Better risk management to improve outsourcing outcomes: ESI Study

November 11, 2011: A recent study conducted globally exposes the concern, effectiveness and best practices in risk management by companies that outsource their business functions. The study has found that in 95 per cent of the companies that outsource their functions and those companies who provides solutions, only less than 50 per cent of them are able to manage risk effectively.

About 70 per cent of the respondents identified that managing product or service quality is the major risk in outsourcing business functions. The study spanned across India, Middle East, Europe, North and South Americas and Asia pacific. Managers from outsourcing service providers, subcontractor buyers, project managers, executives and key decision makers were among the respondents of the study conducted by ESI international.

According to LeRoy Ward, executive vice president at ESI international, the wide acceptance of outsourcing demands service providers to improve their outsourcing competencies. The study indicates that there are areas that can be improved in terms of performance, productivity and competitive advantage.

With about 65 per cent of the organizations spending half of their revenue on outsourcing, organizations need to improve their risk management capabilities.

19 per cent of the respondents said that risk assessment of outsourced function is not effective in their organization, while 36 per cent were of the opinion that it is some what effective. 35 per cent of them suggested that the organization is effective and 6 per cent were of the view that their organization is extremely effective.   

In terms of risk management , 21 per cent of the respondents was of the view that their organization is not effective, 33 per cent opined that it is some what effective, 37 per cent suggested that it is effective and 6 per cent said that it is extremely effective.

Only 39 per cent of them responded that their organization has a strong risk management culture. The study indicates that 75 per cent of the organizations lack clarity in terms of defining requirement of the outsourced projects. Only 33 per cent of the organizations specify and define their financial goals to their outsourcing providers. In terms of evaluation of outsourced projects, 33 per cent of them said that their organization do not perform this on a continuous basis.

The survey also looked into the role of vendor performance. 63 per cent of the respondents said that they consider vendor delays as a major risk in outsourcing, while 61 per cent said it is clearly defined contract scope and 50 per cent opined that it is poor vendor management.

The result says that vendor’s technical ability and past performance are considered by 76 per cent of the organizations.

Training and development effort that should be put in was also considered during the survey. Of the areas that require emphasis on training, 61 per cent said that it is risk management, 53 per cent suggested risk assessment, 51 was in favor of quality in service in outsourcing and 47 per cent indicated that it is best practices.

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