Why offshore development is not always cheaper

Why offshore development is not always cheaper

Offshore development has proven to be an attractive opportunity for many companies to reduce costs and access a larger talent pool. But the initially favorable price can be deceptive. Hidden costs, loss of control and quality risks are just some of the disadvantages that can quickly destroy the financial advantage hoped for. In this article we will explain why no offshore development is in many cases the better alternative and what you should pay attention to when choosing your development partner.

The illusion of favorable hourly rates

The most obvious advantage of offshore development is the lower hourly rates. A developer in Eastern Europe or Asia often costs only a fraction of what a German developer costs. However, this comparison is dictated. Experienced project managers know that the pure hourly rates are only part of the total cost. Hidden costs can quickly blow up the budget and destroy the original price advantage.

Hidden cost factors in offshore development

A low initial rate can quickly turn into increasing change requests, increased management effort and budgets. The causes for this are manifold:

• Unclear scope: An inaccurately defined project scope or underestimated task complexity inevitably leads to improvements and additional costs.
• Communication problems: Cultural and linguistic barriers and time differences make communication difficult and lead to misunderstandings that can become expensive.
• High management effort: Coordination of an offshore team requires a considerably higher management effort than cooperation with a local partner. Regular meetings, detailed reporting and close-mesh control are essential to keep the project on track.

| Cost factor | Description | Impact on budget | | :--- | :-- | :-- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ** Management-Overhead | Additional effort for communication, coordination and control | Increases personnel costs in own company | | ** Change requests** | Unclear requirements lead to frequent changes and improvements | Increase development effort and costs | ** ** Quality assurance** | Additional effort for testing and troubleshooting | Increases costs and delays project completion | ** ** Travel costs** | Necessary travel to the offshore location for kick-off meetings or crisis interventions | Increase travel costs and time |

The loss of control

Another decisive disadvantage of offshore development is the imminent control loss. When a [development process](/services/software development) is transferred to an external provider overseas, there is a risk of control over speed, priorities