Protect your business by discovering how to lower third-party risk when order custom software development.

Business is risky by nature. Whether you’re just starting out, wondering if your company will work, are in the process of expansion, or somewhere in between, the success of your business is deeply intertwined with risk and risk analysis.

As the world has evolved, so too has this risk. With everything now online, companies are increasingly more frequently needing to engage third-party custom software development companies to meet their technology needs and connect with their customers. No wonder Gartner named managing the risks posed by third-party vendors one of the top concerns of chief audit executives (CAEs) in 2019. Let’s explore how third-party risk can affect your business, why it is a particular concern in software development, and how to successfully manage it.

Why Engage Third-Party Software Developers?

Businesses are choosing to outsource their software development needs for a number of reasons:


A senior software engineer in New York will cost your company in the region of $128,796 per year before tax, in London that figure is closer to $60,000 (£47,000), according to Glassdoor, meanwhile, in Eastern Europe, the same specialist will set you back around $30,000. But that’s just one specialist.

Hiring in-house can be expensive, even more so when you need to hire more than one person to make your software needs come to life. Consider whether it would be more cost-effective to employ numerous local specialists at the prices above, or rent an entire qualified team for a similar amount.

Specific Requirements or Custom Solutions

Software development is not as straightforward as finding one tech genius and getting him or her to tailor your software solutions. It’s likely you’ll need numerous tech gurus with a particular range of skills—front- and back-end developers, business analysts, and QA engineers, to name a few.

Saving Time and Money

Creating vacancies, interviewing, building a team—it all takes time—approximately 35 days for a software engineer, 25.9 days for a QA specialist, and 12.5 days for a Java developer, according to Glassdoor. It also requires patience and money. The Society for Human Resource Management estimates that the cost of hiring an employee in the US on average is around $4,129.

Risk Factors and Risk Management

There may be a lot of benefits from outsourcing software development, but there are also some risks too. Here we will look at three categories of risk—business, technology, and coordination.


Data Protection and Information Security

Risk: Your outsourcing partner steals and reuses your confidential information, starts spamming your clients or sells your trade secrets.
How to manage it: While you can’t protect against all issues of data protection, you can use confidentiality agreements to reduce the risk of the third-party disclosing confidential information. Additionally, consider limiting the amount of access the third-party has to your data. If there is something they don’t need to know, make sure they don’t have access to it.

Partnership Agreements

Risk: It starts out like a dream, but then goes wrong—contract agreements were not fulfilled, standards drop, or there are just plain old problems in communication.
How to manage it: Get your facts straight at the very beginning, whether the outsourcer is your close friend or someone whom you barely know. This is business, outline the terms and conditions at the start, know both your responsibilities and the consequences if something goes wrong.

Due Diligence

Risk: Your outsourcer has terrible reviews, is bankrupt, or worse, doesn’t actually exist.
How to manage it: We’ve all bought into a scam at some time of our lives, but it’s important not to bring that risk into your business. Do your due diligence by learning more about your outsourcing partner, ask about their references, request their samples, or make an order for a test task.



Risk: There’s zero communication, way too much, or the dialogue is just not productive.
How to manage it: Set a communication schedule and make it clear up front. If you need updates once a week, put it into your agreement. Or if you want your outsourcer to report on specific pieces of information, set a specific meeting, plan for it, and ask the direct questions you need answering.


Risk: There are too many chefs in the kitchen or worse none.
How to manage it: Any outsourcing project needs a strong project manager. This person will be responsible for managing your project on your outsourcers side and communicating with you. This saves you time interacting with various specialists and organizing their tasks. It also helps you avoid the too-many-cooks-in-the-kitchen scenario where everyone (and no one) is trying to manage your project.

Milestones and Processes

Risk: Your project is not done on time, or you have no idea how it is going
How to manage it: Back to the agreement, before you start, make sure you have an approximate timeline of how things should happen and when. Of course, not everything goes to plan, but it gives you something to work on. Even if you don’t have it in your agreement, contact your project manager and set up regular updates, create milestones, and make sure your project gets done.



Risk: Your outsourcer doesn’t have the skillset you need
How to manage it: Perhaps your project changed, maybe the specifications developed as you moved further into the project, or the right person wasn’t there, to begin with. In any case, this is a problem that needs solving. Try to find a way to compromise with your contractor to hire that much-needed team member to complete your project. For the future, it’s a significant learning experience in project planning.


Risk: The design isn’t exactly what you had in mind
How to manage it: If you’re not satisfied with how it looks, it’s time to speak up, no matter what stage your project is at. The risk is having to start again from scratch, perhaps, with a new outsourcer. How expensive this will be, depends on your original agreement. If you’ve worked in edits, that’s great, if not you could be expected to make an extra payment. This is one key reason why it’s best to discuss details in advance.

How it Works and Quality Assurance

Risk: Your project has a bug or needs to be updated
How to manage it: Your project’s been completed and is ready for you. While at first all is going ok, soon users start reporting bugs or key updates are needed. Before starting your outsourcing partnership, these are crucial elements that need to be discussed. One of the minuses of outsourcing is that updating your software is going to cost you extra (but perhaps not as much as a full-time member of staff), so think in advance and plan for updates and bug-fixes.

What to Take Away?

By outsourcing your software development needs, you’re placing your trust in another party, and this can be daunting. The key to minimizing this risk is forward planning, open communication, and learning (quickly) from mistakes. These are crucial areas that appear in all types of risk management and demand your attention.

What’s the Key to Choosing a Reliable Software Development Provider?

Now you know the risks, the question is how to get it right?

First and foremost, do your research. Decide what you’re looking for, what are your fundamental needs and what’s really going to benefit your business.

Next, research companies that do custom application development, examine their past clients and see if you like their work, read reviews. Only when you’re reasonably sure get in touch and find out what they can offer.

Once you’ve found the one, start working on your agreement right away and pay close attention to that contract. It might only be a “piece of paper” now, but it can be the difference between a successful project and a failure.

About the Author

Jan Guardian is CBDO at Staylime. Jan is passionate about marketing and emerging technologies.

Featured image via Unsplash.