In our September article “Strategic Advantages of Outsourcing”, we outlined several benefits typically incurred by outsourcing processes within your business. We found the greatest benefits were cost reduction, improved services, increased service offerings, and greater operational flexibility.
While outsourcing initiatives do provide organizations with many benefits, outsourcing isn’t for everyone. Every company operates differently. In order to determine a strategy that is right for your company, you need to weigh the advantages against the costs and the risks of outsourcing.
Risks of Outsourcing
A risk analysis is a systematic thinking process for identifying and dealing with risks and can be used to determine the risks of outsourcing. Identifying both the risks associated with your services as they exist today and the risks if you outsourced allows you to determine whether they’re risks that are acceptable for your business.
Use the following steps to conduct a basic risk analysis for your business:
- Identify your organization’s business objectives and list the services that contribute to meeting each objective.
- Review each service and break them down into elemental steps.
- To establish your “As-is View”, determine the probability of failure for each step and describe the implications if the step fails.
- Once you have determined the potential risks, categorize them as Operational, Financial, or Managerial.
- Create a new speculative “To-be Scenario” in which you assume that services are outsourced to a provider.
- Determine risks for each step in the “”To-be Scenario”, including the probability of failure and what would happen if any of the steps failed.
- Identify areas of vulnerability and determine specific potential problems where immediate action would be required.
- Compare the risks in the “As-is” view to the risks in the “To-be” view where outsourcing has been introduced and decide whether changes or introductions to the risk profile are acceptable to your company.
A risk analysis should not be thought of as a negative search for trouble, but rather a proactive method for avoiding or reducing risk that may affect your business in the future.
A risk analysis assures that you have weighed the advantages and the disadvantages of outsourcing core business processes and that you are ready to make an informed decision regarding the future of your business.
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