Why Do Software Projects Fail When Outsourced?

Why Do Software Projects Fail When Outsourced?

By Mainak Biswas August 06, 2014 - 837 views

Ever wondered what it takes to run an outsourcing project successfully? Ever considered the risks involved in not only hiring IT outsourcing companies, but also taking up clients from far and wide? It is business’ nature that risks can’t be avoided and that there are going to be successes and failures. What if we could predict which projects, clients and vendors have the highest probabilities of being failures? What if we knew beforehand if we could stop projects from failing and if we could ensure their success?

It looks like neither the vendors nor their clients are completely powerless against the mechanisms of business risks. There are ways to know what works and what will not. In this article, we need to take a brief look at Magne Jørgensen’s study on the various failure factors of small software projects in the IT outsourcing industry. The study validates several doubts and hunches that we already had.1

What are the highlights of the study?

  • The study revealed that risk of project failure can be predicted with a high accuracy.
  • Choosing vendors based on previous good performance reduces risks of failures.
  • Choosing vendors based on low price increases risk of failures.
  • Project failures do not depend only on vendors but also on clients.
  • Project failure rate differs across geographical regions.

The study’s aim, methodology and findings

The study titled “Failure factors of small software projects at a global outsourcing marketplace” was published in the Journal of Systems and Software early this year. The study helps us to understand why small scale software projects fail in an outsourcing marketplace setting. The study evaluated 7,85,325 projects and tasks at a marketplace called Using a binary logistic regression model, Jørgensen was able to predict 74% of failures and 67% of non-failures, a feat that is almost astounding. There are several important points that we need to understand.

  • If a client has previously worked with a vendor and if the vendor completed the project satisfactorily, succeeding projects had a high rate of success. This is a no-brainer. This is one of the reasons why we choose to work with the same vendor once we know that he or she was able to deliver what was promised.
  • The client’s characteristics were equally important in explaining project failures. If the client insisted on a low price, the project, usually, failed. What could be the reason? Vendors, usually, agree to work for a low price out of fear of losing business. Eventually, they lose interest in providing the kind of services they usually provide to others at a lower price. Money is always a motivating factor. If clients insist on very low prices, project failure rate will increase.
  • Client’s skills were important in explaining project failure as well. We usually think of vendors as the ones who need to be skilled. The question of clients’ skills does not arise at all. According to the study, if clients are not skilled in a certain area, for instance (we assume), negotiation skills, the project could fail.
  • Increased project size heightened the risks of failure as well. This is again a no-brainer. Unless the vendors are a huge enterprise, burdening a small and individual software developer with reams of coding work to do is going to end up badly. If the project is big, then clients need to hire at least a small or medium sized company, instead of individual coders.

What we think

The study used a large sample and reliable statistical methods. Thus, its results can be considered valid. If you are looking for good quality vendors, you probably need not reduce the price so much that it de-motivates them. On the other hand, vendors must not take up projects which are too large for them to handle. Both the clients and the vendors need to bite as much as they can chew. Also, depending on the testimonies of friends and acquaintances to choose the right vendor is a good idea, if we consider the findings of this study.

An abstract to the study can be found here.


  • Jørgensen M. Failure factors of small software projects at a global outsourcing marketplace. Journal of Systems and Software. 2014;92:157-169.
Page Scrolled