Another productivity killer is high turnover at offshore vendors. Attrition rates climb as high as 35 percent in India, according to the National Association of Software and Service Companies. "Unless you can somehow address that in your contract, you're paying for someone to learn your product and then they're gone," Zupnick says. Turnover can cost an additional 1 percent to 2 percent.

Finally, communication issues can slow things to a halt. "We had to do a lot more face-to-face interaction than originally anticipated because [offshore workers] just didn't interpret things the same way," says DHL's Kifer. "That resulted in a lot more travel there or bringing them onshore to bridge that gap. We did that a lot more often than the model would have prescribed." Language and other cultural differences can cost an extra 2 percent to 5 percent, according to Meta Group.

Bottom line: Expect to spend an extra 3 percent to 27 percent on productivity lags.

The Cost of Ramping Up

Well-defined and accepted internal software development and maintenance processes are also key to making an offshore situation work. "If you're an organization that develops and maintains by the seat of your pants, or it's a case where Mary Jo and Fred have been here for 30 years and they know how to do everything, you are in trouble," says Raspallo, who currently sends 65,000 man-hours of work to India.

Raspallo spent five months and $80,000 in consulting fees to get ISO certified in 1998, which puts his company at about Level 3 in terms of his employees' "capability maturity" in developing software. He also invested in an automated Web-based system to support the new software development and labor management practices. Most of the Indian offshore companies are ISO certified and at Capability Maturity Model(CMM) Level 3 or 5. "If your own staff can't get used to working at that level, you're going to have a major disconnect," Raspallo says.