Outsourcing of Information Systems - Risk Factors Analysis

Topics: Outsourcing, Risk management, Project management Pages: 22 (6990 words) Published: March 12, 2011
Department of Graduate Studies Master Program in Business Administration

Management Information Systems

Outsourcing of Information Systems - Risk Factors Analysis

Prepared By:

Rasha Al-Hawash


Mr. Basem Sayrafi

Summer Course 2009

Table of Content

About this Paper Abstract Introduction
- Definitions - Reasons of Outsourcing - Factors affecting the Outsourcing Decision

The Risk of Outsourcing
- The Risk Factors along Outsourcing Project’s Life-Cycle - Risks affecting Outsourcing Projects - Recently Emerging Risks

Conclusion Recommendations References


About this Paper

In this paper I surveyed the literature for the recent research papers written about outsourcing information systems; the success factors and risk factors associated with outsourcing projects, with concentration on the risks encountered by outsourcing projects as reported in the most recent literatures. I will concentrate my study on the various risk factors that encounter the outsourcing firms; how these risks could be managed and controlled in order to exploit the success factors. To reach my goal in this paper, I’ll start by an overview of the reasons for outsourcing and the factors affecting the outsourcing decision, pointing out the outsourcing project life-cycle framework and some decision models developed in previous researches. This introduction will constitute the background that will lead to investigating the main issues aimed in this paper, which is the Risk.



Firms compete to achieve higher profits and gain competitive advantages. Over years, various policies and procedures to achieve the competitive advantage, higher profit goal have been designed and followed up by firms. In the recent few years, outsourcing emerges as a popular new policy to achieving these goals. This research introduces the outsourcing concepts, reasons and factors affecting the outsourcing decisions as were found in a wide number of literatures. We found that the labor and operations costs saving, gaining access to more specialized resources and improving the firm’s focus on strategic and core business processes are the most important reasons found.

The main goal of this research is to analyze the risk of outsourcing. Risk factors widely varied in the literatures from outsourcing-specific to traditional risks. Moreover, we found that risks vary in their degree in the domestic and offshore settings and some are unique to the offshore settings, which demand more trade-off analysis between risks and benefits while taking the decision to outsource. Holding incomplete contracts and its consequences, security risks of loss of control over data, decisions and performance, the language and time-zone barriers that affect the integration and coordination of work and lack of technical and business know-how by the vendor, are among the highly important ranked risk factors that affects the project’s quality and complete time.

These risk factors if not properly identified and managed, will lead to unexpected expenses that lower the benefits from the outsourcing project and eliminate the costsaving motivator. However, recently new risk factors are emerging. Some governmental and leaderships’ attitudes are being changed towards outsourcing considering this practice as a threat to their countries’ economy and unemployment rates. Plans to increase taxes on outsourcing are being discussed (in the US); this is a warning signal to outsourcing companies to start considering contingency plans to account for the expected increased tax expenses. However, opinions still diverse about governmental real intentions and the real crisis that would emerge when this plan come into action. 4


Gaining competitive advantage and earning higher profits is, with no doubt, the goal of most firms and organizations. Procedures to achieve this goal have widely varied over the years; firms have adopted...

References: Papers: 1. Robbie T. Nakatsu and Charalambos L. Iacovou. (2009). A comparative study of important risk factors involved in offshore and domestic outsourcing of software development projects: A two-panel Delphi study. Journal of Information & Management. 46 (1), 57-68 2. David C. Chou and Amy Y. Chou. (2008). Information systems outsourcing life cycle and risks analysis. Journal of Computer Standards & Interfaces. 31 (5), 1036-1043 3. Alison Rieple and Clive Helm. (2008). Outsourcing for competitive advantage: An examination of seven legacy airlines. Journal of Air Transport Management. 14 (5), 280-285 4. Y. Shi. (2007). Today’s solution and tomorrow’s problem: the business process outsourcing risk management puzzle. California Management Review. 49 (3), 27– 44. 5. Jian-Jun Wang and De-Li Yang. (2007). Using a hybrid multi-criteria decision aid method for information systems outsourcing. Computers & Operations Research. 34 (12), 3691-3700 6. W. Oh, M.J. Gallivan, J.W. Kim. (2006). The market’s perception of the transactional risks of information technology outsourcing announcements, Journal of Management Information Systems. 22 (4), 271–303. 7. Reyes Gonzalez and Jose Gasco and Juan Llopis. (2005). Information systems outsourcing reasons in the largest Spanish firms. International Journal of Information Management. 25 (2), 117 – 136. 8. Kweku-Muata Osei-Bryson and Ojelanki K. Ngwenyama. (2005). Managing risks in information systems outsourcing: An approach to analyzing outsourcing risks and structuring incentive contracts. European Journal of Operational Research. 147 (1), 245-264 9. Jérôme Barthélemy. (2003). The Hard and Soft Sides of IT Outsourcing Management. European Management Journal. 21 (5), 539-548
10. Gupta, G., & Gupta, H. (1995). Outsourcing the IS function. Is it necessary for your organization? Information Systems Management, 9 (3), 44–50.
Websites (for the “Recently Emerging Risks” section because of the lack of references): 1. “Grid staff in outsourcing protest”. BBC News website. 2009. http://news.bbc.co.uk/2/hi/uk_news/england/tyne/8170008.stm 2. Stephanie Overby. “The Truth about Obama’s Tax on Outsourcing speech “. IDG News Service. 2009. http://news.idg.no/cw/art.cfm?id=35CD75AF-1A64-6A71-CE1AB4F51166D378 3. The video of Barack Obama Speech Dan Fisher. (2009). No to Bangalore, Yes to Buffalo. Buffalo Rising Website. http://www.buffalorising.com/2009/05/no-to-bangalore-yes-to-buffalo.html 4. Liam Clarke. (2009). If You Ask Me. BBC News Website http://www.bbc.co.uk/northernireland/tv/programmes/heartsandminds/ifyouaskme /20090305.shtml 5. Gary Zeiss. (2008). Is Barack Obama Anti-Outsourcing?. Outsourcing Weblog. http://www.outsourcingweblog.com/50226711/is_barack_obama_antioutsourcing.php
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