Aviram Eisenberg About “Hidden Costs”

Our third expert Aviram Eisenberg, the founder of global outsourcing software development company is sharing his knowledge about hidden costs in remote development.

About the author:

eisenbergEntrepreneur and acclaimed speaker, Aviram Eisenberg is the Founder and CEO of Ignite – a global software development company that specializes in Agile R&D.
Under his leadership, Ignite is recognized as an Agile leader in Israel and Europe, introducing innovative methodologies and enhancing the R&D excellence of industry leaders such as Nokia/Siemens Networks, Microsoft, VMWare and AT&T.
Acting as Ambassador of Agile, Aviram is an avid promoter of this school of thought.
He speaks about Agile and its’ impact on the dynamic, complex world of R&D and is frequently spreading the word in professional conferences and meetups worldwide. Check also Aviram’s blog here.

1. Could you explain, using examples, what refers to the hidden costs in project outsourcing, time & materials and dedicated teams?

Main hidden cost that is critical to take into consideration is the knowledge transfer.
Knowledge transfer appears in several milestones along any project:
a. Set-up knowledge transfer – when you establish an outsourcing team, the developers must understand the product, the code, the business environment, internal working processes with the customer etc.
b. Ongoing knowledge transfer – any milestone release requires knowledge transfer from development team to the customer team.
c. Knowledge transfer when team members change – in India for example, developers’ attrition rate is 25% per year. For multiyear or months projects, this could double or triple the project cost.
d. End of the project knowledge transfer – to enable the customer team to continue maintain the product and understand what was done.

Knowledge transfer is requested whether you recruit a new team or you decide to use outsourcing resources. Using offshore teams makes the knowledge transfer more complex due to distance, language and cultural differences.

The impact of knowledge transfer on the customer vs supplier depends on the business engagement. If the engagement is T&M, the customer pays for the knowledge transfer investment. If it’s a fixed price project, the supplier must take into consideration these cost when the price the project.

2. Is it possible to foresee hidden costs before working with the vendor?

It is possible to foresee those hidden cost. The outsourcing vendor must have a comprehensive analysis with the customer to check his level of readiness for the project and what the gap is.
a. Documentation – does the customer have detailed documentation describing the requirements?
b. Documentation language – some organization use local language for documentation and internal correspond. Is the customer ready to change its internal correspondence habits?
c. Is the app I18n ready? Could the development work in a distributed environment?
Is the product architecture based on components that could be developed independently by remote teams?
d. Is the customer ready to perform trainings session to the vendor?

3. What can we do, if the work with a remote software development team has already begun, but the development turns out to be more expensive?

I believe that no matter what is the business engagement type the customer has with the outsourcing vendor, it is the vendor motivation to resolve the sensitive situation with the customer and set the expectation; whether it’s a fixed price project or a T&M that the customer pays for every additional resource that is required, eventually you could lose the business as a vendor.

The best way is adopting the Agile fixed price methodology. It means that the project is managed in short sprints of frequent incremental releases. It allows customers to check out the software, app or website in increments, use it, test it, learn from it and make educated decisions for the next package. And the most important thing is that problems and gaps are identified in early stage where both sides are tolerant to discuss the need for extra budget or scope changes.

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