Risks and Hidden Costs: A Study of 26 Outsourced Projects

Despite the current unfavorable outlook of the larger economy, there has been a steady increase in information systems outsourcing by organizations which is projected to reach $97.9 billion in 2012. Ordinarily, organizations outsource their software projects to avoid the risks associated with developing the software internally and to control costs. However, a study of twenty six outsourced projects indicates that such organizations face unique risks and hidden costs that are particular to software outsourcing. This paper describes research done to estimate the effort expended by organizations in overseeing and participating in outsourced software projects and the implications for identifying risks and predicting costs of such projects. For many of the organizations that participated in the survey, uncovering the actual costs and risks of an outsourced project was an eye opener: the hidden costs and risks are surprisingly significant and are typically not managed by the organization.