Understanding Various Software Development Outsourcing Models


In the dynamic realm of software development, software development outsourcing models play a pivotal role in determining the success of projects. These models of outsourcing define the structure and collaboration between businesses and their outsourcing partners. Each model offers unique benefits tailored to specific use cases, from delineating responsibilities to optimizing costs. 

Choosing the right outsourcing model is essential for aligning business objectives, maximizing returns, and ensuring seamless project execution. This guide delves into the nuances of these models, empowering businesses to make informed decisions.

Key Types of Software Development Outsourcing Models

Navigating the landscape of software development outsourcing models is essential for businesses seeking to capitalize on global expertise. These models can generally be categorized based on three principal criteria: location, relationship, and contractual obligations.

  • Geographical-Location Outsourcing

This model classifies outsourcing partnerships based on the physical location of the service provider relative to the hiring company. Such categorizations may include nearshoring, offshoring, and onshoring, each offering unique advantages concerning cultural alignment, time zone synchronization, and cost-effectiveness.

  • Relationship-Oriented Outsourcing Models

This approach centers on the depth and nature of the relationship between the client and the service provider. Whether it's a fully integrated dedicated team, a project-based partnership, or a hybrid of both, the essence is to foster synergy and achieve desired outcomes.

  • Contractual Models

Here, the focus is on the terms of engagement. Whether it's a fixed-price contract, time and materials model, or a milestone-driven agreement, these outsourcing models determine both parties' financial and deliverable commitments, ensuring clarity and mutual understanding.

Software Development Outsourcing Models: The Roadmap to Efficiency

In the ever-evolving technological landscape, software development outsourcing models stand as a beacon for businesses seeking efficiency, cost-effectiveness, and adaptability. Derived from diverse criteria, these models offer tailored solutions that align with a company's unique project demands and operational dynamics. 

‘The outsourcing model reduces expenses by eliminating the need to hire or train new employees and/or the support staff (HR, admin, etc.) and increase occupancy costs and investment in additional office space and equipment. Having a large pool of outsourced “on-demand” talent means companies can rapidly scale their workforce without the need to hire additional full-time employees and increase their overheads and their investment in office space and equipment. Using outsourcing creates new opportunities and makes better use of existing talent that helps employers get the most out of their current workforce.’

– Kikis Pissarides, Manager, Business Process Solutions, Deloitte

As companies recalibrate their strategies, software development outsourcing emerges as a robust strategy to navigate financial constraints and operational upheavals. Let's dive deeper into the specifics of these models.

1. Time and Material Contracts Model

The Time and Material Contracts strategy is a dynamic billing system emphasizing versatility. It is specially crafted for projects characterized by uncertainties or those that undergo frequent modifications as they progress.

What are the benefits of Time and Material Contracts? 

The standout feature of this model is its clarity in billing, which is grounded on the real-time resources dedicated to the project. This approach ensures organizations are billed solely for the efforts expended, aligning perfectly with projects that have shifting requirements or those not strictly defined from the outset.


  1. Budget Uncertainty: Costs can fluctuate based on time and resources used, making it harder to predict the final expense.
  2. Requires Continuous Oversight: To avoid overruns, businesses might need to monitor the progress more frequently.
  3. Scope Creep Risk: The flexibility can sometimes lead to expanding project scopes, potentially causing delays.

When is Time and Material Contracts best? 

This method is optimal for businesses that tackle projects characterized by ever-changing demands. It shines in scenarios where alterations are anticipated regularly and where clear, straightforward billing is a priority.

2. Staff Augmentation Model

Staff Augmentation is a tactical methodology employed by businesses to address specific skill shortages. By integrating external experts with specialized knowledge into their existing teams, companies can seamlessly bolster their workforce capabilities without permanent expansions.

What are the advantages of Staff Augmentation? 

This model stands out for its capacity to provide instant access to niche expertise, thereby elevating a team's overall performance. It not only facilitates the swift fulfillment of project-specific demands but also ensures financial prudence by avoiding the enduring obligations associated with permanent staff hires.


  1. Integration Challenges: External professionals may require time to adapt to a company's culture and workflow.
  2. Short-term Solution: While great for temporary needs, it might not address long-term objectives.
  3. Potential Overheads: Managing augmented staff requires resources, which could add to operational costs.

When is Staff Augmentation best? 

Staff Augmentation shines in scenarios where there's an immediate demand for specialized skills for a defined period. It's especially valuable for businesses that need to swiftly adapt to changing project requirements while remaining economically efficient and avoiding long-term employment liabilities.

3. Dedicated Development Team Model

The Dedicated Development Team model is a collaborative framework where an external, specialized team functions as an integrated unit of the client's business, working exclusively on its projects and initiatives. This team becomes an extended arm of the business, operating in tandem with the client's vision and objectives.

What are the benefits of a Dedicated Development Team? 

One of the defining benefits of such teams is their deep alignment with the client's organizational culture, ethos, and strategic goals. This ensures a synergized approach, fostering a unified workflow and consistently high-quality outcomes. Additionally, having a team entirely committed means quicker adaptability, better understanding, and a holistic approach to project challenges.


  1. Higher Upfront Costs: Establishing a dedicated team might have initial costs higher than other models.
  2. Potential Over-reliance: Over-relying on an external team can lead to diminished in-house capabilities over time.
  3. Commitment: You're committed to the team, making it challenging if project requirements change drastically.

When is a Dedicated Development Team best? 

This model is particularly well-suited for businesses embarking on complex, long-haul projects or those requiring consistent, specialized expertise. It's an ideal choice when continuity, deep domain knowledge, and a harmonized approach are paramount to the project's success.

4. Project-Based Model

The Project-Based Model is a structured outsourcing strategy where a complete project, from its initial planning phase to its final delivery, is handed over to an external team of experts. This team takes full ownership, ensuring that the project aligns with the predefined objectives and meets the desired outcomes.

What are the benefits of Project-Based Outsourcing? 

By leveraging this model, businesses can tap into a reservoir of specialized knowledge and cutting-edge resources they might not possess internally. It allows companies to offload complex projects, ensuring they receive top-tier execution without diverting their internal team's focus. Additionally, this approach offers cost savings, reduced time-to-market, and the assurance of working with seasoned professionals.


  1. Limited Flexibility: Once the scope is set, making changes can be challenging and costly.
  2. Dependency: Complete reliance on an external team can lead to potential misalignments in objectives.
  3. Less Control: Companies might feel they have lesser control over the project's day-to-day progress.

When is Project-Based Outsourcing ideal? 

This approach shines brightest for companies that have crystal-clear project parameters and deliverables but might be short on either the expertise or bandwidth to undertake the project internally. It's especially beneficial when there's a desire to maintain internal focus on core competencies while still achieving best-in-class results on specific projects.

5. Fixed Price Model

The Fixed Price Model is a straightforward outsourcing strategy where the scope and budget of a project are set in stone from the outset. It binds the service provider to deliver the specified outcomes at the agreed-upon cost, providing clear expectations for both parties involved.

What are the benefits of the Fixed Price Model? 

This model ensures financial predictability for businesses, eliminating the chance of unforeseen costs. With its clear demarcations, companies can have peace of mind knowing they won't exceed the budget. Additionally, established boundaries and goals, often lead to a focused and efficient approach to project execution, ensuring timely delivery.


  1. Rigidity: If the project needs change, adjusting the scope can be problematic.
  2. Potential for Lower Quality: To stay within budget, some providers might cut corners, affecting the quality.
  3. Limited Transparency: Businesses might not always be privy to detailed breakdowns of resource allocation, leading to potential trust issues.

When is the Fixed Price Model preferred? 

The Fixed Price Model shines in scenarios where the project's requirements, deliverables, and scopes are well-defined and unlikely to change. It's an excellent choice for businesses that prioritize budgetary control and want to ensure a capped expenditure while achieving specific project outcomes.

Harnessing the full potential of software development outsourcing models can be transformative. As Pissarides emphasizes, businesses must leverage every opportunity to streamline operations and maintain financial stability in these turbulent times. Outsourcing is a pivotal strategy, offering agility and expertise in one comprehensive package. Whether it's accessing cutting-edge technology or tapping into global talent, the strategic deployment of these models can usher in operational excellence and sustainable growth.

How to Choose the Right Model for Your Business?

Navigating the plethora of software development outsourcing models can be daunting. Yet, the key lies in aligning the model with your business's specific needs, goals, and constraints. Here's a structured approach to guide your decision-making process.

Comparison of the Software Development Outsourcing Models:


Staff Augmentation

Dedicated Development Team


Time and Material Contracts

Fixed Price Model 


Defined by specific roles and skills required.

Clearly defined, tailored to long-term and specialized projects.

Well-defined, with clear objectives and deliverables.

Dynamic; can be adjusted according to evolving needs.

Stringently defined, with no deviations unless renegotiated.


As per the client's project timeline.

Often long-term, but dependent on project requirements.

Defined by the project's requirements and deliverables.

Fluid, changes based on actual work done and its pace.

Fixed, based on agreed deliverables.


High; augmented staff integrates into the client's existing team.

Medium to high; outsourced team aligns with the client's directives.

Medium; client sets expectations, while the outsourced team manages execution.

Client retains significant control over ongoing tasks.

Medium; client sets the project parameters, outsourced team manages execution.


Medium; scope adjustments require additional negotiations.

Moderate; dedicated nature allows for some flexibility, but within the broader project scope.

Low; changes might require renegotiations.

High; allows modifications at any project stage.

Low-scope changes may lead to additional costs.

Team Scalability

High; easy to add or remove resources.

High; teams can be expanded or shrunk based on evolving needs.

Low to moderate; dependent on project needs.

Adaptable to increasing or decreasing resources as needed.

Low; determined by project requirements.

Responsibility for Executions & Deliverables

Primarily the client's, as augmented staff follow in-house guidelines.

Shared, with outsourced team taking the primary lead.

Primarily the outsourcing team's.

Shared between the client and outsourcing partner.

Entirely the outsourcing team's.

Client Involvement

Extensive; as augmented staff work as part of the in-house team.

Regular interactions and check-ins to ensure alignment.

Periodic check-ins and reviews.

Continuous; regular updates and reviews.

Occasional; mainly at key milestones or reviews.

Client Technical Expertise/ Leadership

High; augmented staff rely on in-house direction.

Moderate; the outsourced team usually brings technical expertise, but client leadership provides direction.

Low; the outsourced team is the primary driver.

Moderate; driven by project demands.

Minimal; the onus is on the outsourced team.

Communication with Outsourced Team

Seamless; they function as part of the client's team.

Continuous and structured.

Structured and periodic.

Regular and direct.

At set intervals or milestones.

Overlap with In-house Team

High; integrated working environment.

Moderate; both teams collaborate as one unit.

Minimal; project is mainly handled externally.

Minimal to moderate; dependent on project specifics.

Minimal; outsourced team operates independently.

Product Management 

Managed by the client.

Joint effort, with the outsourced team often leading execution.

Managed by the outsourcing team.

Client-driven with support from the outsourced team.

Managed by the outsourcing team.

High Level Management

Managed by the client.

Shared, with significant inputs from the client.

Oversight by the client with execution by the outsourced team.

Typically managed by the client.

Client oversight with the outsourced team handling the execution.

Task Management

Client's in-house management tools and strategies apply.

Primarily managed by the dedicated team.

Outsourced team's responsibility.

Managed collaboratively.

Entirely the responsibility of the outsourced team.

Project Management

Predominantly the client's responsibility.

Jointly overseen, with the outsourced team managing day-to-day tasks.

Entirely managed by the outsourcing partner.

Outsourced team manages daily tasks, with oversight from the client.

Fully managed by the outsourcing team.

Operations Supervision

Entirely overseen by the client.

Collaboration between the client and dedicated team.

Handled by the outsourcing partner with periodic client reviews.

Overseen by the client, with inputs from the outsourcing team.

Outsourced team manages operations with client reviewing outcomes.

Workflow Development

Follows the client's existing workflow.

Jointly developed to ensure smooth operations.

Crafted by the outsourced team based on project requirements.

Collaboratively designed to accommodate changes.

Set by the outsourced team in alignment with project deliverables.


The choice between these models largely hinges on the nature of your project, its size, scope, and your organization's specific needs. While some businesses might benefit from the adaptability of Time and Material Contracts, others might find value in the predictability offered by the Fixed Price Model. Evaluate the characteristics of each to make an informed decision.

Factors to Consider When Choosing a Software Development Outsourcing Model

Before you select one of the above models, here are some factors to consider:

  1. Clarity in Project Goals: Before selecting an outsourcing model, it's essential to have a crystal-clear understanding of your project's objectives and desired outcomes. Is it a short-term requirement, or do you foresee a long-term collaboration? Understanding the project’s duration and clarity of requirements can help streamline your choices.
  2. Industry Analysis: Conducting comprehensive market research provides insights into current trends and best practices, guiding you toward an appropriate model.
  3. Depth, Complexity, and Expansion Potential: Different projects have varied needs. Assessing the intricacy, potential growth, and overall scope helps in choosing the right software outsourcing model.
  4. Financial Planning: Your available budget and anticipated expenses play a significant role in determining the most cost-effective model to engage with. While some models, like fixed-price contracts, offer budgetary certainty, others like time and material might have variable costs. Align your financial flexibility with the model that best fits your budgetary constraints.
  5. Synergy with Internal Team: Ensuring that the software development outsourcing model complements your in-house team's skills and resources is crucial for a harmonious workflow. Take stock of the skills and expertise already present within your team. If there's a significant skill gap, models like staff augmentation or dedicated development teams can be beneficial. 
  6. Consider Cultural and Time-zone Alignments: Choosing an outsourcing model that aligns with their time zone and cultural ethos can be crucial for businesses that prioritize seamless communication and collaboration. This is especially important if regular interactions and feedback loops are anticipated.
  7. Priority Setting: Consider the importance level of the project within your business strategy. High-priority projects might demand more intensive models, ensuring dedicated resources and attention.
  8. Project Oversight: Your desired degree of control and management over the project's progress can influence the choice between more hands-on or hands-off outsourcing models. Sometimes, an external perspective can be invaluable. Consider consulting with experts or agencies that specialize in software development outsourcing models.

By weighing these factors, businesses can make an informed decision, aligning with their specific needs and ensuring the successful execution of their software projects.

Selecting the right outsourcing model is a strategic decision that can significantly impact your project's success and the overall growth trajectory of your business. By aligning your business requirements, financial capabilities, and future projections with the appropriate model, you can harness the full potential of software development outsourcing.

Case Studies at Saigon Technology: A Glimpse into Successful Software Development Outsourcing Models

1. CHILIPLAY: Building Loyalty through Mobile Integration

ChiliPlay is a testament to the power of a well-executed software development outsourcing model. Intended as a loyalty app for the clientele of Chili Telecommunication Company, it facilitates users with a plethora of privileges.

What The Client Envisioned:

The initial idea was to develop an engagement model based on a fixed price with subsequent ongoing support. The primary functions included earning loyalty points, exchanging points for coupons, scanning barcodes to validate deals, reading news updates, and an intriguing Football prediction feature. The challenging aspect was that the client only had a basic idea without a detailed specification.

Our Approach:

Our team at Saigon Technology utilized diverse technologies such as Swift 2, Native Android, .Net backend, and Microsoft Azure, to name a few. The Football prediction feature was particularly challenging as it was time-sensitive, needing completion before the World Cup's onset.


Despite the challenges, our adept team was able to transform the client's rudimentary idea into a comprehensive, functional, and user-friendly loyalty app, seamlessly integrated with the requisite features.

2. MOBILE TEAM MANAGER: Streamlining Field Operations with Cloud Technology

Mobile Team Manager redefines the dynamics of field operations, creating a bridge between supervisors, operators, and various logistical challenges associated with field operations.

What The Client Desired:

The core objective was to devise an online Field Management solution that would minimize manual efforts, offer remote solutions for field management services, and introduce an intelligent scheduling system. Furthermore, the aspiration was to offer the Mobile Team Manager system as a service to other similar businesses.

Our Approach:

After a detailed analysis of the client's needs, we adopted a two-pronged approach. Initially, a project-based model was chosen for the first three phases. As the project progressed, given its complexity and evolving requirements, we transitioned to the Scrum/Agile method. This methodology ensured that while maintenance and improvements were ongoing, the project's primary milestones were continually being achieved. A dedicated team of developers from Saigon Technology immersed themselves in the project, gradually understanding and contributing to the business logic.


Through systematic testing and an agile response mechanism, we ensured the system's smooth operation, even under heavy data loads. The agile troubleshooting response further allowed the client to enhance its technical competence rapidly. The end product is a cloud-based application that efficiently handles scheduling and facilitates real-time communication, revolutionizing the way field operations are managed.

At Saigon Technology, these case studies reflect our commitment to excellence, innovation, and the transformative power of the right software development outsourcing models.

Are You Ready to Approach a Software Development Outsourcing Models?

Navigating the intricate landscape of the software industry requires strategic decisions, especially when determining which developmental approach aligns best with a project's goals. Software development outsourcing models have emerged as a game-changing strategy for many businesses. These models offer a diverse range of options, each tailored to address specific project requirements, budgets, and scopes.

From fixed contracts that ensure a set price to dedicated development teams that provide focused expertise, the variety of models of outsourcing caters to both startups and established giants in the industry. They offer flexibility, cost efficiency, and access to global expertise that can be pivotal in determining the success of a software project.

As the digital landscape continues to evolve, it's essential for businesses to stay adaptable and informed. Choosing the right model is a decision that can set the tone for a project's trajectory. With the right model, businesses can achieve efficiency, innovation, and excellence, ensuring that their software projects not only meet but exceed expectations.

Content Manager

Thanh (Bruce) Pham CEO of Saigon Technology

A Member of Forbes Technology Council

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