In-House or Outsourced? Making Use of the Cost-Benefit Analysis

The Covid-19 pandemic is forcing companies across sectors and geographies to accelerate the digitization strategies and find innovative software solutions to survive and thrive in the ‘new normal’. Whatever that entails, it’s going to require top tech talent - after all, those new websites, apps, and software programs aren’t going to design themselves.

So, you need developers that can quickly integrate into your company culture and dive into new projects. Where are you going to find them? In the US alone, it is estimated that there will soon be a shortage of 1.4 million software developers and only 400,000 software developer graduates to fill them. Demand for developers isn’t expected to fall anytime soon: according to the US Bureau of Labour Statistics, software developer employment is set to rise by 21% between 2018 and 2028, far above the 5% increase forecast for all occupations.

With these sorts of numbers, it’s no wonder that companies are struggling to find and attract top talent. This has led some to consider outsourced developers from ‘nearshore’ regions such as Latin America as an alternative and affordable staffing solution.

As ever, the decision over in-house vs outsourced depends on your unique circumstances and goals. Do you need some additional support or fill a talent gap on a one-off assignment, or are you looking for a longer-term commitment across multiple projects? Will a short-term fix suffice or would it benefit your company to develop new capabilities? And crucially: what kind of budget are you working with?

Using a cost-benefit approach

Conducting a cost-benefit analysis can help you answer these questions, organize your priorities, and guide you to a successful outsourcing decision. By creating a clear picture of the options available, and the costs and benefits of each, you give yourself the best chance of seeing what makes the most business sense at any given time. That last bit is important - in a crisis like the one we’re currently experiencing, a solid cost-benefit analysis framework can help companies adjust, survive, and then thrive when conditions improve.

Here are some of the key factors you’ll want to consider in doing a cost-benefit analysis:

• Hiring costs:
  This is usually the primary concern for smaller companies and startups, and is even more relevant now as the world stares into a historic economic downturn. It’s not easy for smaller companies to bring in quality workers when entry-level software engineers are receiving over $150,000 in annual compensation from Silicon Valley giants. Not to mention the ‘hidden’ costs of things like pension contributions and health insurance, and the recruitment process itself.
  Outsourcing offers an opportunity to hire high-skilled developers at a fraction of the cost. And using a near-shoring staffing firm with specialist knowledge of the local talent pool can make the process quick and painless. However, for this to be an effective solution you need to know how to build trust and efficiency in a distributed team. Outsourcing may also not be optimal if you are lacking tech leadership, which is typically more effective when in-house.
  
• Company life cycle: If your organization is just starting out you probably want to focus on building an identity, establishing a core team, and developing in-house capabilities. But once you’re up and running, outsourcing becomes a more attractive option to cope with a fast-growing workload or plug specific talent gaps. The key benefit here is the removal of geographical constraints - why settle for the best in town if you can tap into talent anywhere on the planet?
  One of the key concerns about outsourcing is managing a team across different time zones with all kinds of language and cultural barriers. This is why many US companies are turning to Latin American developers as a practical alternative to more far-flung markets (e.g. India).
• Company Culture: Companies that put a lot of emphasis on their in-house culture - those informal chats, brainstorming sessions, after-work gatherings that keep spirits and productivity high - may be uncomfortable with outsourced workers, even if they can see potential financial benefits. If your team responds best to impromptu meetings and face-to-face conversations, it might be a challenge to introduce a new member who is sitting in another part of the world. However, almost everyone has been forced to adapt to remote work during the Covid-19 lockdowns, so now might be an opportunity to reassess business practices and consider outsourcing as a viable alternative.
  
• Don’t neglect the hybrid option: Of course, the in-house vs outsourced dilemma doesn’t have to be all-or-nothing. At Jobsity we are unsurprisingly proponents of the staff augmentation model, which is essentially the service we provide. Rather than simply adding external developers to cope with a specific project or deadline, staff augmentation is more about enhancing your in-house team with remote members that can offer specific skills or expertise while seamlessly integrating into the existing work processes. If you want to see how nearshore staff augmentation can help your company, get in touch with us here at Jobsity.

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