IT Outsourcing Risk Factors

IT outsourcing is purchasing from the outside vendor or the use of external service providers to effectively deliver IT-enabled business process, various application and IT service solution for business outcomes. IT outsourcing companies in India should improvise their service delivery in a way that it minimizes the risks to vendors.

Due to increased regulatory scrutiny and relationship of the companies with their service providers and the variety of external service providers, the decision to outsource has become more complicated and risky. This regulatory can be in terms of size, scope, and geographical location.

There are various benefits of the outsourcing. IT software development companies outsource many projects, assets etc. for carrying out business activities. Along with the IT outsourcing benefits, there also exists risks and risk factors that leads to many positive or negative outcomes.

The various risks factors associated with the outsourcing and their implications for global outsourcing are described as follows:

1) IT Outsourcing Risk factor - People

Implications for the Global Outsourcing : Globally distributed teams with different skills and experience contribute to risk

2) IT Outsourcing Risk factor – Knowledge (Functional, Technological, Managerial)

Implications for the Global Outsourcing : The extent of functional, technological, and managerial knowledge contributes to risk in offshore outsourcing. Managerial knowledge is extremely important in a global context.

3) IT Outsourcing Risk factor - Cultural

Implications for the Global Outsourcing : Country specific cultures can add risk in global outsourcing. Language and work ethics vary from country to country and that may contribute to risk.

4) IT Outsourcing Risk factor - Political

Implications for the Global Outsourcing : The major concern for global outsourcing Political instability is as the government rules and regulations may have adverse effect on outsourcing.

5) IT Outsourcing Risk factor - Financial

Implications for the Global Outsourcing : The financial aspect looks into Accounting standards and variation in currency exchange rate that contribute to risk.

6) IT Outsourcing Risk factor - Quality Standards

Implications for the Global Outsourcing : Quality standards vary from one country to another and contribute to risk.

7) IT Outsourcing Risk factor - Measurement

Implications for the Global Outsourcing : Performance measurement standards vary from country to country which contributes to risk.

8) IT Outsourcing Risk factor - Scope, Cost, and Time Estimates

Implications for the Global Outsourcing : It is quite difficult to accurately determine scope, cost, and time estimates in global outsourcing. This contributes to risk.

9) IT Outsourcing Risk factor – Company Specific Risks

Implications for the Global Outsourcing : Different companies in foreign countries have different management and core competencies. Those contribute to risk.

10) IT Outsourcing Risk factor - Legal Contracts and Intellectual Property

Implications for the Global Outsourcing : IP standards and law vary from one country to another and contribute to risk.

11) IT Outsourcing Risk factor - Security

Implications for the Global Outsourcing : Security is also a major concern in global outsourcing as protection and control of data pose a problem.

12) IT Outsourcing Risk factor – Disaster Recovery

Implications for the Global Outsourcing : Loss of control over disaster recovery contribute to risk.

13) IT Outsourcing Risk factor – Contract Management

Implications for the Global Outsourcing : Contract management in global outsourcing is a risky business as monitoring the project activities become a challenge.

14) IT Outsourcing Risk factor - Relationships & Alliances

Implications for the Global Outsourcing : Inability to manage relationships and alliances constitutes the risk in global outsourcing.

15) IT Outsourcing Risk factor – Geographic Location

Implications for the Global Outsourcing : Vendor’s geographic location comprises of various risks. Communication infrastructure failure in offshore projects incurs significant loss.

16) IT Outsourcing Risk factor - Multi-vendor Arrangements

Implications for the Global Outsourcing : In global outsourcing with multivendor arrangements, coordination has to be effective and efficient. Otherwise execution becomes a problem and contributes to risk.

Conclusion: Thus, the IT outsourcing companies should think strategically about the risks factors for outsourcing different functions or the segments. The companies should consider different aspects while outsourcing like what needs to be outsourced, what amount of the data should be provided for outsourcing to the supplier. This will eventually lead to risk mitigation.