PSDA 2

Identification of various factors required for making a project

In-House vs Out sourcing

Submitted By:
Abhinav Prakash
A0101920263
MBA Section B
Roll No. 60

Submitted To:
Dr. Priyanka Aggarwal
 Introduction:
Outsourcing
Outsourcing is a business practice in which a company hires a third-party to perform tasks,
handle operations or provide services for the company. The outside company, which is known
as the service provider or a third party Provider , arranges for its own workers or computer
systems to perform the tasks or services either on site at the hiring company's own facilities
or at external locations.
Companies today can outsource a number of tasks and services. They often outsource
information technology services, including programming and application development, as
well as technical support. They frequently outsource customer service and call service
functions. They can outsource other types of work as well, including manufacturing
processes, human resources tasks and financial functions such as bookkeeping and payroll
processing. Companies can outsource entire divisions, such as its entire IT Department, or
just parts of a particular department. Outsourcing business functions is sometimes called
contracting out or business process outsourcing. Outsourcing can involve using a large third-
party provider, such as a company like IBM to manage IT services or FedEx Supply Chain
for third-party logistics services, but it can also involve hiring individual independent
contractors, temporary office workers and freelancers. For a company to effectively outsource
responsibilities, it is important to focus on the business partnership as much the logistics.
Outsourcing is about managing relationship more than service-level agreements, and is a
partnership, not a purchasing project. Maintaining and securing a trusted relationship is
essential in outsourcing efforts and is more complex than establishing service levels and
relationships.
Companies often outsource as a way to lower costs, improve efficiencies and gain speed.
Companies that decide to outsource rely on the third-party providers' expertise in performing
the outsourced tasks to gain such benefits. The underlying principle is that because the third-
party provider focuses on that particular task, it is able to do it better, faster and cheaper than
the hiring company could. Given such benefits, companies often decide to outsource
supporting functions within their businesses so they can focus their resources more
specifically on their core competencies, thereby helping them gain competitive advantages in
the market.

In-House:

In-house refers to an activity or operation that is performed within a company, instead of

relying on outsourcing. The firm uses its own employees and time to perform a business
activity, such as financing or brokering.
The determination as to whether to keep activities in-house or to outsource often involves
analyzing the various costs and associated risks. How these costs are calculated may vary
depending on the size and nature of the core business.
A firm may decide to keep certain activities in-house, such as accounting, payroll,
marketing, or technical support. While it can be cheaper to outsource those divisions, there
are also circumstances where it pays to invest in in-house professionals.
Additionally, keeping these activities in-house may allow the business to exert higher levels
of control by keeping the services and personnel under direct control. There may also be
fewer security risks depending on the kinds of data that would have to be supplied to an
outside party should the activity be outsourced.

When dealing with customers, a firm may try to keep the entire transaction in-house. For
example, in-house financing is a common practice in certain industries. This form of
financing works by using the firm's resources to extend the customer's credit, with the firm
potentially benefiting from any associated interest payments in exchange for assuming the
risk associated with default.
 Literature Review

1. Employee Retention and Turnover in Global Software Development: Comparing In-

House Offshoring and Offshore Outsourcing

Julian M. Bass; Beecham Sarah; Mohammed Abdur Razzak; John Noll

High staff turnover has a negative impact on software development productivity and product
quality. Further, offshore outsourcing has a widely held reputation for particularly poor
employee retention. Interestingly, in-house sites (regardless of location) do not suffer such
high levels of staff turnover. We want to understand the factors affecting employee retention
in-house and offshore outsourced settings, to better understand the potential impact of staff
turnover on global software development. We employed a mixed-method approach
comprising two empirical case studies in industry involving 62 practitioners at three global
companies conducting in-house and offshore outsourced software development. We collected
practitioner perceptions of causal factors for employee retention and performed a cross-case
analysis to triangulate our findings. Practitioners cited employment policies, work-life
balance, workplace innovation, product quality, alignment of offshore work hours with
onshore, long working hours and adverse impact on health as factors affecting staff retention.
In-house offshore have more family friendly employment policies. In the outsourcing sector,
the focus on customer satisfaction sometimes leads to less attractive work patterns. Offshore
outsourcing service providers could improve development team member retention by
improving work-life balance and adopting family friendly employment policies.

2. A Comparative Analysis of In-house and Outsourced Development in Software Industry

May 2016International Journal of Computer Applications 141(3):18-22
DOI:10.5120/ijca2016909578
Authors: Syed Aitzaz

These days, many software companies handover theirsoftware projects to outsourcing

organizations. Outsourcing refers to handing over some or complete business process
activities to some outside manufacturer. Many software companies now have started feeling
the need of outsource development due to numerous factors that include high cost of
experienced in-house developers, tough project schedules, lack of knowledge about domain
and technology of certain complex software systems. Outsourcing is causing globalization,
knowledge sharing, achieving quality and minimizing production cost. Software project
outsourcing is common in many software companies, this makes it an active and interesting
research area. This paper investigates the current state of the art in software project
outsourcing. An effort has been made to answer an important question about outsourcing “Is
software outsourcing a gain or loss?” A detailed comparison of in-house software
development and outsourced software development has been conducted to show when and
where outsourcing is useful for an organization and where it is nThe difference between
outsourcing and in-house
Outsourcing means that you hire outside resources to help you complete tasks or projects.
These might include freelancers or agencies that specialize in performing a particular type of
task or project. For example, hiring a digital marketing agency is a way to outsource your
social media management.
Businesses outsource to save money and complete projects quickly.
In-house resources, on the other hand, are your existing employees — including yourself.
When you handle a task or project in-house, you assign one or more of your team members to
work on it.
 About the Project
Pros and cons of handling projects in-house:

Pros
1. Investing in new skills pays dividends
Every new project is a chance to upgrade your team’s skills. If you work with your in-house
team, you can keep building on that foundation to get better and better results.
It makes sense to invest more time and money in training your team because most of them
will sick around. Your investment pays off for a long time.
This also means that you can tackle projects that are a little bit outside of your usual
expertise. If you outsource that work, you need to find someone with those exact skills.
Handling it in-house means you can learn together and become more capable as a team.
2. You set the schedule
Whether you work from an office or your team works from home, you can set shared
working hours for your whole team. That means everyone is available and ready to
collaborate at the same time. Contractors and freelancers don’t have set hours. If you need
them to work with your team, it might be in a form of collaboration.
3. Your team is flexible and invested
Internally handling a project ensures everyone working on it shares your company’s values.
They’re invested in your company’s success because it’s directly linked with their future.
Not all in-house teams are highly engaged, but the ones that care have an advantage over
outsourced talent. Because your team cares about the outcome of a project, they’re more
willing to step outside of their specialty and find creative ways to get things done. They may
suggest ideas to make a project better or proactively fix issues before they become a problem.
That dedication makes up for small skill gaps because team members are more willing to
figure things out on their own. The end result is that your engaged team gets more done.

Cons
1. Higher ongoing costs
Hiring a full-time team member is expensive. It’s also a longer commitment than outsourcing
that work. When the project is done, that person expects to have the same amount of work
and pay. If you only need help for one or two projects, it might be more affordable to
outsource a task or project instead of handling it in-house. Even if a contractor’s hourly rates
are higher, they should only bill you for the time they spend working on your project. You
don’t pay for hours they spend doing administrative tasks, training, or waiting for the next
task. There’s no obligation to give them 40 hours of work every week. In-house team
members must get paid for the hours they spend at work, whether they’re working on your
project or doing something else. You’re also responsible for other expenses.
Companies that have to choose between hiring another team member or outsourcing work
might find it more cost-effective to outsource.
2. Lack of necessary skills
Your employees can’t be good at everything. You might not have in-house resources that can
complete a particular project successfully.
Sometimes, it’s not practical to try to take on a project that’s far outside of your team’s
expertise.
Team Member Time might be too time-consuming or expensive. The resources you spend to
learn something new take attention away from the things you can do well, and your results
won’t be as good. For key projects, it’s smart to work with someone that has the experience
you need.

3. Asking for too much can cause burnout

There are a limited number of hours in a workweek, and your team is probably using all of
them. You can shift priorities to make room for key initiatives, but eventually, you have to
decide what won’t get done. Overtime is both expensive and exhausting. You should only
rely on overtime to get things done on rare occasions. It’s not a long-term solution. The more
you ask your team to do, the less productive they’ll be. If you must decide between
outsourcing work or asking your team to put in an unsustainable amount of work, choose to
outsource. Your team’s health and long term productivity are more important.

Pros and cons of Outsourcing:

Pros
1. Cost-effectiveness
Outsourcing a task or project can be more affordable than handling it in-house.
It’s particularly cost-effective if you outsource to someone located in a country with a low
cost of living. Their rates might be lower than the hourly rates you pay your in-house team.
2. Flexibility
Growing an in-house team is time-consuming. You need to go through a lengthy hiring
process every time you want to hire a new team member.
Outsourcing work to another company can help you get the resources you need more quickly.
Their hours depend on your needs. It’s okay to assign 30 hours of work this week and 5 hours
next week. If you don’t need help until the end of the month, only work with them at the end
of the month.
3. Access to expert talent
There are plenty of freelancers and agencies out there. Most of them specialize in a particular
type of project, while some can handle all sorts of projects.
It won’t be hard for you to find a competent contractor that can complete any project you
have in mind. In fact, you can find subject matter experts that have in-depth, detailed
knowledge that your team can’t match.
For example, your marketing team probably knows how to handle a wide range of tactics, but
a contractor that specializes in nothing but Amazon sales can probably get better results in
that area.
4. Faster project delivery
Sometimes you just need to get a project completed quickly. Outsourcing will provide you
with more resources, helping you complete a project faster.
If you work with a subject matter expert, they may finish your project in fewer total hours
than it would have taken your team to do it, which can help you save money.
Cons
1. Lack of communication
It might be harder to know how your project is progressing when you outsource it to another
company. You have less visibility and often less communication.
Most contractors and agencies handle multiple clients. Even the best communicators will
rarely give you a daily check-in because it’s impractical to talk to all of their clients every
day.
Most often, you will have to ask for updates. Companies can also address this concern by
using time tracking software to create proof of work.
2. Less control
As a general rule, you’ll have less control over a project once you outsource it.
The company or a contractor/freelancer you outsource to might also not be transparent with
how they’re handling the project. You give them the specifications and they come back when
they’re done.
Freelancers and agencies have a hard time working with clients that want to influence every
step of the process. It’s too time-consuming to try to get your feedback and make constant
adjustments. If this is important to you, it’s wiser to work with your in-house team.
3. Negative effect on company culture
Outsourcing tasks or projects can make your employees think you’re going to replace them.
It only takes one disgruntled team member to start a rumor that you’re going to lay people
off. This anxiety can harm morale and company culture.
4. There’s less long-term commitment on both sides
We mentioned the lack of long-term commitment as a possible advantage of outsourcing. It
can be a drawback, too. A contractor isn’t committed to your business, and you aren’t
committed to their growth. That’s fine, but it also means they don’t care about the ultimate
outcome of your project. They might leave before you’re satisfied, get distracted by other
clients, or put in the minimum amount of work to meet your specifications.
 Factors Identified

1. Requirement:
Often, small business owners decide to hire in-house or outsource for their software
development projects without having the exact requirement in mind. Only having a vague-ish
idea makes hiring decisions quite difficult. Moreover, it also becomes increasingly difficult in
the later stages when setting clear requirement specifications and evaluating the direction of
the project becomes necessary. Therefore, defining the scope of your project/requirement in
the most detailed way possible will help you save time on several decisions, including this
one. Opting for an in-house employee or outsourcing could also come down to your project
timespan. If you have a big project and need resources for a longer duration you could
consider in-house hiring. However, if you have a one-time project that you may or may not
take up in the future – outsourcing is the right way to go. Nevertheless, you should also
consider that the time required for hiring for specific skillsets may vary vastly. Hiring for
niche skillsets may take a longer time than usual. Whereas, if you choose to outsource, you
are more likely to find an outsourcing partner with expertise in a technology/skill-set and is
ready to hit the ground running. This reduces your recruitment timescales. In addition, if you
decide to outsource, the handover periods and training courses stand void. So, if you need to
fill a skills gap quickly and can’t be flexible on timings, outsourcing is probably your best
bet.

2. Budget:
The budget that you allocate for a particular project and the cost difference between an in-
house employee and outsourced party must be taken into account. At the onset, it is best to
have a stipulated project for the project, inclusive of its resource requirements. This gives you
a clear direction in making the right choice. In the above-mentioned scenario, the small
business owner did not have a clear view of the budget that would be required to hire an in-
house resource or get outsourced skills on-board. What kind of a decision do you think he
would have made? Usually, small business owners tend to consider cost as a deciding factor
in making the hiring vs. inhouse decision and end up making grave blunders. While
outsourcing may seem like the more cost-effective option considering the cost savings in the
short-term due to no overheads such as recruitment, training and other ongoing company
perks such as healthcare or pension schemes, some outsourcing companies may charge a
relatively higher daily rate. The initial cost savings will then quickly disappear If you intend
to work with such outsourcing companies.Also, remember that there may be several hidden
costs that you may have to incur occasionally, besides they may not be trained on
technologies as per the requirement of your project. Whereas, while hiring in-house, your
employee will have a greater buy-in to your company and the knowledge and skills
developed by working on your projects is kept in-house and is available for use at a later
stage. All in all, the initial investment may pay-off sometime later.

3. Skill Set Needed:

Assessing the skills that your company has can help you pick the most-suitable option for
your business needs. When you carry out a thorough skill-gap analysis, you are bound to get
clarity about the type of skills/resources that you already and the skill-set that you lack to
develop the project efficiently. Nevertheless, the decision also depends on the longevity of the
project and whether you will need to continue using these skills in the future. To give you an
example, if you need to build an app, which is a one-time job, but don’t have the technical
expertise in-house, finding an external party to do it for you makes more sense. However, the
current lack of expertise can be overcome by providing adequate training to your resources or
hiring resources with the right skillsets will pay off in the long run when you decide to take
up app development as a regular activity. It is not just important to understand the skills but
also the skill level required to perform the task. If you’re looking for a particular task to be
done, you can find a local specialist or hire in-house but if you’re looking for more
comprehensive services, an outsourcing company is a better bang for your buck. Before you
pin down a decision, it is best to first assess the market availability of the role to avoid
bearing any unforeseen costs. For instance, if you struggle to find the right outsourcing
option, the time and money you save on recruitment may end up being pumped into finding
the right outsourcing model instead. In this case, it makes more sense to train your
employees and recruit internally.

4. Long-term goals:
Whether you are looking for a quick fix for your skills gap or you need a more permanent
solution depends on the long-term goals of your business. In the first case, outsourcing is an
obvious selection, however in the latter case you may have to invest well initially in order to
train your employees, equip them with the right skillset and continue doing so in order to reap
rewards in the long-term. Sometimes outsourcing provides the leverage you need to excel and
achieve your short-term as well as long-term goals in the future by helping you focusing on
your core business. However, it also doesn't mean you must outsource forever; it just means
that you need to outsource tasks in a timely manner without the rush of doing it right and
eventually hiring a resource in-house for tasks that significantly impact the long-term goals of
the organization. However, some small businesses benefit the most either by upskilling their
own in-house team or hiring experts in-house. Hiring in-house is especially beneficial if the
long-term goals are closely aligned to the role. Having dedicated in-house personnel who are
a part of the company daily, allows the small business owner to exercise better control over
the cost and the quality.

5. Company Culture:
Culture is an extensive concept in entrepreneurial organizations, but it is also one of the most
powerful drivers of entrepreneurial performances and decisions. Every organizational change,
including the decision to outsource or recruit in-house, involves technological, organizational
and personal factors. Among these factors, people are undoubtedly the most difficult element
to deal with. This is mainly due to the fact that people are generally more comfortable with
what they have learned or already know, while they show resistance towards the change,
particularly towards uncertainty and what is unknown or risky. In organizations with an
integrative culture, shared values facilitate both internal integration and external adaptation;
in fact, these kinds of organizations emphasize the values of caring for employers, customers,
and society, which help for the internal integrating process, and values for innovation and
high performance, which help for the external adaptation process and make decisions such as
outsourcing fairly easy. Moreover, the continuous learning culture of the organization also
allows an outsourcing vendor to transfer skills to the rest of your workforce, adding further
value to your organization.Inversely, organizations with hierarchical culture do not found
their aims and operating logics on shared values but on the formal rules and the coordination
mechanisms based on hierarchy and strict supervision. In these situations, the employers
seem to be less ready to innovate and change. They tend to find a greater sense of security in
continuity and are less willing to assume the risks and the uncertainty deriving from the
change. In such cases, the decision for outsourcing can be a difficult one to drive. In fact,
introducing an outsourcing vendor in such cases may bring internal conflicts to the company
as permanent staff sometimes find it difficult to work with outsourcing vendors such as
freelancers or could have difficulty fitting with your company culture. Therefore, your
company culture plays a significant role in your decision to outsource or hire in-house
resources. In the end, it all depends on the type of your business. If you decide on outsourcing
there are several factors that you must keep in mind before finalizing your outsourcing
partner. Likewise, make sure that you have the necessary budget for recruitment, training and
infrastructure if you decide on hiring an in-house resource.

The ultimate decision of the route you choose should be based on your requirement, budget,
skills gap, long-term goals and company culture.
 Conclusion

Both in-house and outsourcing practices have been in use all over the world since last few
decades with all their advantages, disadvantages and risks associated with them.
The environments where projects are highly complex, cost is too high to build them,
technology is not sufficient, expertise are not enough, Outsourcing plays a vital role to meet
the expectations. It also plays a key role to complete the task in time, due to this organizations
can save their production cost and they can focus on their core. It is a good tool to transfer the
risk. While on other hand it also has some risks associated with it like data privacy issue,
goodwill compromise risk, loss of potential employees and loss of potential customers. In
future we would like to explore ways to minimize the risks associated with software
outsourcing