22 Feb Key Steps to Minimise the Risk of Outsourcing
Outsourcing is a common practice amongst businesses, where business functions and processes are contracted out to third-party providers. The benefits of outsourcing are vast, such as cost savings, efficiency gains, increased reach, and greater competitive advantages. It also makes your business flexible and agile, able to adapt to changing market conditions and challenges. But as the famous adage goes ‘There is no such thing as a free lunch,’ outsourcing has its pitfalls.
Benefits go hand in hand with risks that cannot be avoided, such as: handing direct control over business functions, severance and costs of local employees in overseas outsourcing, hidden costs and mislaying of organizational trust. Nonetheless, there are ways to mitigate their impact. How? That’s precisely what you will find out here.
Categories of Outsourcing risks
The outsourcing risks have three broad classes:
- Financial risk: Project costs turn out higher than expected
- Time to market risk: Delays in production and turnarounds
- Delivery risk: Project fails to meet the objectives
Reducing outsourcing risks is a continuous effort that begins with the decision-making process of choosing the right partner. This makes the decision-making stage a perfect time to define the risks and mitigation plans, enhancing business preparations.
With that being said, let’s understand the essential ways to reduce the outsourcing risks successfully.
Asking for a trial
Amongst potential outsourcing partners shortlisted, a trial of the services you require can ultimately help you decide the right outsourcing partner. A trial will allow you to test your potential partner without signing the finalizing agreements and contracts.
Forging a well-defined SLA
A service level agreement (SLA) decides what services the supplier is to provide and to what standards. Getting advice from a service management consultant or a commercial lawyer while drawing up SLA may be worthwhile in mitigating future risks. Try to build a flexible SLA, to counterbalance future business need changes and technology evolution. Lastly, all of your outsourcing contracts should contain an exit strategy.
A key performance indicator (KPI) defines a quality standard for your offshore outsourced team. They help you analyze outsourcing team’s performance, enabling your company to make smart business decisions about the direction of all current projects.
In outsourcing, you have the option to break down your projects and outsource them by task or as long-term projects. Setting regular checkpoints and milestones to keep track of the project’s deliverables is vital for having confidence in your outsourced business. It will ensure that outsourced tasks and projects are organized in the right direction.
In addition to communicating your objectives and expectations with an outsourcing partner, it is essential that outsourcing partners provide accurate details about their methodology. Why? Business needs and demands in the market vary constantly. Knowing how they manage and execute projects will help you understand how they can adjust their processes to your level of attainment. Having an agile and flexible partner could be your key to avoid unforeseen circumstances.
Collecting all building blocks, not just the end Product
If you think outsourcing is all about obtaining the deliverables and the final product from the experienced vendors, then you may be evacuating space for problems in the bigger picture. Obtaining raw files is as important as the final product. Why? Because whenever your outsourcing partner changes, raw files will allow your new vendor to take over or make changes to the project quickly, without having to start from scratch.
Signing up NDAs
A non-disclosure agreement (NDA) is a legal contract between two or more parties that outlines confidential material, knowledge, or information that the parties wish to share remains confidential. Signing an NDA with an outsourcing client will keep the project and its related work confidential. This is required to protect trade secrets, proprietary knowledge and it also enhances the overall security of the business.
Outsourcing involves two parties: you and your outsourcing partner. And as any partnership goes, both of you should have accountability for accurate process execution. When something goes wrong, both parties will be affected and therefore should work together to cultivate a collaborative relationship.