on emails, video calls, and regular check-ins. The project managers are facilitators between your team and the developers. They document the functional specifications and break down the requirements for the software engineering team. 

The software development outsourcing partner should include the project management tools they use to communicate with you and the remote collaboration tools or contractor management software they use to communicate with stakeholders, discuss bottlenecks and solutions, and make necessary adjustments in real-time or asynchronously.

ClickUp Agile Sprint Planning Template is an excellent resource for breaking down the software development life cycle into smaller, manageable tasks and setting deadlines against those. This template can visualize tasks and dependencies and track progress across all stages of the development cycle. 

Plan sprints, track progress, manage resources, and visualize dependencies with the Agile Sprint Planning Template by ClickUp

💡Pro tip: Use software development templates to assess the overall roadmap, including product scope and requirements, covering the process, documentation, and technology requirements across the two teams.

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Pros and Cons of Software Development Outsourcing


1. Cost savings

Software development outsourcing is cost-effective compared to setting up and managing an in-house team of developers. According to PayScale, the average yearly salary of a developer in the US is $78,202.

Outsourcing reduces direct salary expenses and associated costs related to recruitment, overheads, and training. 

Let’s quickly compare the cost incurred for an in-house vs. outsourced development team: 

Parameters On-shore software development in the USA Outsourcing software development (off-shore) 
Team size 
Man-hours needed 600 600 
Average cost per hour for a mid-level software engineer $70/hour $25/hour 
Hiring, onboarding, and training $4000 0
Health benefits and insurance $60000
Taxes and overhead costs $5000 
Total estimated project cost $267,000$90,000
Hiring an in-house software development team vs. when outsourcing software development

2. Access to the global talent pool

When you outsource software development, you’re not limited by your geographical location and can work with experienced developers from anywhere in the world. Your primary criteria for selecting an outsourcing company are their skills and competencies, meaning you can handpick developers with the most experience in projects similar to yours.

3. Improved product quality

Outsourcing software development can significantly enhance your product quality by allowing you to incorporate cutting-edge technologies and industry best practices that may not be available in-house.

For example, if you want to include generative AI in your product, consider hiring an outsourcing agency to integrate large language models (LLMs). This way, your in-house development team does not waste time figuring out how to implement new technologies, whereas the outsourced development team with specialization integrates the feature quickly. 

4. Faster time to market

Unlike your in-house team, which can be juggling between developing multiple products and communicating with different teams, your outsourced software developers will primarily focus on building your product. This dedicated approach reduces time to market without compromising on software quality.

5. Focus on core business

Outsourcing enhances your ability to drive primary organizational operations by delegating technical development tasks to external specialists. That way, you can devote more time and energy to improving your team’s competencies, refining your strategic objectives, and pursuing growth opportunities.


1. Communication barriers

Working with developers from different countries and outsourcing locations can be challenging because of language and cultural barriers. There’s a risk of miscommunication and misinterpretation of software development project goals or project vision, leading to errors and delays in software development.

Differences in time zones can hamper real-time collaboration and quick resolution of issues.

Solution: To bridge these gaps, you should select an outsourcing agency with employees proficient in your organization’s primary language who are closer to your time zone or have some overlap of working hours. 

2. Dependency

What if your outsourcing partner fails to build a product according to your specifications or if their circumstances change and they dissolve the partnership? 

It will delay development and increase the cost, and you’ll have to find a new service provider who can take over where the previous outsourced development team left off. 

Solution: When companies outsource software development, they add a communication clause that clearly states the course of action if things go wrong or the project fails to reach completion. 

3. Privacy risks

Data is an essential asset for any organization. If your chosen software development company does not have an ironclad data security policy, you could be at risk of a data breach.

In addition, privacy and data security laws vary across countries. For example, GDPR laws in the EU and HIPAA laws in the US. Therefore, your chosen company must be familiar with all the relevant laws and have proper systems to safeguard your information.

Solution: One step you can take in-house is to limit access to sensitive data strictly to those who need it to perform their job and use encryption and secure channels for data transmission.

4. Code quality issues

Software outsourcing companies may have differing levels of expertise and interpretations of project requirements.

This can result in inconsistencies in the codebase, making the final product difficult to maintain, scale, or integrate with existing systems. Such issues potentially increase the long-term costs of bug fixes and updates.

Solution: To manage these risks, implement regular code reviews by your in-house senior developers or consulting external auditors who can inspect the code quality.

5. Potential hidden costs

While outsourcing is pursued for cost benefits, hidden costs can negate the savings. For example, you may need to spend on additional training to bring the outsourced software developers up to speed with your organization’s quality or technical standards.

Or, there could be freelance project management overheads involved in coordinating with them across different time zones.

Solution: Outline and set aside a budget for all foreseeable costs in the contract, including management time, transition expenses, additional software/tech stack costs, and potential penalties for non-compliance.

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Software Development Outsourcing Models

Software development outsourcing isn’t a one-size-fits-all endeavor. Different models cater to varying project needs, scales, and management styles. Here are the most popular outsourcing models:

1. Project-based model

The software development company is responsible for undertaking a complete project within the agreed cost and time parameters, from initial planning to final delivery. This is the most conventional and hands-off approach to outsourcing.

It requires less day-to-day involvement from you. You’re only involved in key decisions like which features to develop. The implementation is managed by the vendor’s project manager, who provides you with updates and gathers feedback to guide the project.

This model is suitable for one-off projects with a clear end date.


  • Reduced management overhead for clients
  • Clear accountability on the vendor’s side


  • Less control over day-to-day operations
  • Limited flexibility for changes once the project starts

2. Staff augmentation

This model involves hiring a team of developers and testers from an outsourcing vendor to temporarily supplement your current team’s needs, usually for a specific project.

The outsourced team reports to the in-house management and is considered an extension of your workforce. This model suits organizations with established in-house software development teams with expertise in project management collaboration with an external team. The internal and external technical talent work in partnership on the software project. 


  • High integration with internal teams
  • Flexibility in managing and directing the augmented staff


  • Requires strong project management capabilities

3. Dedicated team model

Here, you hire an outsourced team of software developers to handle some or all of your projects. They’ll work alongside your current team and report to your project manager. However, unlike staff augmentation, they’re not necessarily blended into your in-house team.

The dedicated team may establish its own methodologies and workflows, especially if they handle a distinct project segment. This model is effective for long-term projects where ongoing work is expected.


  • Consistent team working on your projects
  • Better scalability and flexibility in team dynamics


  • Requires more effort in initial setup and alignment
  • Higher dependency on the outsourced team’s methodologies

4. Fixed-price model

The fixed-price model involves defining the project scope and a list of resources required to complete the work. You pay a predetermined price, regardless of the time and resources the outsourcing company expends.

This doesn’t leave any room for flexibility or later add-ons and is thus best suited to small or medium software development projects where you already know exactly what you need. However, changes or unforeseen challenges in the project can lead to additional negotiations or costs.


  • Predictable budgeting
  • Clear deliverables and timelines


  • Risk of quality compromise to meet budget constraints
  • Inflexibility to adapt to project evolutions

5. Time and material

In this model, everything is flexible. You can modify the project scope, extend deadlines, and adapt the workflow as and when needed, paying for the time spent by the outsourced team monthly.

This is ideal for a complex software project where the scope will likely keep changing as new inputs come in—for example, user feedback. However, bear in mind that costs can run high with this model. It’s viable if you monitor progress closely and manage changes efficiently.


  • High adaptability to changing project needs
  • Payment reflects actual work done


  • Potential for higher costs without careful management
  • Requires close monitoring and efficient change management
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Managing an Outsourced Software Development Team: Best Practices

Here are four tips for managing your outsourced software development team effectively:

1. Implement an onboarding strategy and kick off the project

Just as you onboard a new employee to set the tone for their tenure at your organization, familiarize your outsourced software developers with your company culture, project expectations, and relevant operational processes to ensure they integrate smoothly.

Share essential project documentation, including information like technical specifications, coding standards, and quality assurance measures. Ensure the outsourced team understands everything; if they don’t, solve their issues as soon as possible.

A kick-off meeting can help everyone get on the same page and set the stage regarding roles, responsibilities, and expectations. Share examples and best practices to help the outsourced team understand the expected level of quality.

2. Communicate your plans well and often

 Regular and effective communication helps keep complex projects on track, within budget, and as per the required standards.

ClickUp for Software Teams simplifies assigning tasks, creating deadlines, and setting goals or milestones in a visually referenceable way on a single platform.

Everyone involved in the software development project can see what’s expected of them and the timelines, leaving little room for confusion. You can even group and categorize all tasks by adding unique descriptions—keeping progress, dependencies, and blockers clear—for everyone.

Using ClickUp for software teams, you can showcase your product requirements to your internal and external stakeholders
Using ClickUp for software teams, you can showcase your product requirements to your internal and external stakeholders

Next, fast-track your development plans and documentation with ClickUp Brain. For example, you can design a test plan for a pre-software launch or draft action items and subtasks based on the context of your goals. 

A case in point: In this PMO brief, ClickUp Brain is your writing assistant, filling in the project brief, adding timelines and deliverables, and assigning tasks to team members—saving your project managers’ time and efforts.

Using ClickUp Brain to write a project brief
Use ClickUp Brain to generate project briefs to speed up your workflow

In addition to implementing the best project management tools for the job, such as ClickUp, Jira, or Teamwork, you must establish multiple ways for staying in touch—for instance, you can use:

  • Gmail for formal communications
  • Slack for instant messaging
  • Zoom for video calls

You can also use ClickUp, which integrates all three above into one platform.

Proactive communication expedites issue resolution, even outside regular business hours.

3. Organize cross-functional team workshops

Follow a leadership hierarchy with the software outsourcing company so that they know who to escalate issues or questions to. They should be able to rely on you for business context, data permissions, and technical guidance.

To streamline the process, assign a dedicated project manager who can regularly check in with the outsourced software developers and oversee the project’s progress.

Your in-house software developer working on an outsourced project must have regular virtual stand-ups, coding sprints, and collaborative problem-solving sessions with the outsourced team to refine requirements and discuss implementation strategies.

Assume there may be work style differences between your in-house and outsourced teams. Therefore, over-communicate your workflows and best practices to keep doubt at bay.

4. Check in at regular intervals and share constructive feedback

Problems are inevitable during software development, regardless of how well-planned your approach is, how skilled your team is, and how much experience the software development company possesses.

However, problems don’t always involve fixing code bugs or resolving UI/UX flaws. They can be related to poor communication, missed deadlines, or improper data use.

In an in-house setup, developers on your payroll can provide a swift resolution, working your hours, even with a hybrid work arrangement.

But when you choose an outsourcing partner in a different time zone, you must have a system to identify, inform, and solve issues as they crop up to avoid additional expenses or delays in software development.

Frequent check-ins help discuss challenges, work quality, and deadline management. ClickUp Chat brings team communication together in one space. Share updates, link resources, and collaborate easily.

Add anyone to work conversations with @mentions and assign comments to keep both teams moving on action items.

ClickUp Chat
Encourage better communication between you and your team with ClickUp Chat

Moreover, your in-house team should provide honest feedback, relevant support, and guidance. For example, if the outsourced software developers struggle with a particular technology or process, arrange a training session to walk through it.

Whatever the problem, encourage the outsourced software developers to communicate openly and assure them that their concerns are valid.

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The Future of Software Development Outsourcing

Let’s examine five technologies that are significantly influencing the future of the software development industry.

1. Agile and DevOps methodologies

Agile ensures that projects remain flexible and responsive to client needs and market changes in software development outsourcing. No wonder it’s still used by 59% of organizations for building customer-centric products with a clearly defined business value.

Frameworks like Scrum enable you and your outsourced team to continuously refine and prioritize features based on honest user feedback by employing iterative development and regular feedback loops.

Similarly, DevOps enables faster delivery by combining software development (Dev) and information technology operations (Ops) into a single continuous process. It allows teams to identify and address issues in real time, automate workflows, and streamline deployment processes.

2. Internet of Things (IoT)

The IoT market continues to expand, with Statista projecting that the number of IoT devices worldwide will reach 29.42 billion by 2030.

As organizations increasingly integrate IoT technology into their products and services, they’re outsourcing development to access specialized skills and accelerate their go-to-market strategies.

This trend enhances data analytics, device management, and network security capabilities, allowing you to build more sophisticated and interconnected IoT solutions that deliver superior customer experiences.

3. Robotic Process Automation (RPA)

RPA helps build better products by automating repetitive, process-driven tasks like code generation, data entry, and user feedback compilation. This significantly reduces the risk of human error and increases efficiency.

RPA tools can be particularly effective in regression testing, where automated bots continuously execute predefined test cases on the software being developed. This ensures that new code additions or changes do not unexpectedly disrupt existing functionality.

4. Cloud-native development

Cloud-native applications are designed and developed specifically for cloud environments. It leverages the full spectrum of cloud services and features, such as microservices architecture, containers, serverless functions, and dynamic orchestration.

With continued reliance on digital transformation, the demand for cloud-native applications is expected to surge, providing numerous opportunities for outsourcing companies to build scalable, resilient, and manageable software without direct infrastructure oversight.

5. Generative AI

In outsourcing, especially in custom software development and maintenance, generative AI-driven analytics can predict potential system failures or identify areas of improvement, enabling proactive maintenance and optimization of software applications.

OpenAI’s Codex, which powers GitHub Copilot, is an example of AI assisting developers by suggesting whole lines of code or complex algorithms. This improves developer productivity and potentially reduces the need for extensive coding teams.

Each technology brings distinct advantages to software development outsourcing, enabling companies to stay competitive in a dynamic landscape. Understanding and integrating these technologies can enhance your organization’s outsourcing strategies and achieve superior outcomes.

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Expand Your Horizons With Software Development Outsourcing

Invest the time upfront to understand what you need and detail it in a scope statement so that you can communicate the requirements when scouting for suitable software outsourcing services providers. 

While formalizing the outsourcing agreement, ensure the deliverables, budgets, and timelines are clearly laid out to save headaches later. 

You should also have a strategy for managing the outsourced software developers with efficient communication tools and processes in place.

Remember: outsourcing is a relationship, not a handover deal. The more transparent and communicative you are, the more successful your collaboration will be.

Collaboration and project management tools like ClickUp can help at every stage of outsourcing software development—starting from listing out requirements in pre-built templates, using real-time chat to communicate with the external team, regular check-ins, and using ClickUp Brain while writing software project briefs and assigning and tracking tasks. 

If you’re looking to make your software development process more efficient, sign up on ClickUp for free

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Frequently Asked Questions (FAQ)

1. Is outsourcing software development a good idea?

Yes, outsourcing software development is a good idea if managed correctly. It offers access to global talent, cost savings, faster time to market, and the ability to focus on core business functions.

However, it comes with challenges like communication barriers and product quality control. Success depends on choosing the right outsourcing company and effectively managing the relationship to mitigate potential risks.

2. How do you successfully outsource software development?

Successfully outsourcing software development requires planning and execution. Start by defining your project requirements and selecting an outsourcing company with the right skills and a proven track record.

Establish strong communication channels and regular check-ins to monitor progress. Additionally, ensure contracts are detailed in scope, timelines, and expectations to avoid misunderstandings and manage the project actively to maintain quality and adherence to deadlines.

3. What is outsourcing software development? 

Outsourcing software development involves hiring a third-party service provider to handle end-to-end software development or parts of the software. The services can range from managing business operations and maintaining software for your customers to accessing specialist skills for developing new products and capabilities to speeding up the time-to-market.

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