When is a low bid price a threat and when an opportunity for your project? Analyzing projects in an online marketplace for outsourcing software development

Data from an online marketplace for small-scale software projects suggest that clients tend to avoid selecting providers with a lower than mean bid price. This behavior reflects that selecting a low bid price provider actually increases the risk of project failure. Knowing when a low price is an opportunity and when it is a threat to a project is essential. This was demonstrated in a study in which we selected six providers with various bid prices and found that the provider with clearly the lowest bid price had the highest productivity and the best quality of work. That study also showed that the traditional skill assessment methods were not sufficient for the purpose of separating providers with very different productivity and quality characteristics. Data from the online marketplace suggest that the use of “trialsourcing” improves provider skill assessments and selection.