Majority of outsourcing deals are late and over budget

The majority of application development outsourcing deals are hit by spiralling costs, late delivery and not getting what was originally specified, according to new research.

The findings show that 80 per cent of businesses have suffered time and cost overruns and non-adherence to specification,

The research was commissioned by Compuware and conducted by Meta Group, which quizzed 150 CIO-level executives in the UK, Germany, France and the Netherlands.

And while cost remains the primary driver for outsourcing application development for over half of the respondents, 28 per cent of organisations have no idea of what cost savings to expect.

Some 43 per cent expected savings of less than 20 per cent and 40 per cent of respondents admitted that short-term financial gains were a bigger priority than the longer-term "downstream" costs.

Peter O'Neill, VP of consulting at Meta Group, told silicon.com that firms are putting serious sums of money at risk.

"For larger companies these are significant amounts. Large enterprises spend £10m to £15m a year [on application development outsourcing] and 25 to 30 per cent of that is at risk."

O'Neill said most of the discussions in the survey centred on offshore outsourcing where headline savings are attractive. But he warned about management costs and associated risks.

"One of the biggest risks hardly addressed is giving out some of your IP if you send out mission-critical specifications. It is secure only if there is non-disclosure but people still leave this out," he said.

The research identifies the key areas where savings can be made and O'Neill said labour costs can be cut by 40 per cent – although they are a small part of the project – while economies of scale and things like automated code generators can account for a 30 per cent reduction in costs.

However, O'Neill did admit that the figures have to be viewed in the context of comparisons against application development done in-house.

"We'd probably get a similar result for everything that's done in-house. It's a tradition that specifications change over time," he said.