Managing Outsourcing Risks: How To?

Did you know more than 50% companies cut millions of dollars in operational costs with outsourcing? On the other hand, thousands of dollars was spent mitigating risk? Following certain risk management strategy you can cut down on outsourcing risks.  Outsourcing continues to be an important part of many organizations’ business management strategy. The term outsourcing refers to a process, wherein one company relies on another (often in another country) to run certain business functions to reduce cost and increase operation efficiency.
Risk And Reward

Risks Involve in Outsourcing?

Though outsourcing has always proven to be effective but it also comes with many risk factors. For example, on one hand outsourcing increases the ability of organization to focus on main business functions; on the other hand, if not managed properly companies may negatively affect the organization’s operations and customers with lower quality of products or services. Organizations cannot even deny the possibility of data being hacked or stolen as a risk of outsourcing.

How to Manage the Risks involved in Outsourcing?

Many of these risk factors can be avoided if outsourcing organizations take some preventive measures such as following risk management model based on certain guidelines. The model suggests very generic stages like:

  • Documenting the complete requirement of the organization in the form of a project
  • Determining the right company to outsource
  • Making, sharing and negotiating contract plan with the provider
  • Continuous monitoring of the project for further improvement

Requirement Documentation and Finding Suitable Provider

Process of documenting the requirements will provide very clear understanding about the organization’s expectation from the provider. Organization lists all the problem areas that could prevent the goals from getting fulfilled. This is definitely a plus for feasibility of contract. But determining the right provider for the service requires a rigorous selection process involving site visits, reviewing provider’s financials matters, market position, deliverables history, websites, and reviewing third party assessments.

Contract Plan Negotiation

The provider may want to negotiate the contract before implementing the plan. Organization should make sure that all rights and responsibilities are clearly defined in the contract for both the companies. Not many people knows that other than providing security, these service-level contracts can also be helpful in identifying the issues related to report delivery, percentage of errors in processing, non-compliance cases etc. which further provides the scope of product improvement.

Project Monitoring

An organization should understand that, in order to perform risk management involves with outsourcing, just laying the requirements and choosing the right provider with mutually agreed upon contract is not enough. Organizations would never want to jeopardize their businesses due to lack of monitoring the project. Moreover, constant monitoring or auditing becomes more important when a provider also has the access of company’s business data. To keep track of project progress and the manner in which the provider is following the guidelines for achieving goals, continuous monitoring or revising the contract (if needed) is very crucial.

If risk management is done the right way, outsourcing can helps an organization to concentrate more on their core competency, while their customer gets the best of both worlds!

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