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- On July 19, 2016
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- Outsourcing risk mitigation
There are arguments in favour of outsourcing and arguments opposing outsourcing that point out the disadvantages associated with it. Outsourcing is certainly advisable in some circumstances, yet, some degree of risk is involved in outsourcing. Whether there is risk and to what extent depends upon the kind of tasks or processes that are outsourced. There is a need to manage risks associated with third party service providers. Outsourcing has become risky and complicated due to increased scrutiny of companies, their relationships with service providers and the service providers available in terms of size, scope and geographical location. What increases the complications and risk is the fact that companies rely on more than one service providers and the service providers in turn rely on still other service providers. Hence there can be a chain of outsourcing companies involved and sometimes, the end company may not have any idea about how many and which companies are contributing to their unit. Outsourcing requires sharing of data with companies and when there are several companies involved, the secret data can go digitally viral to unreliable sources. Naturally, mitigation of risk has become a matter of concern in recent times.
Common risks associated with outsourcing
- Outsourcing implies dependence on others. If there is a delay from the outsourced company, there will be a delay in completion and delivery of goods. The story of the sparrow is famous. Its little ones inform the sparrow that the farmer who owned the farm had decided to cut the crops the next day, and they had heard the farmer inviting the neighbours to help him. The sparrow remained cool and took no action. The same message went around the next day, and the next, until on the fourth day, they heard the farmer telling his wife that they would themselves cut the crops. The sparrow immediately moved out of the nest. Depending on others is always risky and uncertain because the circumstances are beyond your control.
- There is a need to understand the entire process from beginning to end. The partner company must know every step of the process and the exact stage that is going to be outsourced. This will make clear their role in the entire process so that they will be able to complete it satisfactorily. This will take care of the operational risk. The company must also have an idea where in the entire process there is a possibility of something going wrong, so that it can be prevented or extra care can be taken at that juncture in the process.
- The greatest risk is that companies have to share data that may be secret and confidential. People may misuse the data or take disadvantage of it. it is important to consider the volume of data and the frequency with which it is shared. The higher the volume of sensitive data a third party manages and the more frequently they handle it, the greater the risk that the confidentiality of that data will be compromised.
- When tasks are outsourced to companies, it is very important to check the stability of the partner. How financially stable is the company? How long can it continue and survive? What is the company policy and provision in case of natural disasters, accidents or emergencies? If you outsource important processes to a company that shuts down within 2 years, your functioning will be seriously affected and a lot of time and money will be wasted in finding a new partner and streamlining your business once again. There must be an exit strategy in case something goes wrong.
- Companies should not rely on verbal commitments at any cost. The terms and conditions must be duly documented and signed in the presence of witnesses and legal authorities. This is another way of mitigating a serious risk factor. You cannot sue a company if there is no evidence.
- A company has to meet deadlines and follow timelines. For example, there may be a last date for submitting documents or tax returns to the government. Sometimes, these tasks are done online. After the deadline, the site closes down and nothing can be done. If your outsourcing company fails to complete the formalities in time stating that their server was down or putting forth some such reason, you cannot be excused; you have to face the government officials ultimately. Maybe you have to pay huge amount of fines. You outsource tasks for saving on costs but if you have to pay fines, it is like being penny wise and pound foolish.
- Product and service quality may suffer in case of outsourcing. It is necessary to monitor the production, train employees in the outsourcing partners and maintain quality. Deterioration in quality can cause customer dissatisfaction.
In order to mitigate outsourcing risks, you can employ the following strategies:
- Find a stable company, reliable and trustworthy.
- Cross check the credentials of the company.
- Contact some of its clients and seek their feedback.
- Demand the papers and documents of the company and get them verified from authorities.
- Give a deadline some days in advance of the real deadline that you have to meet.
- Inquire whether the partner company outsources its tasks to any other company and find information about maximum companies involved in the outsourcing chain.
- Let all documents be legal and in hard copies, signed by company authorities.
- Do not agree to verbal commitments.
- Stop or delay payment from your end until the commitments are fulfilled.
- As far as possible, do not outsource core tasks; you can safely outsource non-core tasks.
Of course, every risk cannot be managed but if you manage most of them, there will be little risk in outsourcing. Risk management is an on-going process.
iTivia Technologies is a reliable outsourcing partner with satisfied customers across the globe. Risk mitigation is supposed to be a company’s concern, but at iTivia, we make it our concern. When you outsource to us, risk mitigation is out value added service. iTIVIA invests in resources (office, manpower, software, hardware, and training). Clients can offload their development work to iTIVIA. They will have full authority to overview quality, schedule and secrecy. iTIVIA will sign a MOU and NDA with the clients. iTIVIA will provide development staff for projects as and when required to ensure delivery schedules – and all this with the least risk factor.