The ROI of outsourcing software development

Given how much AI-assisted coding and low-code/no-code tools streamline the creation of digital products, businesses and organizations need to be considering the ROI they can get by entrusting development to external development specialists. In turn, providers of development services need to keep that top of mind in the services they offer and how they market these services.

In this article, we’ll explore four key aspects to consider for determining the ROI of outsourcing software development, with a particular focus on why certain considerations are especially relevant currently in the AI-dominated technology landscape.

The complexity level of development

The more complex the development is expected to be, the more likely it is that an experienced development team will be required to deliver the desired results. Enterprise applications with a complex architecture requiring a lot of integrations benefit significantly from developers with hands-on industry experience.

Development agencies additionally increase these benefits by being able to provide a team carefully composed of developers who have already successfully delivered similar products and/or worked in the same or adjacent sector. AI typically cannot provide these kinds of credentials and references.

For simpler use cases, hobby projects or non-critical applications, AI might do the trick if you lack in-house developers. For more complex, business-critical software, overly relying on AI is a major pitfall that is likely to lead to higher costs further down the line, associated with things such as refactoring, bug fixing and maintenance.

The sector / industry

A related consideration is the industry/sector for which the product is being developed. Sectors such as healthcare, government and higher education provide essential societal services but often do not invest as much into their in-house development capabilities, preferring to rely on external development specialists for the software that allows them to continually provide these services.

For companies in highly lucrative sectors where a fast time to market is key to growth, outsourcing development also often entails higher profit margins and a better ROI than keeping everything in house.

Smaller companies working in such sectors are likely to resort to AI, but for bigger players any minor issue or error could have a massive impact on the revenue (e.g. revenue loss due to e-commerce website downtime, no matter how minimal this downtime is).

Fast-growing startups and/or companies that lack expertise in a specific part of the required tech stack are the most likely to turn to external providers of developer services. This allows them to maintain momentum and growth without the costly investment and risks of scaling their in-house development.

Project / engagement duration

Another key consideration is the expected duration of the project and/or engagement with the development partner. Most often, longer engagement correlates with a positive ROI of outsourcing, as there are more potential points of friction and hence more hands-on industry experience required with longer engagements.

One thing people often fail to consider is that a project doesn’t end with the launch of the website or application. Monitoring the performance and any issues users might be experiencing, as well as proper maintenance and upgrading, are just as important to a project’s success as is actually releasing the software within the deadline.

Importantly, humans are much better than AI at these aspects of development that go beyond simply producing code and launching the product. Even when AI is leveraged for those tasks, the results are significantly better when used by actual software developers with a deep understanding of the code and both the broader technical as well as business context.

For companies and organizations that don’t have strong in-house development capacities and/or don’t want to invest into building them, outsourcing development is the optimal way to guarantee long-term success of a digital product. Providers of development services need to deliver value beyond the code to ensure a positive ROI for their clients in an AI-dominated landscape.

Regulations

Another major reason for needing reliable and experienced developers are legal requirements resulting from government regulations. This typically involves adherence with security, accessibility and privacy regulations (e.g. GDPR and the European Accessibility Act in the EU), but can also include updates to regulations for specific sectors such as transportation.

AI is infamously poor at features such as security and privacy. These standards require strict adherence which can only be ensured by experts familiar with them, ideally from having already implemented them on previous projects without relying on AI.

Development companies providing developers to their partners showcase project case studies and references so prospects can confirm their experience in successfully following the relevant regulations in the past and ensure the right partner fit. Any certifications such as ISO 27001 should of course also be showcased.

Closing thoughts

No matter how much AI-assisted coding advances, human expertise remains irreplaceable when development needs go beyond code production. Whenever development is tied to revenue or any kind of essential services (e.g. government digital services), AI is not enough. Outsourcing software development allows businesses and organizations to sustainably deliver digital products and services without having to continuously invest into in-house development.

Development agencies need to provide more value than AI to justify their clients entrusting them with development rather than relying on AI. By leveraging AI wisely and responsibly, agencies can bring unmatched value to their partners’ development needs, for example by using AI to quickly develop MVP versions of the product to showcase key functionality and/or immediately identify potential issues.

In case you’re encountering development challenges that neither AI nor your in-house developers can handle, check out some of the different services we provide to learn how we can help you out. For any specific questions and needs, you’re also welcome to get in touch with us directly, and we’ll be happy to discuss the best fit for you.