A topic heavily debated amongst high-level IT executives is whether or not it is better to outsource projects via a managed service model or to add off or near shore personnel to the internal development staff in a staff augmentation model. This article looks at the benefits and challenges of each and provides thoughts to consider for both.
Nearly all of AIQ’s clients have one, the other, or a combination of these programs. Why? Several reasons. Clients are building and transforming faster than they can staff. The costs are too high and the time it takes is too long. The needed resources may not be available in their local market. They wish to “follow the sun” in order to develop and transform 18-24 hours a day, not just the average 8:00 – 5:00 US workday, amongst other reasons.
But how do you pick one option over the other? What are the benefits and risks of each program? Let’s discuss.
Managed Service or Project Models. Managed service models are quickly becoming the preferred model of the offshore services world. Having a client put together a package or book of work, send it over for a quote, gain approval, and then have it sent into the production queue allows the Outsourced Service Provider to quote a specific project, predict the amount of revenue the project is worth, time for completion, and put the work into its production schedule along with other similar work that may also be in queue or with talent that can work similar projects at the same time. This allows for efficiencies that staff augmentation cannot. For example, if a person or group is working on a project for one client and either that project needs to go back to the client for approval, changes, or needs to be worked on by the client’s own IT staff, these same resources can immediately move to another client’s project with no downtime. Thus, money is saved for both clients compared to the staff augmentation model where the resource(s) would be now waiting for direction while continuing to be paid by the client.
In addition to generally being less expensive, managed service models do require some project management, but no resource management. This reduces overhead, HR, and other soft costs and requirements for the client. Managed Service projects work very well for IT structures that clearly understand their roadmaps and can readily identify the work they need to have performed.
There are, or can be, challenges to be aware of going into a Managed Service project. The first is a clearly defined scope for a project. If IT knows what it needs and can put together a solid spec prior to discussing it with the outsourcer, this will greatly reduce the time it takes for the outsourcer to project the cost and will, more importantly, ensure that the project outcome is as expected. No one wants to order a filet mignon for dinner and end up with a tofurky, and vice versa. Managed projects must be scoped thoroughly upfront, discussed with the outsourced team prior to initiating the project, and documented in a contract in order to keep from having project scope changes, increased costs, and elongated timeframes.
Another key to a successfully managed project is to ensure that a project manager is assigned on the client side to have daily/weekly check-in calls throughout the project timeframe and make sure questions that the outsourced team have are answered timely (we recommend that no more than 24 hours go by at the very maximum) and that the project is adhering to the agreed upon timeline. If good project management is not in place, the offshore projects can drag on and impact the development roadmap timing.
A last item to ensure is also on the front end of the project. It is critical to ensure in the contract that the work product that is created on your behalf is actually yours. There are several different contracting models (which we will address in a separate article) but what is most important is that you understand what agreement you have entered into, who owns the IP at the end of the work and what, if any, perpetual licensing is in place so you can use the work forever.
Staff Augmentation (a.k.a. Staff Aug) Model. The Staff Augmentation model exists everywhere. Onshore, near shore, offshore, in house, from home, anywhere. Staff Aug is primarily used to quickly supplement a team of any kind. For IT, Staff Aug can be used for development, QA, QC, programming, and many other areas to quickly ratchet up production.
For clients, Staff Aug (particularly off/near shore) can bring rapid resources to bear and also the benefit of working in time zones that either provide nearshore convenience of working with resources that can be online at the same time as the IT team in the US or offshore for the aforementioned “follow the sun” model wherein work can be done in more of an 18-24 hour workday model. This is a particular benefit if you have a project manager (ideally located where your IT development efforts are led) that can work an overlapping hour or two in order to answer questions for both teams and tee up the work for the handoff team taking over the local morning shift.
Another advantage of using a Staff Aug model is there is less concern over ownership of IP. Strong NDA and agreements need to be in place prior to starting a project, but typically, offshore team members work much the same as employees, only they are paid by a different employer. Direction and management are provided by the client. The team’s work is set out just the same as any other employee and typically is performed exactly the same as the onshore employees. This means that work can be changed up at any time and managers can direct the offshore teams in any way they wish to accomplish the tasks of the day.
This model also comes with challenges. First, the manager in charge of the offshore team must not have an “out of sight, out of mind” mentality or the entire model goes south. Whoever is in charge must be capable enough to ensure the on and offshore teams are working together, in sync, and answering each other’s questions timely or you’ll end up with a tofurkey stuffed with a filet mignon. As previously mentioned, a strong project manager that overlaps both of the time zones can also help the cause. Strong management can also help to avoid cost overruns by ensuring both teams are working together timely and efficiently. A challenge in many parts of the offshore world are national holidays and mandatory government pay. In some countries there are 20+ mandatory paid holiday and government paid days off that clients are required to pay in order to hire the team members in those countries. It is important to factor in these costs when determining the total overhead cost per team member and also what it does to your design roadmap timing if your resources are off work for many mandatory holidays.
Resource turnover can also be an issue in the Staff Aug model. If a resource on the team leaves for personal reasons, gets a better offer elsewhere, or any other reason it can cause delay to the work as a new resource needs to be sourced and trained. It is important to find an outsourced partner that has at least some free resources on their “bench” that can be immediately pulled into a project in order to not lose too much momentum while sourcing another team member.
In conclusion:
Managed Service Model
Benefits:
- Costs can be more certain at the start of the project, less budget overrun
- Less/no overhead management of offshore resources
- Suppliers are willing to quote the project more aggressively as they have better control of costs on their end
Risks:
- Client must spend the time to thoroughly spec the project upfront to ensure quality output and to avoid cost project change orders equating to cost overruns
- Less/no interaction with offshore team members which may lead to mistakes or changes that are needed before the project is complete
- Care must be taken in contracting so that the Client understands fully who owns the Intellectual Property at the end of the project
Staff Augmentation Model
Benefits
- Fast to get up and running, many outsourcers have benches of available staff that can be started on a project right away
- Less concern about IP ownership
- More control and direct contact with the outsourced team over the work being performed on Client’s behalf
Risks - Wasted time ($) if resources aren’t managed properly
- May take longer in some cases if resources deployed on the project aren’t the right resources
- Turnover of resources can also add cost if projects are stopped/started while having to train new resources
- Holiday/Country mandated hours may increase cost and reduce production time depending on the rules in the country.
Both options or a combination can be a great way to transform and build your roadmap faster than onshore alone. If you prepare properly, you can save money and double or triple your output in the same timeframe. AIQ has extensive market data and expertise that will help you source at the right price, in the countries and with the partners that meet your needs and can help you qualitatively compare options and predict/trend cost/performance differences. In the same way that you can outsource your IT projects, you can also rely on AIQ to enhance and accelerate your staff aug and services projects. Get in touch if you’d like to discuss it or if we can help.
This article was authored by Ashli Buxton, CAO, at AIQ.CO