The Real Total Cost of Engagement in Outsourced Software Projects

Offshore outsourcing vendors like to highlight hourly rates because they sound pretty low when compare to the equivalent rate for US-based engineers. But that is far from the reality of the Total Cost of Engagement (TCE), which is what you are going to end up paying.

To the cost of the engineering talent you must add the cost of additional management, travel costs, the painful cost of staff turnover, and a certain amount of productivity loss due to the distance and degraded communications. When you add it all up, the cost of doing development at an offshore location can be as high as 80% of the US cost. The claim that you can get two to three engineers offshore for the cost of one US engineer does not hold true, it's an illusion.

For example, a team of 16 engineers would have a TCE of $ 2.8M in the US, $ 2.2M in India, and $ 1.6M in Mexico (i.e., 80% and 59% of the US costs, respectively).

You could try and hold back on some of this overhead (e.g., skip on assigning an onshore Engagement Manager). You could. But nobody will remember these “savings” when the project fails.

Components of TCE

• Engagement Manager
• Tech Leads
• Staff Turnover
• Productivity Loss
• Travel
• Summary