Software Development: In-House vs Outsourcing - Pros and Cons

Deciding whether to perform specific tasks or entirely new projects in-house or outsource them to an external agency is not a new problem.

Companies all over the world have weighed up the pros and cons of both strategies. Generally, they choose to outsource because they want to reduce costs, focus on core functions and business, improve service and gain expert knowledge.

In-house development teams may have a full and exact view of your project, values, and business side, but may also lack specific technical skills in unexpected situations. It may be harder to find talents and start the project quickly.

On the other side, a software agency you outsource to may work in a different time zone and speak a different language. You will communicate with them remotely.

However, they will provide valuable expertise in addressing current needs, they may be more independent and more flexible in a cost-effective way. You will get access to experienced talents even in niche technologies and start the project quickly.

Here at Devias, we usually start working on a new project within 2 weeks!

From our view, an in-house team is a suitable model for a product that is already released. It implies that all the team members are working under the same roof. Although there are advantages:

Pros

• Strong communication channel with your team.
• No limitations in the development and delivery processes.
• Ability to keep all the team expertise on your side.
• A shorter feature development cycle.
• Full transparency over the development process.

Worth mentioning: flexibility of an in-house team and speed of in-house development start are limited.

Cons

• In-house app development involves high setup costs including — training, recruitment, licenses, infrastructure cost, and many more.
• On average, it takes 40 days to recruit an in-house developer, and you have to take on recruitment-related expenses (1).
• Lack of expertise in the in-house team can be associated with additional costs and time delays. Hiring a team of specialists could mean spending a huge amount of time and money. The in-house team has to negotiate a lot regarding internal policies that can stifle the creativity of the project. The flexibility with revisions could mean countless modifications, which can further delay the project.
• The inability of scaling the team members in a short amount of time in case of a high demanding product.
• It can be difficult to start a new project quickly, while your in-house team is scheduled for a few months in advance.
• High-demanding jobs lead to big salary investments. The average annual salaries for Europe (2019, Glassdoor) look like this:

Also, there are employee-related costs:

• employee training
• taxes
• insurance
• benefits
• rent
• hardware
• software licenses
• equipment, furniture, office supplies
• non-billable hours (organisation, meetings, training, business trips, team integration events)
• Hiring comes with many additional expenses. They will pay off with time. Spending a lot of money to equip the office or rent additional space for your team won’t pay off if your project will last a year and then your demand will decrease.

Based on research from Joe Hadzima, a senior lecturer from MIT, the true cost of a new in-house developer could be 2.7x the base salary because of employment taxes, benefits, office space, and equipment needed (data from the United States).

(1). True cost of recruiting a developer

Outsourcing

Outsourcing app development services will give you a much better result in terms of functionality and user experience while saving resources.

Pros

• It takes about 1-4 weeks to find an outsourcing company (depends on your requirements and engagement). The biggest expense here is related to your time.
• You clearly know your total cost upfront. The hourly rate of a development agency is communicated before signing contracts.
• Once you decide to start development and find an outsourcing agency, you simply contract them, and later can upscale and downscale the number of outsourced people. You can change that flexibly as if you were using an on-demand service.

Cons

• Cultural differences may result in misunderstandings. It may be better to choose an outsourcing provider from a not-so-distant, culturally similar location.
• Communication is the key to success. Friction may cause unexpected problems.
• Working from one place/time zone clearly has the advantage. Your employees are available at the same time as you. They start and finish their work at hours similar to yours. In the case of outsourcing, it depends. You can work with a foreign company and still operate in similar hours, but you can also deal with a 10-hour time difference and operate completely unsynchronised.

Worth mentioning: It’s your software provider’s job to run procedures that will ease cooperation. What’s important to note is that you don’t need to communicate all the time to get great results. Agencies are generally independent and can do their own management.

Final thoughts

In-house development teams may have a full and exact understanding of your project, values, and culture, but may also lack specific skills in unexpected situations. It may be harder to find talents and start the project quickly.

Meanwhile, a software agency you outsource to may work in a different time zone and speak a different language. You will communicate with them remotely.

However, they will provide valuable expertise in addressing current needs, be more flexible and cost-effective. You will get access to experienced talents even in niche technologies and start the project quickly.