Reasons Why Outsourced Software Development Projects Fail


It’s no secret that IT outsourcing is gaining popularity every year as more businesses emerge. According to Inverita, IT outsourcing reached $519 billion in 2023, marking a 22% increase over 2019. Outsourcing software development can be a fantastic step if approached correctly.

However, we can't ignore that many business owners have doubts about outsourcing software development to offshore teams due to various reasons: losing control over the project, receiving poor results from the software agency, missing deadlines, and encountering communication issues, among others. What’s more, a failed project or product can result in significant losses of time, money, and resources, making it challenging to recover from the damage.

Chances are as a business owner, you receive hundreds of emails weekly offering the same low-cost but best-quality service with similar promised results. So, how can you truly select a reliable outsourcing partner and ensure your experience isn't a disaster?

As most of our software engineers have successfully developed and managed dozens of complex software projects, we will try to help you avoid the risk of a software development outsourcing failure. So we've compiled a comprehensive list of common mistakes you or your team should be aware of.

So what are the main reasons that cause software development projects to fail when outsourcing?

Not Choosing Your Outsourcing Partner Wisely

It’s no secret that choosing the right partner is one of the first challenging processes your company might encounter. How you approach this process varies greatly depending on factors such as your company size, budget, location, complexity, and the type of software needed.

First and foremost, it's crucial to understand what your business aims to achieve through outsourcing. Are you seeking a high-quality product? Cost or time savings? Or perhaps you lack the technical skills within your internal team and require staff augmentation or a long-term partnership? Having a clear goal in mind ensures that your requirements remain consistent, allowing you to communicate your vision effectively.

Before reaching out to a development team, assess your business needs and honestly evaluate the desired outcome. When searching for a development partner, take steps so you don’t overspend and make profitable decisions.

For instance, if you run a 10,000-employee business, can a software company with only 3–5 software engineers tackle a large-scale project within very strict deadlines? On the contrary, if you operate a 10-employee business, does it make sense to approach the largest or most expensive outsourcing agencies? Probably not.

When evaluating potential partners, examine the software agency’s portfolio, the variety of projects they've handled, their years of expertise, and the industries they specialize in. Platforms such as Clutch or Techbehemoths will help you with this information unless it’s displayed on their website. If you’re looking for detailed advice to help you navigate the vast sea of outsourcing companies, check out our short guide.

Not Establishing a Clear Project Management Process

Once you’ve found a reliable partner and both teams are ready to get started, the other most important step is to establish a transparent project management process. Why? Developing a software product or tackling a complex software challenge can easily get out of hand unless the development team establishes a controlled environment.

An experienced project manager plays a crucial role in maintaining a controlled environment. He/she needs to oversee deadlines, team dynamics, and costs to ensure timely and budget-friendly delivery. To sum up, the project manager is responsible for carefully planning and organizing your software development project.

For example, a clear project management process includes measurable metrics and facilitates periodic feedback loops. This ensures clarity on the development progress, current team focus, and strategies to accomplish set goals within specific timeframes— whether weekly, monthly, or annually.

Agile methodology is one of the approaches to software project management that emphasizes flexibility and collaboration. This methodology involves breaking down the development process into manageable sprints, typically lasting 2-3 weeks each. Through ongoing collaboration, refinement, and testing, the team steadily advances toward achieving your objectives within the designated time frame.

While having a clearly defined development plan is crucial, it's equally essential for the software development team to prioritize early adoption among real users. These users could be a select group of customers or even members of your internal team. This early testing not only verifies functionality but also facilitates prompt feedback gathering—sometimes even before the project is fully ready for launch, allowing swift adjustments.

Choosing More Than One Decision-Maker

There is one lesser-discussed reason for failed outsourcing attempts. It’s when the software development team deals with multiple decision-makers in your company with overlapping responsibilities to oversee the same project. Why? These decision-makers may not agree on the development processes, timelines, management strategies, cost distribution, and can eventually mislead the entire development team.

To refrain from chaos, the software developers and your team should establish clear lines of responsibility and communication. This clarity ensures everyone understands every step: who is assigning the goals of the project. In the development team who is accountable for leading the project towards its objectives, how goals will be measured, etc?

Not Defining the Project Scope Correctly

Your software development partner needs to clearly define the project scope as it stands out as one of the most critical factors contributing to project success in software development.

To convey the significance of the project scope, consider this scenario: You've entrusted the entire development of your product to an offshore development team. However, the development team fails to document or clearly outline the scope and the project kicks off with misalignments at every turn. From the number of specialists involved to resource allocation, delivery timelines, and growth metrics: everything goes off course.

This happens when software developers lack a clear understanding of your expectations, the product requirements, and the features to be incorporated. Transparent communication and thorough documentation are essential in preventing a potential product development disaster.

The opposite is also true when the software development team clearly defines and agrees on the project scope right from the start. However as the development process starts, your requirements may begin to shift or expand. With more and more scope change requests in the process and no clear vision, the development quickly spirals out of control and results in project failure.

Not Setting Realistic Goals and Expectations

Another common reason for outsourcing failure is not setting realistic goals. Both parties must come up with achievable objectives and understand the purpose behind the project. As the business owner or representative, try your best to clearly communicate your goals, why the project is necessary, and what you aim to achieve with the outsourcing team, along with deadlines.

Make sure the goals are doable and realistic. If you do have clear goals set up right from the start, make sure they do not change constantly in the development process resulting in confusion and loss of control. Constantly changing requirements or unclear goals are not the only problems that can sabotage your product or project development. Try to refrain from setting unrealistic deadlines.

As they say "Rome wasn't built in a day", so be cautious if you can push timelines over quality, costs, or relationships to just achieve unrealistic results. Beware, that in most cases simply adding more specialists will not solve this issue as every project is different and requires different responsibilities and it may also cause higher software development costs for you.

On the other hand, your software development partner is responsible for making sure they clearly understand your goals, document everything, put together a strong development plan and a management process to achieve all your targets step by step. Once the deadlines are set, software developers and the management team should strive to use the right methodologies and communicate effectively with each and your team.

Technical Decisions Made for Non-Technical Reasons

We already mentioned the importance of finding experienced software development partners and the role they can play in the process. For example, if your development partner is less experienced, instead of choosing a technological stack based on your project goals, they might opt for the most popular framework, the newest trend, overlooking the long-term negative effects.

We all witnessed this trend with companies chasing the AI boom, rushing to integrate Generative AI into their products, most times without considering the customer challenges it can address and the benefits it can provide. And although in most cases AI integration does live up to the hype, in the long term Forbes predicts that 95% of AI products eventually will fail as they hit the market. Common reasons for failure include poor market fit, underestimation of operational costs, lack of originality, and more.

The opposite is also true when less professional development teams may try to stick with the limited frameworks or programming languages they are familiar with, rather than learning new technologies or selecting the best tools for the project. This approach can ultimately harm your project in the long run. Such behavior often is the result of the team attempting to conceal their lack of technical expertise and pushing options that may compromise the project's success.

Lack of Security Measures

Make sure that your development team understands the importance of maintaining your intellectual property rights and addresses your security concerns. Consider suggesting the signing of a Non-disclosure Agreement (NDA) before the project begins. This proactive step will help you feel more secure regarding safe coding practices, data security, and project confidentiality issues once development begins.


IT outsourcing continues to become more common, with businesses increasingly turning to offshore software development teams for their development needs. Yet, the path to successful outsourcing is full of potential bottlenecks, from choosing the right partner to clearly defining project scope and managing expectations. Your software development team should have clear expertise and make technical decisions to prioritize project requirements and goals over trends to ensure long-term success. By addressing these factors, businesses can maximize the benefits of outsourcing while minimizing the risks of failed software development projects.

May 24, 2024