Kate Terlecka about “Hidden Costs”

A qualified Scrum professional Kate Terlecka joins our discussion on “Hidden Costs” and tells us about her experience in this challenge.

About the expert:

Kate Terlecka about “Hidden Costs” Kate Terlecka is a coach and one of the Scrum.org’s Professional Scrum Trainers. Kate works with software teams and their management around the world, helping them improve. The expert researches human behavior and team dynamics with focus on gender and cultural differences. She also teaches classes on scrum, management practices and coach individuals.
Company website: Brasswillow.pl
Blog: Controlyourchaos.wordpress.com

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

I will go a little further with that than just IT, because problems with outsourcing and offshoring/nearshoring are one of the causes of beautiful disasters. One of the biggest being the Boeing’s Dreamliner, where too much outsourcing and offshoring caused failures, created seven-tiered delivery chains and successfully blocked the view of the mother company on what and how it’s being produced. The same things happen a lot in IT, but the failures are not as newsworthy as other industries’.

Let’s take a look at the costs that can happen. The first and the most visible are the travel costs. If you have a team or a company somewhere else, then you have to travel. Taking into consideration, that the need to be at our subcontractor’s may be instantaneous, the airfare will not be cheap. And a lot of times it appears, that more than one person needed. And this applies to all types of outsourcing, unless you take the team into your office.

The second cost is the cost of limited communication. It takes several times as much time and effort to just come and tell someone something in person, than explain it in an e-mail or via telephone. 80% of communication is non-verbal, so you have to make up for it somehow . Again, having a team over reduces this cost.

The third major cost is the cost of miscommunication – “this is not what I had in mind” or “this is not what I wanted” are the words that can be heard in the reviews of IT teams very often. Having those kinds of bugs corrected can cost a lot, I would say even equal to the initial budget – and the later they are discovered, the more expensive it gets.

There are also many other smaller costs, like dedicated people for contacting this supplier, unforeseen hardware changes, political setups, lack of skills and others, but the majority of them can be avoided by bringing a dedicated team in-house.

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

To some extent. There is an interesting tool developed by Reshoring Initiative which is a calculator of what you might not have foreseen when introducing a subcontractor. You can take a look at it here. But because IT is the fastest changing industry in the world, it’s impossible to foresee them all. The easiest way is to limit your budget and divide the work into small, deliverable chunks that will be inspected every time they appear. This way, even if some unforeseen costs arise, you can react momentarily, not half a year and 120% of a budget later.

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?

It’s very hard to answer this question completely – it depends on many variables. In the most extreme case you can stop working with this particular company and go to another. If you have ownership over the source code others can help you fix the solution, but if you don’t – then it might cost you way more than what you expected. If the dark scenario does not happen, then make your contractor deliver often. This way you can have complete control on what you’re spending your over-budget funds for.

We have already happened to cooperate with Kate, as she took an active part in our first series of posts about “Poor Quality of Software Product”, you can find out her point of view here.

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