Cost Estimation of Globally Outsourced Is Development Projects

Global outsourcing – also known as offshore outsourcing -is generally dual sourcing involving both offshore and onshore activities because certain activities such as requirements analysis have to be performed onshore in consultation with users. The amount of onshore work or offshore work depends on the nature of IS being developed and vary among IS projects. Vendors charge higher hourly rate for onshore work compared to offshore work because the vendor has to incur travel and living expenses for the developers, and pay prevailing wages in the high wages country. An accurate estimation of the mix of onshore/offshore activities is essential to determine the cost of IS development, profit for the offshore vendor, and savings for the outsourcing firm. Such an estimate is critical to successful project management. No literature exists for cost estimation of IS projects with users and developers in a distributed environment such as in offshore outsourcing. This article describes various characteristics of an IS project that make certain activities amenable to offshore and certain other activities requiring onshore work. The article also describes how to determine the mix of offshore/onshore activities based on such characteristics and use the mix to estimate the system development cost accurately.