Offshore Outsourcing and Risk

October 19, 2016 8:09 pm | Updated 5 years ago.

Offshore Outsourcing and Risks Associated:

Offshore outsourcing has become a common phenomenon in today’s global economy.  Low process cost, high productivity , increased quality and high rate of customer satisfaction have leveraged outsourcing to new heights. However there are many challenges and risks associated with It offshore Outsourcing.

“IT Outsourcing is as an act of delegating or transferring some or all of the IT related decision making rights, business processes, internal activities, and services to external providers, who develop, manage, and administer these activities in accordance with agreed upon deliverables, performance standards and outputs, as set forth in the contractual agreement (Dhar, Gangurde, & Sridar, 2004)”. So whenever there is an offshore outsourcing  agreement there is an inherent risk attached to it.

The basic risk factors are:

  1. People:

Risk associated to people is related to their experience level training and human resource policies of the vendor. Different skill expertise and experience contribute to the risk factors of an offshore outsourcing deal.

  1. Cultural:

The attitude language cohesiveness ethics management style, decision making ability varies from region to region. Cultures associated to specific country can add risk to global offshore outsourcing. Language, customer orientation and other behavioral factors also add on to the risk elements.

  1. Political

Every new government brings along with it new policies, rules and regulations. Instability in the political world is one of the main causes for offshore outsourcing and also has a lot of risk attached to it. Changes in policies at times might adversely affect the outsourcing vendor.

  1. Quality Standards:

Every country has different set of quality standards. This increases the risk of offshore outsourcing.  Universally Software Capability Maturity Model (CMM) and ISO 9000 are the quality standards that are followed universally.  Accessing risks due to a fall in quality standards will affect an outsourcing deal.

  1. Security:

Security policies, security protocols is also a major concern in offshore outsourcing deals. Protecting consumer’s data is one of the key aspects of offshore outsourcing.

Other factors contributing to risk:

Apart from the risk factors mentioned above there are some other factors that contribute directly or indirectly to outsourcing risks. Amongst them transition and management costs is one of the top risk factors which is followed by a risk in rise in cost.

Sometimes hidden costs involved in offshore outsourcing also create a huge amount of risk. In addition lose of critical skills, lack of reliability and poor quality are important risks involved in outsourcing.

For risk reductions there are several methods that are adopted by large organizations. Firstly proper contractual agreements and maintaining quality standards can reduce risk in outsourcing. Secondly, Effective project management from both the sides can reduce risk to a large extent. Good relationship with IT outsourcing partners should be managed using a combination of methods like: periodic discussions regarding timely delivery budget and schedule. Other than this selecting the right outsourcing partner is an important factor in an offshore outsourcing project.

D2e Consulting is a One Stop simple to use the turnkey model to IT Offshore Outsourcing and Business Processes that will reduce risk by 25 – 30% and increase the business impact by 40 – 50%.