Lessons learned from hands-on management of offshore, outsourced projects
Companies worldwide are looking into offshore outsourcing (or ‘offshoring’) of application development and this trend looks to continue. Some view offshoring as a way to reduce total cost of ownership. Others see it as a risky proposition that is full of hidden costs. This paper starts by discussing the evolution of ‘Offshoring' over the last 15 years and establishing its current relevance for project managers. After establishing its credentials in the offshoring space, the paper continues with a series of ‘hands-on' lessons learned. These lessons learned break down into various categories including: Project Management Process, Information Technology Specific, Vendor Management, Tools, Project Management Techniques, Cross Cultural Techniques, and General Management Techniques. The paper concludes by establishing the key to success is to follow proven Project Management Institute (PMI®) based principles and customize them for the uniqueness of offshore projects.
Companies globally are looking into outsourcing application development offshore and the trend is predicted to continue.
A recent Gartner report states that less than 5% of IT jobs in developed countries are currently “offshored.” By 2015, that number is predicted to rise to 30%. “It's a tectonic shift,” says Gartner analyst Frances Karamouzis, the report's author. The estimates cover work that will be exported not only from the United States but from other developed countries as well.” (McDougall, 2005)
To many CIO's, offshoring is seen as a “magic bullet” to reduce costs of ownership. To others it is seen as a risky proposition that is full of hidden costs. Who is right? My experience in managing outsourced and multicultural application development teams over the last 11 years is that they are both correct. Managing outsourced resources is more complex than managing resources in the same location. However, the potential rewards make it worthwhile endeavor. The key to success is to follow proven Project Management Institute (PMI) based principles and customize them for the uniqueness of offshore projects.
Evolution of Offshoring and Current Relevance
Before we dive into lessons learned, it is important to understand what offshore outsourcing is and why the management of offshore work is an important competency for IT project managers in the 21st century. In addition, it helps to understand the business drivers, which have taken offshore outsourcing from a niche skill 15 years ago, through its evolution, to where it is today.
What is Offshore Outsourcing?
Offshore outsourcing (or ‘Offshoring’) is defined as “IT services a client receives from resources -- labour, infrastructure or capital -- that are located abroad” according to Debashish Sinha, a principal analyst at Dataquest. (Perez, 2003)
What are the business drivers for offshoring and how have they changed over time?
Humble Beginnings (early to mid 1990's)
Some of the early forays into using offshore resources in application development had to do with finding qualified resources to do the work. In the early to mid 1990's as the economy improved worldwide, it was difficult to find application developers to do maintenance programming of legacy applications.
For example, at the company I worked for in 1996, moving development work was seen by our in-house developers as a way to free them up to do the ‘cool new stuff'. Management also liked the idea of increasing employee satisfaction, while still keeping legacy applications running and keeping customer needs met. At the time offshoring was seen as a ‘win – win' for all parties.
As the 1990's concluded, Year 2000 remediation (Y2K) became the bigger issue. During this time, connectivity bandwidths between countries improved as well. There was more work than there were resources to do it. Once again, off shoring to the rescue!
Entering Mainstream - Cost is King (2000 - 2003)
Cost is always part of the business rational for moving work offshore. “Some types of IT work can be done for 20 percent to 50 percent less cost in places such as India, Eastern Europe and parts of South America”, said Maria Schafer, an analyst at Meta Group in Stamford, Conn. (Hoffman, 2003)
Moving into the post Y2K years, cost became the major driver behind decisions to send application development offshore. As in-house developers where downsized, offshoring became an increasingly political issue.
In 2003, we read – “Although offshore outsourcing has been around for about 12 years, it is now becoming a mainstream IT services option, because there is now a critical mass of providers that have increased services quality, reduced the complexity of offshore engagements and managed to mitigate its risks. “This has made the offshore services model more effective over the past 3 or 4 years, to the point where now it's reaching the mainstream.” (Perez, 2003)
Furthermore, more was being written on the rapid growth of offshoring at the expense of local information technology workers. “As many as 35 to 45 percent of U.S. and Canadian IT workers will find themselves replaced by contractors, consultants, offshore technicians and part-time workers by 2005”, according to a report issued this week by New Canaan, Conn.-based Foote Partners” (Hoffman, 2003)
Gathering momentum in the face of political debate (2004 - 2005)
Despite political discussions, the commercial benefits of offshoring started to contribute to its growth and general acceptance as a part of the IT landscape
“Rewind-to February 2004. Outsourcing, in particular offshore outsourcing, was a bad word in the American lexicon. Merely one year later--with the presidential campaign over and President Bush still in office, it's not such a bad word anymore.” Outsourcing-even offshore outsourcing-has actually been growing, even while it was under fire. Despite the controversy over offshore outsourcing, companies continue to outsource IT services and business processing to regions of the world where it's most cost-effective. (Rutkowski, 2005)
Recent surveys of IT executives, reveal the trend “Eighty-six percent of the 101 IT executives surveyed last year by CIO said they already offshore application development, and 26 percent offshore their call centers. And they predicted those numbers will rise. Offshore outsourcing still gathers momentum. Gartner predicts one out of every 10 jobs in the US with U.S.-based IT vendors and service providers will be staffed offshore” (Datz, 2004)
Newer Players – Particularly in Europe (2004 – 2005)
Newer members of the European Union—such as the Czech Republic, Poland and Hungary are an enticing near shore option for Western European enterprises and Europe-based U.S. businesses. (Datz, 2004)
Russia wants a bigger piece of the global outsourcing business, and it is launching a drive (April, 2005) to try to be what it calls “the next global leader in outsourcing.” Russia's Minister of Information Technologies and Communications (MITC) Leonid Reiman will kick-off the $650 million drive at a trade exposition in London, while Mikhail Gorbachev, former president of the Soviet Union, will address the Massachusetts Software Council. Reiman said software exports are growing between 40 and 50 percent annually and that Russia's IT activity--posed to reach $2 billion in the next two years--currently outpaces all other sectors of the Russian economy. More than 250 Russian firms are active in offshore-software development, he noted. (Gardner, 2005)
Flexibility & Growth (2005 and beyond)
As we look at offshore outsourcing, the major benefit that is being realized is flexibility “Cost for cost's sake” isn't the only advantage of outsourcing. Lower cost produces flexibility. “This model gives us more resources to work with than we would otherwise have with operations in the U.S. alone.” (Rutkowski, 2005)
Gartner concludes that the number of information technology jobs outsourced to low-cost countries such as India and China is just a trickle compared with what's going to happen over the next 10 years. (McDougall, 2005)
Unique Projects, Require Unique Perspectives
As more projects are done offshore, a series of questions arise on how to manage these unique projects. Some of the questions include:
– What makes managing offshore outsourced projects so tricky?
– What are the tricks of the trade?
– Where can I go to find material?
– Is there an ‘Offshoring for Dummies'?
In looking for answers to these questions, I found numerous predictions on growth, but not as much practical advice on how to manage these unique projects.
Niche ‘Offshoring' project management materials are limited
Most of the project management material that I have read focus on generic project management practice and do not cross over into the blended skills of project management, vendor management, with multi-cultural awareness that are needed to successfully manage offshore outsourced projects. What I am attempting is to take my experiences over the last 11 years and distil them into a list of best practices. It is my hope that other project managers can use these lessons learned as when managing offshore outsourced resources.
My experiences are the basis for this presentation
The lessons learned that I present do not come from a book. They come directly from my personal experiences managing outsourcing projects from multiple views. I earn my keep as a project manager by translating these hard fought lessons into practical benefits for the companies where I work.
Having worked on both the client and consultant sides of offshore outsourcing agreements has provided me with a balanced perspective on outsourcing applications offshore.
In researching this presentation, I found that many of the specialists in offshore outsourcing are either employed by offshore vendors or by research groups such as Gartner, Forrester, or Meta. However, it is the project managers of the companies investing in offshore outsourcing as well as the global providers who really need to know how to successfully manage these projects. My initial experience in offshore outsourcing was from a customer (Client) viewpoint. I then worked for an offshore provider. Having been on both sides of outsourcing relationships, helps provide the balanced perspective.
These lessons learned are applicable to most global outsourced IT projects
These lessons learned will at some level apply to managing application development to most countries. I have worked with outsourced resources in a number of countries, including India, Ireland, Canada, Ukraine & the UK. Nonetheless, most of the examples that I provide will be primarily based on my experiences working with Indian resources supplied via an offshore based IT consulting companies.
My background in managing multi-site, multi-cultural outsourcing
The 11 years I have spent associated with outsourcing chronologically break down in the following phases:
– Managing Taiwanese programmers in California from home office in Chicago. (1994 – 1996)
– Establishing maintenance and testing teams onshore in the US and offshore in India. (1996 – 1998)
– Y2K with offshore resources at multiple vendors in India. (1998 – 1999)
– Growing outsource teams: Expanding into new development– using resources in US, India and Canada. (1998 – 1999)
– Optimizing a portfolio of development and testing offshore. (2000 – 2002)
– Establishing new program at a new company (2003)
– Working for an Indian based offshore provider with development resources in US, India, Ireland & China (2004)
– Managing offshore and onsite resources from client viewpoint (2005)
The lessons I have learned over time group into a number of logical areas.
Project Management Process
The first grouping of lessons learned is in the area of project management processes. The competencies exposed by PMI are particularly valuable on offshore development projects.
- Establish a fairly strict ‘gating' process and check for understanding at each gate. The gates often line up with phases of the software development lifecycle (SDLC). Check understanding of offshore team at all SDLC milestones; Pay special attention to requirements and design phase sign-off.
- Emphasize Quality Control, Quality Assurance (QA) to offshore team.
- Don't gold plate a project, but include enough contingency to deal with offshore underestimation of software complexities.
- Cost is often fixed, so time, scope/quality end up being the project components that are flexible.
Information Technology specific
Some of the lessons I have learned over time are fairly unique to Information technology projects. Here are a few:
- Have good source code management system which is accessible by all members of the team regardless of location. Setting up source code management in the mid 1990's was a fairly involved process, but the tools available today are much more robust and better tuned for dispersed global development team.
- Keep a master copy of source code at your home office. Whoever owns the code needs to keep the master copy.
- Only outsource technology where the offshore resources have expertise (MS Access vs. DB2 Satellite example).
- Release management needs to be a key aspect of developing software. In my experience, periodic (at least daily) builds and synchronization are best.
- Make sure offshore team can buy most recent version of development software. Sometimes what is available in the US or Western Europe not yet available in the country doing the work. Note: this is becoming less of an issue over time.
Vendor Management - Staffing
Many of the lessons I have learned fall in the area of Vendor Management (if you are the client) and/or Client Management (if you are the vendor). These vendor management lessons are more from client viewpoint, but the principles would also apply to client management. Regardless of which side of the agreement you represent, it is important that proper staffing and control are maintained. Here are the lessons learned which relate to staffing on outsourced projects:
- In order to get the best resources make sure that your project is a marquee project. The best projects tend to get the best resources.
- Watch out for good resources being put on the project and then being moved off and replaced by inferior talent.
- Make sure there are near shore or employee backup plans for all mission critical roles.
- Insist on at least one onshore development and QA resource onshore to manage risk and coordinate communication. Most well established development projects can run effectively with an 80% offshore, 20% onsite mix. However, IT projects involving newer technologies or projects with high client interaction require higher onsite presence.
- Treat consultants with respect and as valuable team members, but do not confuse them with employees.
- Reward good consultant work with letters of commendation and appreciation to their consultant bosses.
- Do not promise something you can not deliver to offshore team members. Often items need to be cleared with consultant leadership first.
Vendor Management – General
Here are the lessons learned regarding general vendor management on outsourced projects:
- Keep an eye on billing to make sure there are no “stowaways”. This also helps in security audits.
- Interview key resources onsite and offshore up front.
- Visit offshore team at least once a year for training and relationship building.
- Get to know your account rep from the vendor so that you have credibility when you negotiate.
- Get to know support personnel at the vendor such as boss's administrators, network administrators, etc. so that production problems can be resolved quickly.
- Strong Contracts (Master Services Agreements & Statements of Work) protect both sides.
- Offshore resources may disappear without notice if the find a better position elsewhere. Make sure you have contingency plans to cover this.
- Use Service Level Agreements (SLA's) for Vendors to meet. Make sure there are rebates in place if they miss them and perhaps incentives if they exceed him.
- Maintain metrics on SLA's.
Some of the lessons I have learned are more tool based. Having good tools in place to facilitate communication of issues is very valuable. For instance:
- Have a shared intranet site for status and for information sharing.
- Connectivity is king – make sure you have good Network connectivity to the offshore facility with fail-over contingency plans.
- Consider a secured server region offshore that is within the company firewall.
- Utilize MS Net meeting or a similar tool to communicate design sessions.
- Use QA checklists.
- Use fulfilment checklists.
- Utilize issue and risk tracking tools.
Project Management techniques
Here are the lessons learned regarding project management techniques:
- Encourage over-communication of problems. Resources may say all is great when under the covers problems lurk.
- Remember that offshore resources are motivated/rewarded by getting a chance to a) increase their technical skills, b) lead other consultants, or c) be onshore. Use these carrots when negotiating/rewarding key team members.
- Schedule early morning weekly status meetings in the US (and bring donuts) to keep communication open.
- E-mail around the clock.
- Keep project centric approach. If Service Level Agreements (SLA's) for delivery are met, you can have fun as a team.
- Understand offshore vacation schedules and factor theminto the project schedule.
- Establishing a primary vendor is a best practice, but competition from multiple vendors is a useful strategy in containing costs.
Cross Cultural techniques
Here are the lessons learned regarding cross cultural techniques:
- Go to lunch, ask questions, learn holidays and what they mean, etc. Invite onsite resources to a baseball game or cricket match.
- Jump at the opportunity to visit offshore facilities. I have been to India 7 times and each time I learn something new.
- Use team building to break down cultural borders.
- Be sensitive to cultural styles. For example, on a team of Indian developers, it is common that the one with the most authority will speak for all. Respect this, but also draw out information from the ones actually doing the work to ensure that you have understanding.
- Learn how a person wants to be addressed and their name pronounced. Names can be confusing.
- Not all foreign schools are the same. Make sure that you have good resources educated at good schools.
These lessons are general management lessons which are particularly important when working with offshoring projects:
- Get used to influencing rather than controlling your resources.
- Consider onshore rotation plan to increase team morale and retain the best consultants.
- Appeal to the offshore team's bias to lean on process, but make sure that they really understand what they are doing and not just “how” to follow a process.
- Make sure that you have good client and associate resources that can communicate, are willing to communicate, and are focused on the good of the project.
- Sell to the existing staff resources that outsourcing will actually help them and provide them more opportunities to do advanced high value, client facing work rather than grunt maintenance.
- Explain why it is important to do something a certain way rather than what they think is correct. Cultural biases can delay a project.
- Make sure that your boss shares the vision and sees the value in outsourcing. If you sense doubts, build the business case and educate him/her.
- Reward excellence on and offshore. Do not accept mediocrity.
Offshoring of Information Technology has provided me with the opportunity to meet talented people from around the world, to experience new cultures, and gain new perspectives. Despite cultural diversity and geographic separation, projects can succeed under through the application of these ‘lessons learned'.
I'm convinced that the lessons learned, which I have mentioned here, are just the ‘tip of the iceberg' and that everyone who manages projects with geographically dispersed teams will develop his or her own lessons learned for offshoring. If the predictions for growth are correct, most project managers, program managers, and portfolio managers will need to develop a blend of competencies in project management, vendor management and multicultural awareness and use these blended skills regularly.
In conclusion, managing outsourced resources is more complex than managing resources in the same location. The key to success is follow proven PMI based principles and customize them for the uniqueness of offshore projects. Finally, treat everyone regardless of location with respect and you can expect great results on and offshore.
Datz, T. (2004, July 14) Outsourcing World Tour. CIO Magazine. [Electronic Version] Retrieved 04/06/05 from http://www.cio.com/archive/071504/guide.html
Gardner,WD. (2005, April 4) Outsourcing: Back in the USSR. Information Week. [Electronic Version] Retrieved 04/06/05 from
Hoffman, T. (2003, January 24) Big shift in IT jobs to outsourcing predicted. Computerworld. [Electronic Version] Retrieved 04/06/05 from http://www.infoworld.com/article/03/01/24/030124hnoutsourceit_1.html
McDougall, P. (2005, March 31) Report to be released next week says 30% of IT jobs in developed countries will be “offshored” by 2015. Information Week. [Electronic Version] Retrieved 04/06/05 from
Perez, JC. (2003, January 30) Gartner: Offshore outsourcing gains steam. Infoworld. [Electronic Version] Retrieved 04/06/05 from http://www.infoworld.com/article/03/01/30/030130hngartneroutsource_1.html
Rutkowski, T. (2005, February 1) Industry Moves Toward Global Sourcing. Insurance Networking News. [Electronic Version] Retrieved 04/06/05 from
© 2005, Bruce Woerner
Originally published as a part of 2005 PMI Global Congress Proceedings – Edinburgh, Scotland
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