Title: Fair comparison of developing software in different locations: dynamic decision model

Authors: Darja Smite; Emil Numminen

Addresses: Blekinge Institute of Technology, Valhallavägen 1, 371-79 Karlskrona, Sweden; SINTEF, Strindvegen 4, 7034 Trondheim, Norway ' Blekinge Institute of Technology, Valhallavägen 1, 371-79 Karlskrona, Sweden; Kristianstad University, Elmetorpsvägen 15, 291-39 Kristianstad, Sweden

Abstract: While offshore software development is frequently looked at in simple economic terms, assumed benefits are not always achieved. This can be attributed to unexpectedly high transition costs and a number of extra costs for maintaining a sourcing strategy. When offshoring fails, companies need to revisit their decision. In this paper, an analytical model is proposed to support evaluation of offshoring strategies and decision options. The model focuses on value comparison, and treats outcomes of offshoring relationships more fairly and realistically than a naïve salary comparison. The model is a development of models with extensions motivated by lessons learned from two empirical cases. The model is designed to consider more decision outcomes than previously suggested. In contrast to current practice focusing on economic profits from the salary differences between onshore and offshore, we focus on the differences between expected and realised outcomes by analysing strategic benefits created by options and measuring the same time-value. Finally, consequent decision situations provide a dynamic view on supporting chains of decisions.

Keywords: offshoring decisions; cost calculation; transaction cost economics; opportunity costs; options; cost/benefits; software development.

DOI: 10.1504/WRITR.2019.099131

World Review of Intermodal Transportation Research, 2019 Vol.8 No.2, pp.97 - 122

Received: 17 Nov 2017
Accepted: 03 Apr 2018

Published online: 16 Apr 2019 *

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