James V Lewis
University of Phoenix
Outsourcing Risk to Business
Without doubt outsourcing some of a company’s business processes could be quite beneficial in reducing cost, increasing operational efficiencies, and saving on technology resources such as hardware, software or other technological support and aid. That said, recognizing the true risk of outsourcing company information, products, or ideas is fast becoming known and the outcome is not always favorable to contracting out company business. It is not often those risk are publicly expounded upon. Some examples on these present day risk are: Breaches of company data, usually by a dishonest, knavish, and untrustworthy employee. Hacking, this could be made easier if one is outsourcing to overseas locations, where lower standards, inferior resources, or few if any regulatory restrictions are in play. Missing or stolen hardware, resulting from equipment being housed offsite. Unacceptably bad service, ineffective training and poor follow up. Inefficient operations, poor upper-management.
Product quality takes a hit, possible poor management.
These risks can lead to decreasing customer satisfaction, which could single a lost in trust and serious damage to an organizations reputation (Benevento, 2005). Before considering the use of a third party to conduct ones outsourcing program, an organization should determine the pros and cons by pinpointing the concerns and determining the drawbacks that come with outsourcing. Management would be wise to also identify the risk of affiliation with any vendor under consideration for the job. Written documented requirements detailing each step of every outsourced process should be completed and added to the vendor’s proposal and as a guide for management through the vendor selection process (Cox, 2008). Before any vendor selection is approved and contracts are agreed upon a risk-based assessment of all vendor proposals against the written documentation in the requirements definitions. Included in these assessments could be visits to a vendors proposed site, a strong review of all third party finances, and reviewing vendor operations, policies and procedures. A good example of outsourcing by large and small companies alike is email hosting. Email hosting is an easy way to save an organization from employing costly resources such as a redundant email infrastructure. The need to have multiple servers to keep complex systems operating so users experience no down time is essential for the success of a business. That said, email is at the heart of a company’s existence and due diligence must be employed when picking an email service provider (Sady, 2013). Again, if due diligence is not undertaken in a risk-based assessment of an outsourcing program there could be dire consequences for an organization ability to move forward. Before any action is taken a clear understanding of all the outsourcing processes and procedures must be had by all involved. Without doubt a good outsourcing decision can help a company’s success, but a bad decision, even when a company chooses the right outsourcing vendor could lead to problems.
Benevento, N. (2005). Outsourcing—A Risk Management Perspective, Retrieved from http://www.isaca.org/Journal/Past-Issues/2005/Volume-5/Pages/Outsourcing-A-Risk-Management-Perspective1.aspx Cox, A. (2008), Outsourcing: Business Guide to Risk Management Tools and Techniques (5th ed.). Bayonne, NJ: Earlsgate Press. Sady, B. (2013, august 16), 4 Tips for Managing Outsourcing Risks Retrieved from, http://www.cpapracticeadvisor.com/article/10983731/4-tips-for-managing-outsourcing-risks