Why Is Vendor Evaluation Important in Software Outsourcing?
If your organization has decided to build custom software to improve customer experiences, optimize internal processes, and increase revenue, sooner or later will come the question: how to choose a software development company? As the global trend for outsourcing software development is here to stay, there are thousands of IT companies boasting of their ‘full stack’ skill set or highlighting their ‘unprecedented’ pricing options. But how can you be ensured that they are the best fit for your future project? Here is where vendor evaluation management comes.
Building a custom software application is a significant investment. Implementing the wrong software or even deploying good software the wrong way may result in substantial losses in the market. It can even break the workflow of various teams or even the process of the entire organization. So the evaluation of a vendor becomes crucial. Whether you are a Fortune 500 company or a group of 5 enthusiasts making their startup, the software vendor evaluation process should consider all possible risks and pitfalls, remembering that your main priority is to make a long-term ROI. Here are the main reasons why vendor assessment should be a top priority for your organization:
Risk mitigation. The outsourcing vendor evaluation process helps you identify vulnerabilities before starting the project. So you can take the necessary steps to mitigate them or choose an alternative software development partner. You can easily verify information, such as their qualifications and certifications, track performance, and even look into the supplier's financials to decide whether you are ready to go forward with them or choose an alternative software development partner.
Cost reduction. Avoiding financial issues around vendors' poor service and delivery as well as early detection of 'hidden costs' may save you a good amount of money. Additionally, having strong relationships with your suppliers can help you negotiate better rates and access discounts for your future projects.
Quality growth. Choosing a software vendor who has a deep understanding of your industry or domain and extensive expertise in specific technologies you are working with helps you get a more productive service or high-quality product on the way out.
Relationship strengthening & establishing a good reputation. Well-established relations with a software provider fosters communication, collaboration, and loyalty, strengthening your brand and creating a friendly working environment. In the long run, it will affect a company's reputation and promote fruitful cooperation.
But how to minimize risks and choose the right software development company? This article will navigate you through the key software vendor selection criteria in outsourcing. Also, we share an easy-to-fill-out evaluation spreadsheet where you can rate vendors and make decisions based on the scoring algorithm.
Start with Understanding Your Project
Before starting the outsourcing vendor selection process, your business should turn its attention to your future projects. You have to realize the type of the project, define basic requirements, outline possible deadlines and decide on a software development process model.
To understand your project better, take the following steps:
Define the type of a project – if it’s an MVP or simple project with minimum features to implement or a complex solution with flexible requirements;
Evaluate the scope of a project – you need to decide on the goal of your future product, define the questions you need to discuss with their prospective vendor, consider staff and equipment it needs for successful app development, and others;
Estimate the project budget – budgets for small projects with detailed requirements are easy to calculate, while the budgets for large ones with changing requirements can be reevaluated several times along the project;
Establish deadlines – you have to define the deadlines that can’t be postponed or moved and are extremely important for the project success;
Choose a software development process model – there is a wide range of software process models in IT, including waterfall, Incremental, Agile, RAD, and many others.
Each of them defines the working style of a project team and the activities undertaken during the development process. As we have realized, the criteria for vendor selection in software engineering strongly depend on the project’s scope, requirements flexibility, type of system to be developed. So, what are these criteria?
Have a clear project strategy with a defined feature set and search for a reliable vendor? Or just have a project idea and need an expert consultation to validate it? Drop us a line and we will help.
As a business has evaluated its project, it’s time to find an outsourcing vendor. Based on our experience talking with customers about why they chose (or didn’t choose) UpsilonIT, we want to highlight key criteria and share a few recommendations that will help you range the vendors properly and opt for the best one.
Expertise and Qualifications
There’s nothing more important when selecting your software outsourcing partner than evaluating its expertise and qualifications. By specifying a tech stack and skill set requirements, you can significantly cut the number of potential vendors at the very first step.
What do we recommend? Determine the top 3 technical skills your software requires and set them as top priorities in your vendor evaluation criteria. Focus on the technical expertise that has the greatest positive impact on user experience and the overall quality of your future software. No two projects are the same, but if they’ve covered projects similar to yours, that’s a good indicator that they clearly understand what it takes to deliver your project successfully, as well.
Helpful tip: Insist on specialists, not generalists! We advise you to avoid picking someone who claims to be an expert in all imaginable tech fields. They may turn out to be masters of nothing. Place outsourcing providers who specialize in your technical requirements at the top of your shortlist for consideration.
Everything said about the tech knowledge is also valid for evaluating a vendor's industry experience. Software service providers who have spent years in the specific business vertical will have built up subject-matter expertise that is invaluable to you.
That's not to say that a vendor can't learn about your industry. But it does mean it will take a lot longer for them to get up to speed. If you want to ramp up your efforts quickly, it makes sense to look for a vendor who already knows your domain and can hit the ground running.
Helpful tip: What we recommend to analyze during the research phase to assess a vendor's tech competence and industry experience:
Past and current clients;
Projects and case studies on their website;
CVs of their specialists with certifications and acknowledgments attached;
Publication of articles and interviews related to the technology or industry;
Awards and recognition related to the technology or industry;
Attendance at thematic events.
Before approaching a technology partner, you should define the approximate scope of your project. If your project is estimated under 500 hours to complete, it’s better to hire freelancers. If your project is much more complicated, you can choose from three types of software outsourcing companies: small, medium, and large. Here we gathered the main pros and cons of each category.
Small outsourcing software companies (less than 100 specialists)
Flexibility in configuring teams, implementing new processes, adjusting to changing project requirements. etc.
Risks of lack in certain specialists
No resources to scale up quickly
Financial risks: vulnerability to external shocks
Medium outsourcing software companies (100 - 500 specialists)
Experience of working with clients of all sizes
Access to a larger pool of talents
Established management processes and project management
More stable financial position
Limited ability to scale up quickly upon the needs of clients
Brand reputation is typically not so strong
Large outsourcing software companies (500+ specialists)
Ability to handle projects of any size and complexity
Ability to scale up as quickly as possible
A versatile portfolio and broad expertise
Powerful ‘employer brand’ allowing to attract skilled professionals
Risks of being assigned to the ‘B-team’
High costs of services
Inflexibility in adjusting to changes
One of the critical aspects affected by the vendor’s size is its ability to scale the development team up or down. Medium and large size vendors have more internal resources and a bigger external pool of candidates. So they can easily extend the development team to handle the increasing workload and rotate people to a different project if you need to ramp down.
Helpful tip: Unless your outsourcing engagement uses a team of developers greater than 5% of the total number of vendor’s employees, then you’re not likely to get the attention you need to be successful. We call this guideline ‘a golden rule of 5%’. Ensure your engagement represents at least 5% and no more than 20% of your outsourcing company’s business base.
Pricing and Engagement Models
Start from analyzing the vendor’s average hourly rates (by seniority and job specialization). Compare it to the average in the region. Then, provide the vendor with the scope of your future project and ask him to configure a ‘virtual’ team of specialists with the required qualification needed to deliver it. Ask about discounts and special offerings.
You should clearly understand the scope of your project and your final goal. In fact, the budget of the project is determined by the engagement model you choose (fixed price, time & material, dedicated team). Choose the engagement model that suits you best and then calculate.
Helpful tip:The first question most companies ask vendors is ‘How much will it cost?’ But keep in mind that any figure by itself, without context, means little. Unfortunately, in competitive negotiations, it’s a widespread practice to underestimate to win the project — but that will almost certainly cost you more time and money in the long run. When you’re provided with a quote that lists a low price and a short timeline, it looks too good to be true. We’re not saying inexpensive is always bad — there are many factors to consider. But when you’re looking only at pricing, remember that there are pitfalls somewhere near.
Besides the cost, pay careful attention to what else is in the estimate. A good vendor will include details about project functionality, timeline, development milestones, and more, along with advice specific to your case. Does the estimate include information about the approach, potential technology choice, phases, deliverables, milestones, risk management facts, assumptions, and constraints? All this information will help you see the bigger picture and make an informed decision. And when an estimate includes little more than the final cost, that’s a sign not to take that offering seriously.
Not sure what engagement model will suit your project best? Need a detailed project estimation? Drop us a line and we will help.
Nothing talks better about how well a vendor treats the clients than clients themselves. Nowadays, it is a common practice to request references, and companies are usually open to giving feedback, of course, without revealing project details placed under NDA. Ask a potential technology partner to provide contacts of product owners, project managers, or C-suite executives representing their current and past clients. Their feedback might reveal genuine insights about the vendor’s service quality, work processes, communication style, and even cultural nuances.
Helpful tip:While choosing a software development firm, visit popular review platforms such as Clutch, GoodFirms, The Manifest, and others to get real customer feedback about different vendors. By combining various filters such as service focus, technology, location, price, you can easily select vendors that match your needs. For example, let’s visit Clutch and find companies meeting the following criteria:
Client budget: under $50 000
Industry: Supply chain. Logistics and Transport
Services: Web development
After applying filters, the platform displays a list of vendor profile summaries, including their rating, average hourly rate, team size, featured testimonial, and more. With one click, you can either explore the full vendor profile or visit their website.
We highly recommend exploring the vendor profiles comprehensively. Don’t get hung up on ratings only! Read full reviews and put your focus on those that contain negative assessments. They may give you a lot of genuine insights for further reflection.
As English is the de facto language of communication in the tech world, it goes without saying that a software development company should have a conversational English proficiency level. While the intermediate level can be acceptable for junior and middle specialists, senior team members should clearly and immediately understand all client’s requirements, claims, and suggestions. So they must be fluent in English.
Another key aspect is communication frequency and transparency, which is extremely important from the beginning and throughout your outsourcing relationship. Expect to use weekly video conference calls, regular emails, and instant messages every day. Frequent status reports will help ensure that your engineers are working on the most critical tasks.
Helpful tip: If the development team practices Scrum methodology, ask the vendor about its most crucial parts: retrospective and sprint demo. What format of the sprint demo do they consider to be the best? What questions do they usually discuss during retrospective meetings? What indicators do they use to measure the success of the sprint? Answers to these questions will give you insights into vendor’s agility and their skills in managing development processes.
Location and Time Zone
A convenient geographical location is a vital criterion every business should consider while looking for a technology partner. Short flight distance, small-time difference, and visa-free travel can significantly cut management and administrative costs.
There are several popular outsourcing locations across the world (including South/Latin America, South East Asia, India), but engineers from Eastern Europe moved to lead positions due to their ability to produce top-notch software without compromises. The region is well-known for its density of software developers, which is 1.3 developers per 100 people.
Also, geographically, Eastern European countries serve as a getaway to the West. They are located on the crossroads of major transportation routes from Europe to Asia and from the Scandinavian states to the Mediterranean region. IT outsourcing destinations, such as Poland, Ukraine, Belarus, Bulgaria, and others, are easy to reach from main global business hubs. For instance, it takes only 3 hours to get to London from Minsk by air, and – 2 hours from Minsk to Berlin.
Helpful tip: In the era of lockdowns and travel restrictions, you should not miss a chance to visit your outsourcing partner before you sign a contract. Even one visit to the vendor’s development center can give you more food for thought than a dozen of online meetings.
Intellectual Property and Data Security
Preserving your Intellectual Property, idea, and rights is crucial when it comes to software outsourcing. On the evaluation stage, you must explore the legal practices and formal agreements the vendor uses to ensure that your intellectual property and company are fully protected. Here is the list of subjects you should review and negotiate with a technology partner:
Non-Disclosure Agreement (NDA). NDA is a fundamental measure that protects your idea from disclosing it to a third party. For UpsilonIT, an NDA is a must. It can be signed either before a client reveals anything about his idea or before the project kicks off. An NDA protects your vision also after the project ends.
IP Rights. The agreement you sign with a vendor must state that your company gains exclusive ownership of the code, product itself, and assets like designs, wireframes, documentation, and diagrams.
Non-Employment Agreement (NEA). A non-employment agreement is a protection for both sides. On the one hand, a company won’t recruit or hire any of your employees. On the other hand, you won’t do the same for them.
Data privacy. This add-on makes you sure that the vendor guarantees the safety and security of your data during every stage of the project, from exchanging information at the project outset to storing it after the project has been completed.
As you can see, choosing the right outsourcing tech partner is not so obvious and simple. The evaluation process includes both quantitative and qualitative assessments and is not limited to the criteria discussed above: you can analyze additional factors that matter most to your product and business goals.
What’s next? Once you’ve received the information from your initial list of vendors, it's time to compile it in one place and make comparisons. Here, at UpsilonIT, we have created an easy-to-fill-out evaluation chart that will be your invaluable assistant for that kind of analysis.
Evaluating and Scoring Vendors
After collecting all data, you may go to the next step: comparing the vendors. Apart from making certain that selected vendors have good references, relevant experience, and required tech skills, you want to support your decision with numbers, don’t you?
For this purpose, you will need an outsourcing vendor evaluation checklist or a comparative chart. We went further and prepared a spreadsheet with built-in formulas that allow you to easily rank potential tech partners based on eight key criteria for vendor evaluation. This document includes a generic list of questions designed to give you a proactive approach during the vendor selection process. You can adjust them based on your specific methods and needs.
While filling out the chart, you will see very clearly, for example, in which area the vendor scores more and what aspects the competitors outperform it. By comparing vendors’ aggregate scores, you will be able to select which of them should be your top priority and which сan be excluded from further considerations.
No one ever partners with a software development company without doing comprehensive research on its services, portfolio, and references. You might find this process tedious, but the time spent on evaluating will help you minimize expenses, reduce future misunderstanding, and avoid any hidden mistakes in project management. That is precisely what this guide is for: to give you a practical way to assess your prospective software development partner efficiently.
Whether you’re a startup founder looking to build a development team from the ground up, or you’re an established business owner looking for additional resources to grow your existing tech team, our vendor evaluation spreadsheet will enable you to make better and more informed business decisions.
Frequently asked questions:
1. What is the first step in the vendor selection process?
Criteria for vendor evaluation depend on the project’s scope, requirements flexibility, type of system to be developed. So firstly it is better to define the type of your project, basic requirements, outline possible deadlines and decide on a software development process model and then start the evaluation process.
2. What should be outsourcing vendor selection criteria?
Vendor selection criteria should support your company mission, ethics, and business goals in the areas of technical competence and quality, cost and financial integrity, ability to communicate, social responsibility, and cultural commitments.
3. Why shouldn't you orient only on costs and rates when choosing a vendor?
Many factors influence the project estimate and cost. No project has the same goals, requirements, people, priorities and business context, technologies to use, and functionality to implement. Search for cost-effectiveness, where teams perform good-quality work and do not spend more hours fixing bugs and reworking.
4. Where can you find customer feedback about potential vendors?
While choosing a software development firm, visit popular review platforms such as Clutch, GoodFirms, The Manifest, and others to get real customer feedback about different vendors.
5. What is a vendor evaluation checklist?
A vendor evaluation checklist is a document defining and explaining the criteria that matter most to your company goals and by which you will compare potential partners. In this checklist, you can include criteria covering the vendor's tech competence and experience in the target domain, communication skills, pricing and engagement models available, and so on.