Proven Tips to Minimize Risks of Outsourcing

Amy Pattinson
August 17, 2022
 Mins Read

Many companies, including yours, might find outsourcing to be a good idea as there is so much to be gained from it: operationally, financially and logistically. But there are also risks involved in this business model.  

Several issues may crop up. For instance, the cost saving might not be what your company expected. The third party service provider might not be able to handle the scope of the project. It could even turn out that they may not have the personnel and the skills to execute the assignments; this, in turn, may impact the deliverables. If everything else seems fine, the quality of service provided by the outsourcing company might not be up to the standards expected by your company’s customers.  

To manage such risks, take the following steps in a timely manner.  

8 Key Steps to Minimize the Risk of Outsourcing

1. Discussion of Critical Issues:

This first step should be taken at the initial stage itself. Start by discussing all relevant issues with the outsourcing firm. Structure the modalities of the agreement in such a way, that the success of the project is the joint responsibility of both your company and the third party service provider.

2. Sharing Responsibilities:

The burden of managing the risks and the responsibility for accurate execution of the process has to be shared by the concerned parties. This will ensure that neither side is in a position to shed accountability.

3. Ensuring Business Goals are Achieved:

The outsourcing agreement should be such that it yields a specific business result to you as a client. Ensure that it does not merely become a channel for you to acquire inexpensive labor. The service provider should also be informed about the goals of the business model that your firm is trying to achieve, so that they can also take steps to contribute towards achieving those targets.

4. Establish Quality Standards and Performance Indicators:

Document what quality means to your company. Document what quantity means. Define the parameters that represent success and the ones that represent failure. There should be timelines, Key Performance Indicators (KPIs) and benchmarks for achieving targets. If these indicators are breached, then penalties should be imposed and an enquiry should be conducted into the probable cause of the failure to reach the agreed targets.

5. Conduct a Trial of the Services:

There should be a trial period where the outsourcing company could be put to test to check if they can handle the work. This could be of the duration of one month or three months or any other time period, that you both agree upon. In case the process fails during that time, then you always have the option of entrusting the project to another firm. If you are satisfied with the services, then you could finalize the agreement and the service provider can start the process in full earnest.

6. Ensure Flexibility and Adaptability:

Business situations keep changing constantly. These changes impact both your firm as well as the service provider. That is why it is essential that the outsourcing model and the process methods are kept flexible. These models and methods should not fail with the slightest of changes. The process methods and the outsourcing terms should be amenable to changes as and when the needs of your firm progress.

7. Ensure Confidentiality:

Today, confidentiality is everything. Therefore, you should sign a non-disclosure agreement with the service provider. This will ensure that your company’s information is kept confidential. There will be certain processes where you might have to give access to the service provider to intranet sites and other important company information. It would be in your best interest to sign agreements with the service provider that protect the secrecy of this data. You could also conduct site visits at the office of the outsourcer to ensure that the data is being kept safe.

8. Ensuring the Right Recruitment:

There are many businesses that insist on overseeing project recruitments by the service provider, so that only personnel that suit the company’s needs and have the right skills, are on-boarded. You could do this while outsourcing, especially if the work requires a specialized set of skills or access to extensive knowledge.

Finally, if you and the service provider plan everything well in advance by working out the smallest of details, planning for all eventualities and establishing strong backup plans, then the chances are very high that the outsourcing model could turn out to be a success.  

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