AuthorsM. Jørgensen
TitleA Strong Focus on Low Price When Selecting Software Providers Increases the Likelihood of Failure in Software Outsourcing Projects
AfilliationSoftware Engineering, Software Engineering
Publication TypeProceedings, refereed
Year of Publication2013
Conference Name7th International Conference on Evaluation and Assessment in Software Engineering

Context: Bidding rounds are frequently used to select competent and cost-efficient providers for software projects. Objective: We hypothesize that emphasizing low price when selecting software providers in such bidding rounds substantially increases the likelihood the project will fail. Method: The hypothesis is tested by analyzing a dataset of 4,791,067 bids for 785,326 small-scale projects registered at a web-based marketplace connecting software clients and providers. Results: We find evidence supporting our hypothesis. For example, selecting providers with bids 25% lower than the average bid is connected to a 9% increase in the frequency of project failures for the same level of provider skill. In addition, we found that clients emphasizing a low price, on average, selected providers with lower skill levels. This decrease in provider skill level further strengthened the negative effect of a strong focus on low price on project failures. For example, selecting a provider with a 15% failure rate for previous projects instead of 5% increased the failure rate by 33%. Conclusion: We interpret the findings to suggest that a client may substantially reduce the likelihood of project failure by reducing the emphasis on low price when selecting a provider.

Citation KeySimula.simula.1924