A Study of Software Development Project Cost, Schedule and Quality By Outsourcing to Low Cost Destination

Journal of Enterprise Information Management
A Study of Software Development Project Cost, Schedule and Quality By Outsourcing to Low Cost
Destination
Debasisha Mishra Biswajit Mahanty
Article information:
To cite this document:
Debasisha Mishra Biswajit Mahanty , (2016),"A Study of Software Development Project Cost, Schedule and Quality By
Outsourcing to Low Cost Destination", Journal of Enterprise Information Management, Vol. 29 Iss 3 pp. -
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http://dx.doi.org/10.1108/JEIM-08-2014-0080
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A Study of Software Development Project Cost, Schedule and Quality
By Outsourcing to Low Cost Destination
Abstract:
Purpose - This paper makes an attempt to find good values of onsite-offshore team strength; number of
hours of communication between business users and onsite team and between onsite and offshore team
so as to reduce project cost and improve schedule in a global software development environment for
software development project.
Design/Methodology/Approach - This study employs system dynamics simulation approach to study
software project characteristics in both co-located and distributed development environments. We
consulted 14 experts from Indian software outsourcing industry during our model construction and
validation.
Findings – The study results show that there is a drop in overall team productivity in outsourcing
environment by considering the offshore options. But the project cost can be reduced by employing the
offshore team for coding and testing work only with minimal training for imparting business knowledge.
The research results show that there is a potential to save project cost by being flexible in project
schedule.
Research limitations/implications – The implication of the study is that the project management team
should be careful not to keep high percentage of manpower at offshore location in distributed software
environment. A large offshore team can increase project cost and schedule due to higher training
overhead, lower productivity and higher error proneness. In global software development, the
management effort should be to keep requirement analysis and design work at onsite location and
involves the offshore team in coding and testing work.
Practical implications - The software project manager can use the model results to divide the software
team between onsite and offshore location during various phases of software development in distributed
environment.
Originality/value – The study is novel as there is little attempt at finding the team distribution between
onsite and offshore location in global software development environment.
Keywords: Global Software Development, Knowledge Flow, Software Development Productivity and
Error Proneness.
Paper type: Research paperDownloaded by RMIT University At 05:12 26 February 2016 (PT)

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1. Introduction
Software project management has been the focus of considerable attention during the past two decades
in the information systems, especially after the advent of outsourcing. Effective software project
management focuses on the three P’s: People, Problem and Processes (Pressman, 1997). The human
resource is the most important factor in the development of a software product. In spite of development
in technology and processes, the productivity of human resources remains the most dominant factor for
cost and schedule of software development projects, which are also the most important reasons for
outsourcing (Alpar and Saharia, 1995; Loh, 1994). Based on the standards and tradition in the software
development field, the most common combination of criteria used to measure the success of a project
concerns meeting time, cost, functionality and quality goals (e.g. Anda et al., 2009; El Emam and Koru,
2008; Kappelman et al., 2006; Lai, 1997; Sumner et al., 2006). This paper presents a study that explores
the effect of division of work between onsite and offshore location and training effort at onsite and
offshore locations on the development cost and schedule of a development project in global software
development (GSD) environment.
Outsourcing has become one of the strategies adopted by global organizations to manage the
information system (IS). The IT outsourcing phenomenon has been widely discusses in the literature
(Aktas and Ulengin, 2005; Gowan and Mathieu, 2005; McBride et al., 2007; Ngwenyama and Sullivan,
2007; Bairi and Manohar, 2011). Among the location countries for outsourcing, India accounts for a
dominant share of the global IT offshoring market (Peterson and Gott, 2011; Raman and Chadee, 2011).
Numerous business houses in the United States of America outsource a number of their non-critical
processes to overseas countries to reduce costs incurred in salaries and running operations (Rathi and
Joshi, 2010). Most of the outsourced software projects in the context of India are in the form of business
application development and business application maintenance categories, outsourced mainly from US
and Europe. As the software development process has gone global, team structure and division of work
between onsite and offshore locations has become important in the context of GSD, as they greatly
influence onsite and offshore team productivity, which, in turn, affect the project cost and schedule.Downloaded by RMIT University At 05:12 26 February 2016 (PT)

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Project-based work is especially popular in the information technology domain (Desouza and Evaristo,
2006). The maintenance and re-engineering projects constitute higher volume of work in outsourcing
environment. The software development projects in business domain constitute a very small percentage
of total work in Indian outsourcing industry. The communication overhead is higher in development
projects (Carmel and Agarwal, 2001) due to need of higher knowledge for execution. This can adversely
affect the cost and schedule of a software development project. Normally the knowledge transfer in
global software development takes place from a business user to a software developer (Kobitzsch et al.,
2001). The development team needs to absorb the knowledge from the client organization to be effective
in outsourcing environment (Cohen and Levinthal, 1990; Dibbern et al., 2008; Lee, 2001). The
communication effort required for the knowledge transfer at both onsite and offshore location decides
the team productivity affecting cost and schedule. This paper makes an attempt to find good values of
onsite-offshore team strength; number of hours of communication between business users and onsite
team and between onsite and offshore team so as to reduce project cost and improve schedule in a global
software development environment for software development project.
The rest of the paper is organized as follows. In section 2, we have discussed the relevant literature. The
research methodology is explained in Section 3. Section 4 has elaborated the system dynamics model
used for our study. The model validation is explained in Section 5. The research findings are provided in
Section 6. The discussion on research findings is discussed in Section 7 and summary of research
findings are given in Section 8. This paper is concluded in Section 9.
2. Relevant Literature
Distributed software development (DSD) is nowadays a common practice within the software industry
(Herna ́ndez-Lo ́pez et al. 2010). Global software development (GSD) is a particular type of DSD in
which teams are distributed beyond the limits of a nation (Herbsleb and Moitra 2001). The literature on
software project management discusses about issues such as cost, schedule, knowledge transfer,
productivity and quality in the outsourcing environment. Project management challenges are multiplied
due to issues related to knowledge transfer, communication, project management, quality management,
and infrastructure (Kobitzsch et al., 2001). The outsourcing life cycle management can be critical inDownloaded by RMIT University At 05:12 26 February 2016 (PT)

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global software development (GSD) (Beulen et al., 2011). Effective knowledge sharing is considered
essential for high performance in both co-located and distributed settings. The knowledge transfer
culture and alignment between information system and business strategy can influence knowledge
transfer to offshore location (Mayasandra et al., 2011; Chua and Pan, 2008). The time zone difference
between various countries also adds to project management inconveniences (Lacity and Rottman, 2009).
The GSD is challenging due to prevalence of co-ordination and communication issues (e.g., Avritzer et
al. 2010; Casey and Richardson 2009; Conchuir et al. 2009; Cusumano 2008; Garcı ́a-Crespo et al.
2010). There could be loss of communication richness (physical distance, time zone, and domain
expertise), co-ordination breakdown (software architecture, integration and configuration management),
geographical dispersion (vendor support, governmental Issue) and loss of team-ness (feeling of
belonging in the team) in global software development (Battin et al., 2001). The outsourcing life cycle
management can be critical in GSD (Cullen et al. 2005; Webstar and Watson 2002).
The GSD offer a lot of advantages like lower cost (Ramasubbu et al. 2005; Smite et al. 2010), shorter
time to market (Jalote and Jain 2006; Kommeren and Parviainen 2007; Sooraj and Mohapatra 2008) and
greater availability of manpower (Conchuir et al. 2009; Kommeren and Parviainen 2007). The business
organization can be benefitted by GSD, if the development team productivity is higher. The productivity
drops in the outsourcing environment due to dispersion of work force (Ramasubbu and Balan., 2007).
Similarly, according to Kommeren and Parvianen (2007), the productivity of globally distributed team
members decreases by up to 50% compared to that of co-located team members. Moreover, the delivery
of software products developed in globally distributed environments takes two and a half times as long
as in a co-located environment (Herbsleb and Mockus 2003). However, we not aware of any effort to
estimate the project cost and schedule in GSD environment.
3. Research Methodology
One of the important purpose of our research is to calculate software team productivity in GSD
environment. System dynamics is used to capture the changes in project performance variables with
respect to execution time. The models for productivity estimation in literature can be broadly divided
into static and dynamic models. The static models can be roughly categorized as either analytical relying
on mathematical formulas or experience-based. COCOMO II and SLIM are the most conventionallyDownloaded by RMIT University At 05:12 26 February 2016 (PT)

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used mathematical static models (Boehm, 1981; Kemere, 1987). The International Software
Benchmarking Standards Group (ISBSG) database can help in making experienced-based estimates for
analysis, bench-marking and comparison of various kinds of software projects (ISBSG, 2009).
Among dynamics models, the system dynamics tool is used by various researchers. A notable system
dynamics model used in software project management is by Abdel-Hamid and Madnick (1991). System
dynamics tool is used by various researchers such as Ruiz et al. (2001) and Stemanit et al. (2007) to
study software project projects characteristics in co-located and distributed environment respectively.
Dynamic models are more suitable for estimation of project parameters as research suggests that
estimation models reflects the changing scenario in system development life cycle as “it is more realistic
to think of software engineering as an evolutionary process where software is continually changed over
its lifetime in response to changing requirements and customer needs” (Sommerville, 2004). It is also
necessary to refine the model throughout the life cycle of the project based on changing parameter
(Abdel-Hamid and Madnick, 1991). So we decided to use system dynamics to simulate the software
project development environment in GSD.
The model was constructed based on knowledge management framework of software development from
literature proposed by Mishra and Mahanty (2015). The model describes the various kinds of business
knowledge required in different phases of software development. Mishra and Mahanty (2014) has
already used the business knowledge management framework in construction of system dynamics model
for simulation model of software re-engineering project. The model was used by Mishra and Mahanty
(2014) to calculate cost and schedule of re-engineering project in GSD environment. The knowledge
management framework is used for construction of system dynamics model for the development project
in this research work. We interviewed 14 experience software professionals from Indian software
industry during the model construction, validation and testing. All the interviewed experts had more than
10 years of experience in the outsourcing industry. They work as project leaders, project managers,
senior managers and group leaders constituted a representative sample of the Indian software
outsourcing industry. The system dynamics model construction is explained in section 4 and model
validation and testing is explained in section 5 of this document.Downloaded by RMIT University At 05:12 26 February 2016 (PT)

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4. System Dynamics Model Sectoral Overview
The system dynamics model developed consists of four major sectors: (1) policy decisions, (2)
Knowledge transfer, (3) Team productivity and error proneness, and (4) software development sector
with various flows connecting them. Figure 1 provides the overview and interconnection of model’s four
sectors.
The purpose of the model is to study important project characteristics as provided by Putnam and
Mayers (1996):
• A measure of the average productivity
• A measure of the production cost
• A measure of the quantity produced
• An indication of the product quality
• A measure of the remaining time to complete the project
The simulation model estimates the average nominal productivity based on business knowledge
expertise level of the software developer. The production cost is dependent on manpower usage at onsite
and offshore locations. The project quality can be measured by amount of rework needed vis-à-vis
software development work done. We used Extent of Rework (EOR) and Extent of Latent Error (EOL)
to measure rework quantity and product quality respectively as used by Rai and Mahanty (2001). The
EOR and EOL are defined in equation (1) and (2) respectively. The remaining time to complete the
project can be calculated by tasks remaining and team productivity after communication overhead.
EOR = 100 * (Revised Total Tasks – Initial Total Task)/ (Initial Total Task) --------------- (1)
EOL = 100 * (Tasks with Fault/Total Tasks) -------------------------------------------- (2)
<<<<<<<<<<<<<<<<< Insert Figure 1 >>>>>>>>>>>>>>>>>>>>Downloaded by RMIT University At 05:12 26 February 2016 (PT)

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4.1 Knowledge Transfer Sector
This sector is based on business knowledge management framework of software development proposed
by Mishra and Mahanty (2015) based on literature review and expert opinion survey. Rus and Lindvall
(2002) identified two types of knowledge central to the software development process: (1) technical
knowledge that is used to develop a system and (2) business knowledge in the application domain of a
system. Integration of technical knowledge with business application domain knowledge is central to
effective software development (Tiwana, 2004a; Tiwana, 2004b). Business knowledge is related to the
process novelty for application software development. Technology knowledge is related to the
technology aspects of application software development. The business knowledge assumes greater
importance in distributed environment as technology can be learnt independent of location. The business
knowledge requirements, however, is highly location-specific and has to be met from the client
organization at a given location. We have assumed waterfall model of software development for our
model construction. Although there are many methods of software development, the waterfall model is
usually preferred in outsourcing environment, because it is easier to execute at offshore locations for
design, coding and testing activity when the product requirement and user interface does not undergoes
frequent changes (Sakthivel, 2005).
The business knowledge can be divided into four different types such as domain, strategic, business
process, and operation process knowledge. This classification of business knowledge was taken from
organization model by Guetat and Dakhi (2010), which defines an organization as conjunction of four
spaces: the strategy space, the knowledge space, the information space, and the operational space. The
software projects belong to the information space. The information space interacts with all other spaces
and gathers knowledge from them. The model was derived from three world models defined by Popper
(1972) and subsequent work by Stohr and Konsynski (1992). The importance of various kinds of
business knowledge in various stages of software development and nodes of knowledge flow in GSD in
explained in Figure 2.
<<<<<<<<<<<<<<<<< Insert Figure 2 >>>>>>>>>>>>>>>>>>>>Downloaded by RMIT University At 05:12 26 February 2016 (PT)