What Does CTOs Need to Tell CFOs About Software Development Outsourcing?Posted by: Beth George | On: 25th Jul, 2019 | Web Development
In many organizations without complete buy-in from Chief Financial Officers, software outsourcing is a hard sell. That’s a real shame because it can be a great way for an organization to get things done – especially if the software isn’t their main priority or if they are just starting out.
It can be a hard sell, but it isn’t impossible. All CFOs can see reason. The Chief Technical Officer – who should be in charge of software development anyway – should be the one to give them the reasons. There are a lot of benefits to having an in-house development team but sometimes that’s simply not the best choice for an organization.
This article will look at a couple of the benefits that outsourced developers have over in-house development teams. They are some good talking points but should really be just a starting point in a more detailed discussion of what your organization needs and what it can afford to pay.
One of the main benefits of outsourced software developers is that they cost your company less. Because some platforms charge a service fee, outsourced software developers can seem more expensive at first glance. They also sometimes have different pay structures like per-deliverable or per-project rather than by the hour. This can make cost analysis more difficult.
One thing to consider is the total expense. When you pay outsourced developers, you pay them their rates and possibly a service fee to a hiring platform. However, when you pay an in-house developer you need to pay for finding them as well as more complicated interview and vetting processes. Depending on the laws in your area, you may also need to pay for things like insurance and benefits.
More than just insurance and benefits, if you have an in-house team you need to have in-house supplies. When you go with an outsourced development team you don’t have to pay to purchase and ensure all of that hardware. If you go with a firm this will probably be part of your fees but if you go with an individual coder or coders, they own their own hardware taking the load off your pocketbook.
Risks of Cost Analysis
The whole idea of cost analysis as the primary factor in hiring decisions is dangerous in its own right. Part of the CFO’s job is to make sure that the organization stays above water. However, hiring because one option is cheaper isn’t always the best decision in the long run. Hiring a cheap developer may mean that you hire a bad developer.
Of course, this isn’t always the case. Some outsourcing developers can charge less because they live in an area with a lower cost of living. Sometimes a great developer will charge low fees because they are passionate about the product. The point is that cost analysis often overlooks important nuances that should be considered when making hiring decisions.
Depending on the location of your organization, finding enough good developers without outsourcing may be impractical. This can be the case for a number of reasons. You may be located in an area that is not enough of a technology hub for there to be a large pool of available developers. Alternatively, you may be located in an area that is a technology hub meaning that competition for developers in your area makes finding one almost impossible.
Whatever the case, going without developers because a CFO insists on using in-house talent can be a waste of time and resources simply because of your location. Naturally, this problem is averted by outsourcing development.
Hiring in-house developers is usually a long-term game. Even if your organization doesn’t sign contracts with them, the time and cost associated with recruitment and training of in-house developers mean that they can tend to stick around.
This isn’t the case with outsourced developers, who can usually be on-boarded and off-boarded fairly quickly. This means that if your resources or needs change an outsourced workforce can be scaled up or down more efficiently than an in-house team.
Depending on the laws where you live, outsourcing software development might make more financial sense when it comes time to do your taxes.
In some cases, when you pay outsourced developers, you can file the cost on your taxes like you would file an expense for purchasing a product. This kind of expense called a “capital expense” gets you a larger return than the kind of expenses that you record when you pay employees even though outsourced developers and in-house developers are doing the same work. This can save you money on your refund compared to writing the cost of paying an in-house developer.
Once again, however, taxes are complicated and you should understand what the laws are like in your area before putting too much weight on things like how much you might be able to get back on a tax technicality.
Core Business Focus
This was mentioned briefly earlier but it’s worth discussing in greater detail. If your organization is not a software-based organization, you may not need in-house developers. This relates back to the idea of flexibility that was described above.
If software development is what your organization does day-in and day-out, you will probably want to have an in-house team – at least, eventually. However, if software development is tangential to your organization’s goals, you might have a single project that you need from time to time rather than having regular requirements. If this is the case, outsourcing projects as they come up can make a lot more sense than having in-house developers.
If you go with in-house developers when software development isn’t a regular need, you have two options. The first is installing a revolving door for all of the developers coming in when you need them and leaving when you don’t need them.
The second is having in-house developers that develop when there is development to be done and that are relegated to menial tasks to earn their keep when you don’t need a developer. Not only will that route probably not pay off, but you’re also not likely to hang on to good developers who are developers a third of the time but secretaries delivery people the rest of the time.
It’s Never too Late to On-board
One thing that not a lot of CFOs understand is that there is room for outsourced developers to roll over their contracts to regularly work for your organization.
This depends on how you find your outsourced developers. If you go with a firm, you probably won’t be able to persuade the developers to leave the firm to work for your organization. However, if you find an individual coder or coders and decide that you want to continue working with them, they may be willing to give up their freelance lifestyle to work for you regularly.
After all, in-house doesn’t have to mean “in house.” These days remote work is blurring those lines more and more. This sort of hybrid arrangement gets you the kind of dedication and reliability that you associated with in-house developers as well as the reduced costs that you associate with outsourced developers.
Whenever you work with outsourced developers, all of your coding and work is automatically backed up because it is not only housed in your property. This kind of goes along with some of the things that we talked about in the “total expense” section. Your hardware, and in this case your software, expenses can be protected because you don’t have “all of your eggs in one basket.”
If you have in-house developers and something should happen to your hardware, like a fire or natural disaster, you risk losing everything. The alternative is to store all of your code online where it is likely to be a lot less secure. Working with an outsourced team means that all of your code exists in another location that is more secure than most internet storage options.
Outsourcing developers also gives you access to a larger talent pool. Coders who usually take in-house work often have a history of having taken in-house work. There’s nothing wrong with this but it also means that they may have a fairly limited experience set.
When you work with outsourced coders, they’ve usually worked with more clients on more projects. That means that they are more likely to bring in more unique experiences and have more creative input.
Making the Call
This article has taken the position of a guide for CTOs talking to CFOs. This may be how the conversation plays out in your organization or it may not be. All CTOs, all CFOs, and all organizations are different. What you have in common, however, is that you all want what is best for your organization.
The decision between working with in-house or outsourced developers should be one that the entire executive board makes together after weighing the pros and cons of both and considering the organization’s unique resources and requirements.