Outsourcing can be a useful practice, but it has some well-known risks as well as organization-wide consequences.
Loss of visibility. The most significant risk associated with Outsourcing is probably the loss of visibility needed to ascertain the project's progress. It isn't uncommon for projects to report that they are on time right up to the day they are supposed to deliver, and then to take a schedule slip of several months. Be sure that your contract with the vendor provides for timely and meaningful progress assessments.
Transfer of expertise outside your organization. One major risk of Outsourcing is that it transfers expertise about the product area outside your organization. As a result, two things happen: your ability to develop that kind of software diminishes, and the vendor's knowledge of your data and algorithms increases. Whether that transfer is sensible depends on how you answer this question: "Should this software product be considered to be part of our core business?" If it is, Outsourcing might be expedient in the short term, but it will reduce your competitive position in the long term.
Here are some guidelines for determining whether to consider a product to be part of your core business:
How important is it for your organization to maintain a technical capability to develop software in this area?
Does this software currently give your organization a significant competitive advantage?
If your organization decides to drop out of developing software in this area now, what is the chance that it will want to drop back in later?
What will be the cost of dropping back in later?
Does your software contain trade secrets or other proprietary data?
Do you sell products based upon proprietary characteristics of this software?
Is your organization's software development more effective than your competitors'? enough so to be considered a competitive advantage?
How does your time to market for software products compare with that of your competitors?
Is your software quality level better than your competitors'?
If you answer "yes" to most of these questions, Outsourcing is not in your long-term best interest. If you answer "no" to most of these questions, your project is a good candidate for Outsourcing.
Loss of morale. If the project you outsource is a project that in-house developers have wanted to work on, transferring that project outside the organization can adversely affect developers' performance on other projects. Moreover, Outsourcing can give developers the impression that their own jobs are at risk, which can cast an unproductive pall over your entire development organization.
Loss of control over future programs. By transferring development of a program to an outside organization, you might lose the ability to extend the program in the future. Your technical staff is unlikely to be familiar with vendor-developed code. The vendor might make design or implementation choices that limit future flexibility. Depending on the details of your contract, you might lose the right to modify the program you paid for. Or you might not have rights to the design or source code. Be sure that your contract provides the flexibility you need.
Compromise of confidential information. Be sure that you identify proprietary data and algorithms and that your contract ensures that this intellectual property stays carefully protected.