software development outsourcing models

Outsourcing Software Development

What are Software Development Outsourcing Models

Author : Jorge Campos
January 2, 2020

The success of a business is primarily dependent on two main factors – a novel idea and an efficient execution framework that can convert the abstract idea into reality. In this article, we’ll talk about primary software development outsourcing models & how you can benefit from these.

Business organizations, small or big, reach a situation where it needs to reach out and hire third-party service providers for some of its tasks. This is referred to as Outsourcing, and according to recent statistics, IT/software workers constitute 60% of the global outsourcing market.

Provided the scale and importance of this market, there are thousands of companies providing software development services with a wide variety of options and choices around the world. Further, since all businesses need software services in some of the other forms, there is no shortage of custom software development projects currently.

Companies want to hire qualified and talented specialists with the right knowledge, creativity, and flexibility so that complex tasks are executed within the set deadline. Further, cost reduction is one of the main reasons for companies to choose for outsourcing work, and the success of such a collaboration depends on a lot of factors including geographical proximity, time difference, language gaps, and even cultural differences.

Outsourcing software development tasks to third-party service providers has its pros and cons. While the reduction in operating expenses, quicker execution, exposure to expert talent in a niche are some of the possible advantages if companies partner with the right outsourcing partner through an efficient framework, the wrong choice can lead to lowered quality of service, miscommunication and jeopardize the whole task at hand.

Hence, if a company chooses to outsource its software development, due diligence is required in partnering with the right provider with an efficient model to assure quality service. In this competitive B2B market, either company directly reach out to known outsourcing companies with a global reputation of providing quality service or put out a tender expecting to get proposals from different providers so that they can vet and choose one that suits their requirements and expectation.

Location, pricing rate, and policy, experience, reputation in the market are some of the factors that go into consideration while choosing a software outsourcing partner. Consequently, there are different models on outsourcing specific to development, maintenance, and testing aspects of the software. Broadly, all these models are based on two primary approaches – project-based and dedicated resource-based.

Project-based outsourcing model

In this case, an entire plan and all the task related to it is outsourced. Companies go for this model when the internal team is not enough for developing its product or when it doesn’t want to maintain a dedicated, full-time in-house team for the task.

Here, the end goal is set when you enter into a contract, and all the tasks and requirements are pre-defined in the agreement. Since the model requires efficient pre-planning, the rule of thumb says that the project duration should not exceed more than six months.

There is further a choice between Time and Material contract and per-project based fixed price contract. In the case of Time and Material contract, the price is calculated based on person-hour, depending on the skill level of the developer and the hours of effort required.

On the other hand, in the case of a per-project contract, the company is concerned more about the result and doesn’t need to worry too much about the actual team working on the development task, giving more flexibility to plan and execute the job for the developer.

Most companies start the collaboration with time and material as software development outsourcing models for the contract as a preparation stage during which the service provider helps the client with the planning, which is fruitful, can then be converted into a per-project contract.

The dedicated resources-based outsourcing model

In this model, the outsourced software development engineers work alongside the internal IT team on the same tasks and together collaborate on the execution of the project. So, in a way, this model is augmenting the team by bringing in external help to execute a project.

This type of model is chosen when there is already an existing internal team working on the task, but there is a need for a specialist, like a UI/UX designer, business analyst or manager, and quality assurance engineer. With cross-industry experience, mainly when the need for such a role is temporary. Here too, companies can choose between two options – dedicated team or staff augmentation.

In the case of a dedicated team, the project is managed offshore, and the provider is responsible for people management, low-level tasks, and process quality. This type of model is particularly helpful when the work is outsourced to a team located in a different place or a different country. Given that hiring a software developer in the US or Europe is far more expensive than outsourcing abroad, many companies from the US and Europe choose this model of outsourcing. Here is a list of Top Miami Software Development Companies.

On the other hand, in the staff augmentation model, the project is managed in-house/onside. Basically, the client is augmenting its staff by adding resources from outside who work with the in-house team as one bigger team in the client location itself. It then becomes the client’s responsibility to define and control the process, manage the people, and ensure quality.

The hired resource, in this case, works with the team on pre-planned goal-oriented tasks using agile methodology as defined in the contract as well as on the routine tasks like any other in-house staff till the end of the said duration of the contract. By the end of the contract, if the team feels the need for the continued support from the hired software developer, it can choose to extend the term of the contract or renew the contract, provided the budget allows for such an extension.

This model of outsourcing is hence, suitable for long term collaboration for projects where you need experts for example, you are developing Augmented Reality Apps for Claims using Microsoft HoloLens. However, given the close collaboration between the in-house staff and the outsourced resource, it is also possible that the in-house team learn the skills due course from the hired expert and manage the work post the end of the contract.


Software services have become an essential part of almost every business across industry domains, and there are many reasons for a company to outsource its software development work to an external service provider. Further, collaboration across country borders is not much of a technical constraint for software development in this age.

Since the number of software projects across the globe is only increasing with the growing economy, there are thousands of companies around the world offering software development outsourcing services with a wide variety of options to choose from using popular software development outsourcing models.

From the standpoint of an individual business though, which is on the lookout for outsourcing its software development work, it is imperative to be aware of the basics and has knowledge on how to choose a good software development company.

In essence, the company can either choose to outsource the entire project to the third party and just expect to get the end-result or let its internal staff work in partnership with the third-party and together collaborate on the software development work.

Each model has its pros and cons, and hence, each option has to be carefully weighed based on project-specific needs and requirements to make an optimum choice since there is no generic best or worst model.