Friday, July 23, 2010 |
In a recent global study by ESI International on the effectiveness and best practices in risk management by companies involved in outsourcing and offshoring, the results reveal that most companies in the industry are unaware of how to effectively manage the risks involved in outsourcing/offshoring projects. Of the 95% of the organizations found to be engaged in outsourcing activities, less than half utilize effective risk management practices.
According to a survey in the report, 70% of respondents indicated that product management or service quality is the top risk to organizations involved in outsourcing and offshoring. The survey gathered responses from decision makers in the outsourcing industry and governments in major outsourcing locations (South America, UK/Europe, Asia/Pacific, the Middle East, and India).
“The ubiquity of project outsourcing creates opportunities for, and demands on, organizations to better develop and refine their outsourcing competencies,” commented ESI International’s vice president of product strategy and management, J. LeRoy Ward. “The results of ESI’s global survey indicate areas for greater performance, productivity, and competitive advantages through better risk management.”
The results reveal a need in the industry for organizations to rethink risk management approaches in order to capitalize more effectively on the profit margins to be had by outsourcing projects. With close to two-thirds of organizations spending almost half of their budgets on outsourcing, it is clearly something that merits closer scrutiny.
Of the organizations surveyed, 19% claimed that their organization is not very effective at assessing the risks of outsourced projects and another 36% said that they were only somewhat effective. Of the respondents, only 39% of the respondents were confident that their organization had a strong risk management culture.
Managing outsourcing risks is a critical part of ensuring successful outsourcing partnerships - especially in locations where IT infrastructure is not up to par and with service providers that are not 100% transparent about prices and contract agreements. As such, shortfalls in effective requirements management and development must be addressed.
According to the study, 75% of organizations don’t always clearly define requirements of outsourced projects. Clearly defining your requirements is always the first step of the outsourcing process and thus serves as the foundation for successful project management. Despite this, only a third stated that their organization clearly articulates and defines financial goals to their outsourcing partners.
With over half of the organizations acknowledging a need for improvement in their outsourcing capabilities, there is clearly much more growth to be had in the industry should these pitfalls be addressed.