How to decide about using outsourcing for software development and application maintenance projects

Updated 2026 First published in January 2024. We've added a decision table, a short "How to start" section and answers to the questions we hear most about outsourcing.

Over the period of the last 15 years, I have had the opportunity to interact and work with several business leaders who either used or considered outsourcing their IT projects to local companies or to offshore partners. Here I am sharing some thoughts about the learnings we had from these experiences.

Whether you are a CIO or CTO in a medium size corporate, a founder for a start-up or director or manager of IT unit of a large enterprise, at some point you have been tasked to decide whether to use external resources to deliver your projects.

Outsourcing is of two types

• Outsourcing to a software development firm locally in the US or your own country
• Outsourcing to a software development firm internationally, generally known as offshore outsourcing

Updated 2026 Many companies now combine the two: a local team leads the project and works with you in your time zone, while an offshore team does much of the development. We call this hybrid outsourcing.

Here we are going to discuss outsourcing in general and address decision factors about each type of outsourcing. While people tend to think more about 'offshore', there are pros and cons for each model of outsourcing.

Why to outsource?

Costs should not be the reason or only reason - this should be very clear in your mind when you start. There can be several reasons that are pressing you or your supervisor to start looking for outsourcing services for your software or application development projects.

• Current team is occupied and you need additional capacity to handle the workload
• Skillset required for the development work is not available in-house
• Your company's core business is non-IT and hiring IT resources in-house would be costly or extra overhead
• Your company is looking to grow IT team slowly by first hiring external resources and then bringing the work in-house
• Company strategy is to build the product outside and then maintain in-house
• The main developer who knew about the application is leaving and you cannot find replacement quickly
• A vendor built part of the application and then ran into issues that they cannot fix

As you see, it could be a strategic move to use outsourcing or you could be forced to do so because of the business situations. The above reasons are for generic outsourcing. There are other reasons that require using offshore model.

• The key reason to use offshore for outsourcing is costs - the maintenance costs of the application cannot be justified using local resources - and it drives you to find cost effective alternatives.
• Systems require 24-hour monitoring - and using resources in different time zones becomes necessary.
• Your company is large enough and has staff around the globe who require local support.
• The company strategy is to keep the application knowledge base across different teams in different countries, so no one is bottleneck, and it reduces market driven risks.

When to outsource?

You might ask whether 'when' is really important to think about - it is always 'Now' in business. True - but you do not want to be too early or too late to decide this either.

It is too early to decide about outsourcing when:

• You just joined a new company that has never done outsourcing. You did this in the past with your previous company and you want to impress your new employer. A career advice - "it is bad idea to start outsourcing for a company you just joined". Because you will be pairing up two companies (or two teams) to work with each other, and along with you in between, there is no trust within this trio.
• Cost reduction is necessary, and the company has never done outsourcing before. Many companies or managers flat fall on their face when they expect that they will reduce the cost just by outsourcing. The team who manages the projects need to have prior experience with the outsourcing team, so they know their strengths and weaknesses. Before having this confidence, outsourcing will bleed the team of both time and money, and you will not get desired results.
• There are no processes and defined outcome for success. The outcome for success should be very well defined so that you can enforce the processes that can be followed by both internal and external teams. Otherwise, you will run into teams pointing fingers at each other or waiting on each other.

It is too late to decide about outsourcing when:

• The project was done internally first and then half-way through management decides to outsource it entirely. It is too late to outsource the project to a third party and expect that they can pick it up half-way. There will be lot of back and forth and throwing ball over the court when the team picks up half-way. There are ways to manage outsourcing in this situation, but it all becomes subjective here.
• You are under deadline for meeting some compliance requirement or preparing for a demo for funding round meeting. In such scenarios, onboarding new people will take away time that is critical to meet current deadlines. The approach at this time would be to outsource pieces of work that are not too critical and require the least amount of time from your critical resources.

What to outsource?

We are going to address this question keeping the original subject in mind here that you have software development or application maintenance project, and you are deciding what to outsource for such projects.

It highly depends on your company's own capabilities, what you can do in-house and what you can outsource. The high-level advice is "you want to outsource what you can clearly measure the success of".

If you have in-house technical capabilities:

• If your team is good at solution architecture and design, then keep this in-house. Hire external teams to follow the practice you have with specific instructions to follow. Have your team review the code and design changes as they are made to make sure it does not break away from their standards of practice. Updated 2026 This is what IT staff augmentation is for: the developers join your team and work under your direction.
• If your team is inexperienced in the desired technology, you may decide to outsource the end-to-end development of the application. You will need to plan for maintenance and upkeep of the application or system once it is built. Either you will have to train your team to maintain it, or you will have to keep a vendor resource available for this. You want to agree on future price increases for such support.
• You can also outsource other activities such as:
  • UI/UX - Graphics Design
  • QA - Testing
  • Documentation
  • CI/CD DevOps activities

If you do not have in-house technical capabilities:

• In this case you want to engage in a model to get a fixed outcome for fixed costs. You will surely be at the mercy of the vendor for their quality of work and integrity. But past references and reviewing the completed projects may help you decide this. You can also engage a 3rd party consultant to review the work to ensure that your investment is safe.
• Outsource the end-to-end development of application or module. Let the vendor decide what resources they need to complete the project, while you ensure the delivered product meets your requirements.

Remember a cliché that 'you cannot outsource the risks and keep all the profit'.

Quick decision table

Updated 2026 Here is the advice above in one place:

Your situation	What to outsource	Model that usually fits
Strong in-house team, short on capacity or one skill	Specific tasks, built to your architecture and reviewed by your team	IT staff augmentation
In-house team, new to the technology	End-to-end development, with a plan for who maintains it	Project (fixed price or milestones), then support or hand-over
No in-house technical staff	End-to-end development of the application or module	Fixed outcome for a fixed cost, ideally with a third-party review
Maintenance costs too high locally, or 24-hour coverage needed	Maintenance and support	Offshore or hybrid
Project already half-way, or a deadline is close	Only non-critical pieces that need little of your key people's time	Small, well-defined tasks

Whom to outsource?

'Who' is the most important question in your decision process. The vendor you are trying to find will either make it or break it. If your first experience with outsourcing vendor is bad, then you may never try it again. But here are things you can look for:

• Your technology or software services vendor is not like a sandwich vendor. It is your technology partner - possibly for a long time. You want to compare whether in terms of size of your company revenue, number of people, amount of business - is this vendor equal? The more equal and similar the vendor is, the better your relationship will be. Also, a vendor who is smaller in size than your own company will provide better service too. Vendor who is bigger than your own company will never have enough interest in your company's success and will drive your costs higher. As your relationship progresses, if the vendor becomes a true partner by having some equity, then it will be true win-win. Find out if the vendor has such relationships with their prior clients.
• The outsourcing company should be headed by technical geniuses rather than mere sales or marketing people. Sales or Marketing head of the vendor company will sound too good initially but cannot deliver the right solution. Technical leadership will be able to guide and advise when needed.
• The outsourcing company should have physical office as local as possible. This will reduce a lot of logistical costs. Even with so much technical work done remotely today, physical proximity will be unbelievably valuable as time goes by.
• The outsourcing company should be incorporated as well as should have business insurance in the US (or your local country). Technology vendors will know a lot more about your business, confidential information as well as data that you want to be able to protect using local laws. Signing NDA (non-disclosure agreements) or Service Agreements with a technology vendor will only make sense when both the buyer and the service provider are in the same country.
• Verify references for the vendor company within your own circle. Nowadays people ask their friends for referral for a few-hundred-dollar handyman job - but they trust the online reviews to do business for hundreds of thousands of dollars. That's an irony. There are many review sites that review services companies, but reviews can be sponsored or filtered, and the review sites have their own business model. Use them as one input, not the deciding one.
• Verify digital profiles on LinkedIn of the people you are going to be working with. People make company. Their individual reputation is what matters most to them when they work on any project.

Even if you know all the above, you will go wrong with companies and you will be right for few. No matter how much training is given, everyone learns the most from their own mistakes.

A prospective company approached us for their possible outsourcing needs. We were local to them being in metro Detroit area. After a few presentations and all, they went with another company in Dallas. They told us that the reason they picked another company was because a UI/UX designer was in the leadership team in that company. After a year or so I met a consultant who mentioned he was hired as consultant by this prospect - so I asked curiously what happened to their outsourcing company they hired over us? Consultant found out that the relationship did not work out after few months. The reason is simple - they went for shiny things.

Updated 2026 For two examples of longer relationships, see how MadDog Technology found a development partner to bring its ideas to market and how Full Throttle used staff augmentation for customer and partner initiatives.

How to outsource?

Success of outsourcing, like all other endeavors, also depends on its execution. The goal of this article was to write about how to decide about outsourcing. We hope that all the above thoughts may help you make your own decisions too.

Updated 2026 A few things that make the start go well:

• Write down what success looks like before the work starts: what gets delivered, by when, and how you'll check it.
• Start with a small, well-defined piece of work. It shows you how the vendor works, and gives both teams time to build trust before anything critical is handed over.
• Agree on the process both teams follow: who reviews code, how often you meet, and where questions and decisions are written down.
• Decide early who maintains the application once it's built, and what support will cost.
• Agree on the commercial model that fits the work: fixed price, milestones or hourly. Our How We Work page explains how we use each.

Frequently asked questions

Updated 2026 Added in October 2026.

What is the difference between outsourcing and staff augmentation?

With outsourcing, the vendor delivers an outcome, such as an application or a module, and manages the people doing the work. With staff augmentation, developers from the vendor join your team and work under your direction, so your team keeps control of the architecture and design.

Should I outsource locally or offshore?

A local firm is easier to meet with, works in your time zone and is covered by the same laws as you. Offshore costs less, especially for ongoing maintenance, and can cover more hours of the day. A hybrid model, with a local team leading an offshore team, gives you some of both.

What should I keep in-house?

If your team is strong in architecture and design, keep that in-house and outsource work you can clearly measure, with your team reviewing the code. If you don't have technical staff, outsource the whole application or module for a fixed outcome.

How do I choose a software outsourcing company?

Look for a vendor of a similar size to your company, led by technical people, with an office close to you, incorporated and insured in your country. Check references through people you know, and look up the people you'd work with on LinkedIn.

Should I pay a fixed price or by the hour?

A fixed price for a fixed outcome suits work with clear requirements, especially when you don't have technical staff to direct the work. Hourly suits ongoing work or a team that adds to your own. At SharpQuest we work on fixed-price, milestone-based and hourly terms.

How do I protect my intellectual property and confidential data?

Sign an NDA before you share details, and a service agreement that covers ownership of the work. Both mean more when the vendor is incorporated and insured in your own country, so local laws apply. We sign the client's NDA or use our own before any details are shared.

How much does it cost to outsource software development?

It depends on the scope, the model and where the team is: onshore, offshore or a mix. Offshore usually costs less per hour, but plan for the time your own team spends managing and reviewing the work. Our How We Work page explains our pricing models, and we can give you an estimate once we know the scope.

When is it too late to outsource a project?

When a project is half-way through and the plan is to hand it over completely, or when a deadline is close. In those cases outsource only small, non-critical pieces that need little time from your key people.

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Updated 2026 If you're weighing outsourcing for a project or an application you maintain, talk to us at our Troy, Michigan office. We'll help you work out what to keep in-house and what a sensible first piece of work would be.