Bottom line: Expect to spend an extra 1 percent to 10 percent on improving software development processes.

The Cost of Managing an Offshore Contract

Managing the actual offshore relationship is also a major additional cost. "There's a significant amount of work in invoicing, in auditing, in ensuring cost centers are charged correctly, in making sure time is properly recorded," explains DHL's Kifer. "We have as many as 100 projects a year, all with an offshore component, so you can imagine the number of invoices and time sheets that have to be audited on any given day."

At DHL, each project manager oversees the effort. He audits the timesheets from the vendor and rolls the figure into an invoice, which then has to be audited against the overall project, which is then funneled to finance for payment. Kifer's staff has been a bit overwhelmed. "We knew there would be invoicing and auditing," he says. "But we didn't fully appreciate the due diligence and time it would require."

At GE Real Estate, managing the offshore vendor is such a big task that Zupnick assigned someone to handle it on a half-time basis at a$50,000 salary. The individual makes sure projects move forward, and develops and analyzes vendor proposals against the RFPs when it comes time to bid out new work.

"It's a critical job," Zupnick says. "That's the price you have to pay to make this work."

Bottom line: Expect to pay an additional 6 percent to 10 percent on managing your offshore contract.