Top KPIs for Measuring Success in Software Development Outsourcing

To reap the benefits of outsourcing software development, you’ll need to select the right partner and know how to measure success throughout the partnership. That’s precisely why outsourced software development KPIs (key performance indicators) exist. 

These KPIs serve as measurable values that help you track progress, evaluate performance, and determine whether your project is on the right track. Using these KPIs, you can align your outsourcing strategy with your business goals and enjoy better results.

In this article, we provide a list of essential KPIs that can help you manage your projects effectively. With this information, you can make data-driven decisions that maximize the potential of your outsourced software development efforts. 

Why Defining KPIs for Outsourced Software Development Matters

Think about it this way: you wouldn’t hire someone in-house without having ways to measure their performance. The same goes for your remote development team. 

Whether you’re working with partners in top software development outsourcing countries or a company locally, you’ll want to keep tabs on performance using specific KPIs relevant to software development.

Good KPIs do three key things:

• Show you if projects are actually moving forward
• Help catch problems before they become disasters
• Give you concrete data to evaluate if outsourcing is working for your business

They provide valuable insights into how well your outsourcing partner is performing, including whether they are helping you achieve business objectives and how efficiently they operate. 

Setting clear, measurable goals with KPIs helps you evaluate project progress and outcomes. Without them, you’re essentially navigating the project blindfolded.

Yet, KPIs aren’t just about measurement—they’re important for creating transparency and accountability. With well-defined KPIs, your in-house team and the outsourcing provider stay on the same page regarding expectations, reducing the risk of miscommunication and unmet objectives.

Tracking KPIs also brings other benefits. They:

• enhance project management by highlighting areas that need attention
• aid in cost control by identifying budget overruns early
• boost quality assurance by maintaining high standards throughout the software development process 

In short, KPIs are like a compass that points your outsourced software development project toward success.

How to Choose the Right KPIs for Your Outsourced Software Development Projects

Picking the right KPIs comes down to knowing exactly what you need from your development team.

Start with the basics: What are you actually building?

A customer-facing app needs different metrics than an internal tool. If you’re building an e-commerce app, you might care most about performance metrics and user engagement. For internal tools, reliability and maintainability might matter more.

Your development setup matters too. Are you adding individual developers to your existing team? You’ll want to focus on metrics around code quality and individual productivity.

Working with a completely outsourced team? Then team velocity and project milestones become more important. The key is matching your KPIs to how your team actually operates.

Industry-specific or model-specific KPIs can also play an important role. For outsourced projects run with Agile methodologies, for example, you might include KPIs like sprint velocity and team capacity. Meanwhile, quality assurance-driven projects might find metrics like defect density and escape rate more relevant. 

No matter what, make sure that your KPIs are SMART (specific, measurable, achievable, relevant, and time-bound) to keep them actionable and reflective of your project’s success. Tailoring your KPIs with these considerations in mind will help you better track progress and achieve your desired outcomes.

Top KPIs for Measuring Outsourced Software Development Success

While the type of KPIs you end up choosing will hinge on your unique circumstances, here’s a list of essential KPIs that hold significant relevance to outsourcing software development:

Time to market

Measures the time it takes to transition from the initial concept to the software product launch. For outsourced projects, a shorter time to market can help maintain competitiveness. This metric can highlight the efficiency and responsiveness of your outsourcing team.

Code quality

Bad code might ship fast, but it’ll cost you later. Look at:

• How many bugs are found after testing (defect escape rate)
• How often code needs to be rewritten (code churn rate)
• How complex the code is (cyclomatic complexity)

Communication efficiency

Trackable through the frequency and clarity of updates, this KPI is vital in an outsourcing scenario where effective communication is key, especially across different time zones.

Defect density

Identifies the number of defects per unit of code. A lower defect density indicates that the software meets quality standards and decreases the risk of potential issues post-launch , which is part of building customer trust.

Cost variance

Allows you to monitor financial efficiency and control expenditures by comparing actual project costs to the budgeted amounts, helping prevent budget overruns when outsourcing.

Customer satisfaction

Often measured through net promoter score (NPS) or customer feedback, this KPI can help gauge how well the final product meets user needs and the overall satisfaction with the software experience.

Project scope changes

Track how often and why your scope changes. Too many changes usually mean:

• Initial requirements weren’t clear
• Communication isn’t working
• The project needs better definition

Resource usage

Measures how well your software team’s skills and capacity are used. Effective resource usage ensures that you are getting optimal value from your outsourcing partnership.

Common Challenges in Tracking KPIs and How to Overcome Them

Implementing KPIs in outsourced software development is not without its hurdles. Here are some common challenges and how to navigate them effectively:

• Lack of clear definitions and objectives: Without well-defined goals, KPIs become meaningless numbers. To overcome this, invest time in setting SMART goals that align with your business objectives and the project’s scope.
• Failure to adapt KPIs over time: Project dynamics can evolve, making initial KPIs outdated. Regularly review and refine your KPIs so they remain relevant and reflective of your current project needs.
• Overwhelm from too many metrics: Tracking too many KPIs can lead to analysis paralysis. To avoid this, focus on a select few that are most critical to your project’s success.
• Misinterpretation of data: Misreading data can lead to misguided decisions. Make sure your outsourced team is trained in data analysis and invests in intuitive reporting tools that present KPI data in an accessible manner.
• Inconsistent monitoring and review: Irregular tracking undermines KPI effectiveness. Set a consistent schedule for reviewing KPIs to keep your project on track and make timely adjustments.
• Balancing quantitative and qualitative metrics: Relying solely on numbers may ignore the qualitative aspects. Pair quantitative KPIs with qualitative insights, like team feedback, to gain a more holistic view.
• Tool limitations: Some tools might not fully support your KPI tracking needs. Carefully evaluate tools that offer comprehensive features suitable for measuring your chosen KPIs.
• Overcomplicating the KPI tracking process: An overly complex process can deter regular tracking. Streamline your approach by simplifying the data collection and analysis processes.
• Balancing trust with the need for monitoring: Trusting your outsourcing partner is crucial, but unchecked autonomy can be risky. Establish clear expectations and regular check-ins to balance trust with oversight.
• Managing cultural and operational differences across teams: Diverse software development teams may interpret KPIs differently. To align interpretations and expectations, foster open communication and cross-cultural training between your outsourced and internal teams.

Final Thoughts

Successfully outsourcing your software development involves more than just choosing the right partner. It also involves measuring success through proper KPIs. 

This isn’t about micromanaging your remote team. It’s about having clarity on whether your investment in outsourced development is paying off.

The companies getting the most from outsourced development aren’t necessarily the ones with the fanciest tracking systems. They’re the ones who know exactly what success looks like for their projects and communicate that clearly from day one.

When you combine clear performance metrics with the right development talent, outsourcing becomes a genuine competitive advantage—not just a way to cut costs.

For more best practices for successfully outsourcing your software projects, read our article “Build an Effective Strategy for Software Development Outsourcing with These Tips.”