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Recommendations on Mitigating Outsourcing Risks

by: Karen Cayamanda

Monday, September 12, 2011 |

In many cases of outsourcing business functions offshore, it is inevitable to give service providers some sort of access to certain systems and information on processes to get the job done. Depending on the outsourced work, the clients are somewhat exposing the way they do business to an external provider, and that makes them at risk.

Today’s global outsourcing market continuous to flourish and as more and more companies realize what outsourcing can do, it is highly important to evaluate business relationships with service providers to mitigate the risks involved in transferring processes to vendors.

Recommendations on mitigating outsourcing risks

In a CIO.com article by Stephanie Moore, Vice President and Principal Analyst at Forrester Research, she enumerates several recommendations on risk mitigation:

Make sure the vendor has the right certification. Vendors adhere to delivery standards to ensure the highest quality. For instance, CMMI Level 5 is the highest rating today. This indicates lower risks when it comes to executing programs. Keep in mind, though, that not all service providers have the certifications you may need. Smaller or new vendors may not have the right certifications required for your business.

Assess the qualifications and certifications of employees. Software development work requires employees who have undergone training and have the right qualifications and certifications. Make sure to get proof of certification from the service provider.

Analyze the HR and recruitment capabilities of the vendor. Finding talent is one of the most crucial steps when it comes to outsourcing, but after hiring the right employees, the vendor should be able to retain them and keep attrition rates to a minimum.

Look at the vendor’s vertical expertise. Clients must look at the vertical capabilities of service providers. It is important to know how they incorporate innovation and technology with their expertise in certain verticals and the industry.

Evaluate rates and productivity in terms of quality of work. Outsourcing enables clients to save on operational and labor costs, but this does not mean getting deliverables of low quality. Clients need to assess the pricing of projects and ensure that the employees meet their requirements.

Beware of managed services agreements. As with all other business contracts, service level agreements in outsourcing must be crystal clear, making sure that the vendor is not employing, for example, shortcuts in the software development life cycle (SDLC). Evaluate managed services engagements carefully to prevent problems later on.

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