Resource Augmentation vs. Project Outsourcing: Making the Right Choice to Set up an Offshore Software Development Team

The decision to set up an offshore software development team is increasingly popular among tech firms and startups, due to its potential to reduce costs, access a broader talent pool, and gain a competitive edge. However, companies are often torn between two primary options: resource augmentation and project outsourcing.

Let us explore the differences between these two approaches and guide you in making the right choice to establish a successful offshore software development team.

1. Ownership of Staff

Resource Augmentation:

Resource augmentation is a staffing model where the hiring organization seeks external resources to complement its existing team. The hired staff works as an extension of the in-house team, under the direct control and supervision of the hiring organization. The main characteristics of resource augmentation are as follows:

Control and Supervision: The hiring organization maintains complete control over the external staff, holding the responsibility for their day-to-day management, offering direction, defining objectives, and supervising the tasks executed by the augmented workforce.

Integration: The external staff becomes an integrated part of the organization’s workforce. They work alongside the in-house team members, fostering collaboration, knowledge sharing, and smoother communication within the organization.

Expertise and Flexibility: Resource augmentation allows the hiring organization to access specialized skills and expertise that may not be readily available in-house. It provides the flexibility to scale the team up or down based on project requirements.

Responsibility: The hiring organization assumes the overall responsibility for the project’s success or failure, as they are directly managing the augmented resources.

Project Outsourcing:

Project outsourcing involves delegating the entire project or specific tasks to an external company or vendor. In this model, the staff assigned to work on the project are employees of the outsourcing provider, not the hiring organization. The key features of project outsourcing are as follows:

Delegation of Control: The hiring organization delegates the management and control of the project’s execution to the outsourcing provider. While the organization may define the project requirements and objectives, the day-to-day management of the team and their work is handled by the outsourcing provider.

Specialization: Outsourcing providers are often specialized companies with expertise in specific domains or industries. They are chosen based on their track record and ability to deliver the required results efficiently.

Reduced Administrative Burden: By outsourcing the project, the hiring organization can focus on its core activities while the outsourcing provider takes care of staffing, training, and administrative tasks related to the project.

Shared Responsibility: While the outsourcing provider takes responsibility for managing the project and its staff, the hiring organization still retains accountability for the project’s overall success and strategic outcomes.

2. Duration of Engagement

Resource Augmentation:

In resource augmentation, the duration of engagement tends to be more flexible and adaptable to the specific needs of the hiring organization. The external resources are hired to complement the in-house team, and the duration of their engagement may vary based on project requirements and objectives. The key characteristics of the duration of engagement in resource augmentation are as follows:

Project-specific: The engagement period for external staff is typically tied to the duration of the specific project they are hired to work on. As the project progresses, the hiring organization can adjust the duration of engagement to align with changing project needs.

Scalability: Resource augmentation allows the hiring organization to scale the team up or down as required. If the project scope expands or changes, additional resources can be brought in for a temporary period. Likewise, when certain project tasks are completed, the external staff’s engagement can be concluded.

Renewals: In some cases, if the project is ongoing or requires continuous support, the duration of engagement may be renewed periodically. This allows the hiring organization to retain the external resources’ services for longer-term projects without committing to a permanent arrangement.

Flexibility: The hiring organization has the flexibility to adjust the duration of engagement based on the project’s progress, budget constraints, and other organizational priorities.

Project Outsourcing:

With project outsourcing, the duration of engagement is typically tied to the contract or agreement made with the outsourcing provider. Since the outsourcing provider takes full responsibility for the project, the duration of engagement is more defined and follows a different pattern compared to resource augmentation. The key aspects of the duration of engagement in project outsourcing are as follows:

Contractual Agreement: The duration of engagement in project outsourcing is specified in the contractual agreement between the hiring organization and the outsourcing provider. This agreement outlines the project timeline, deliverables, and service-level commitments.

Fixed-term: Project outsourcing engagements often have a fixed-term duration, meaning that the outsourcing provider commits to completing the project within a specified period. This duration may be influenced by project complexity, scope, and deliverables.

Long-term Contracts: For more extensive and complex projects, the duration of engagement in project outsourcing can be longer-term. The outsourcing provider may be engaged for months or even years to complete the project and provide ongoing support.

Contract Renewals: In some cases, the hiring organization may opt to renew the contract with the outsourcing provider for additional phases or continued support, extending the duration of the engagement.

3. Cost Structure

Resource Augmentation:

In resource augmentation, the cost structuring is generally more flexible and adaptable to the hiring organization’s needs and budget constraints. The external resources are brought in to supplement the in-house team, and the cost structure is influenced by various factors. The key characteristics of cost structuring in resource augmentation are as follows:

Hourly or Daily Rates: External resources may be billed based on hourly or daily rates, depending on the agreement with the hiring organization. This allows for precise cost monitoring, especially if the duration of engagement fluctuates during the project.

Project-Specific Costs: The cost structuring can be tailored to the specific needs of the project. For example, certain resources may be required only for specific project phases, allowing the organization to allocate costs accordingly.

Scalability: Resource augmentation provides the flexibility to scale the team up or down as needed. The hiring organization can adjust costs by adding or reducing external resources based on project demands.

Overhead Savings: By hiring external resources for specific tasks, the hiring organization can potentially save on overhead costs associated with hiring full-time employees, such as benefits, office space, and equipment.

Project Outsourcing:

With project outsourcing, the cost structuring is typically more defined and determined by the contractual agreement with the outsourcing provider. The outsourcing provider takes full responsibility for the project, and the cost structure follows a different pattern compared to resource augmentation. The key aspects of cost structuring in project outsourcing are as follows:

Fixed Costs: Project outsourcing engagements often involve fixed costs, where the hiring organization pays a predetermined amount for the entire project or specific deliverables. This allows for better budgeting and cost predictability.

Long-Term Contracts: For longer-term projects, the cost structuring may be based on periodic payments or milestones achieved during the project’s lifecycle. This approach ensures ongoing support and resource availability.

Expertise and Value: Project outsourcing cost structuring takes into account the proficiency of the outsourcing provider and the unique advantages they offer to the project. Elevated expenses may be linked to the presence of specialized skills and a well-demonstrated history of delivering successful projects.

Full-Service Costs: Project outsourcing typically includes a comprehensive service package, covering all aspects of the project, from staffing to project management. The costs are bundled together, providing a clear breakdown of expenses.

Conclusion

In conclusion, resource augmentation emerges as the superior choice for establishing an offshore software development team due to its advantages in control, integration, flexibility, and cost-effectiveness. By opting for resource augmentation, tech firms, and startups can effectively optimize their offshore development efforts, leading to successful project outcomes and long-term business growth.