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Tips to Reduce Outsourcing Risks

by: Sidney Liquigan

Tuesday, November 28, 2017 |

Business process outsourcing (BPO) proves to have significant benefits in cash flow, operations, and logistics. However, having an offshore third party provider also comes with risks that when managed poorly, can cause major damage to your business.

According to Exigen Services CEO Alec Miloslavsky, outsourcing risks are generally divided into three:

  1. Financial risk – where project costs are higher than expected
  2. Time to market risk – delays in production and turnaround
  3. Delivery risk – where the project failed to meet objectives

Reducing outsourcing risks is a continuous practice that starts during the decision-making process on choosing the right outsourcing partner and continues throughout the course of the partnership. The decision-making stage is the perfect time to define the risks and plan how to minimize them. Along the way, as your outsourcing partnership develops, reducing outsourcing risks becomes a shared responsibility.

Mitigating outsourcing risks

On your end, here are the ways you can successfully reduce outsourcing risks.

Ask for a trial

Among the potential outsourcing partners you have shortlisted, a trial of the services you require can ultimately help you decide the right outsourcing firm to go with. A trial saves you from impulsively finalizing agreements and contracts and lets you put potential partners to test without commitment.

Identify your goals and set checkpoints

In outsourcing, you can delegate tasks in volumes that depend on your budget and confidence in having your business processes outsourced. You have the option to break down your projects and outsource them by task; or when you outsource a long-term project, set progressive milestones and checkpoints to keep track of the project's progress and its deliverables. Identify your objectives and goals for each project and share your expectations with your outsourcing partner.

Set KPIs

In addition to communicating your objectives and expectations with your outsourcing provider, it is also important that you define quality standards and set key performance indicators (KPIs) for your offshore outsourced team. These can help you have a measurable gauge to analyze how well they are performing.

Demand transparency

Your outsourcing provider should be explicit with their methodology. Ask them about how they manage and execute projects and find out if they have the flexibility to adjust and scale their processes to your own set of standards. Changes and demands in the market and the industry constantly varies and it is important that you have a partner that is agile to changes.

Obtain raw files, not just the final product

The main point of outsourcing is delegating business functions to vendors that have the experience and right skillset. Thus, you might only be interested in the final product or deliverable and you might not find the raw files useful. But look at the big picture. What happens when you decide to change your outsourcing partner? Obtaining the raw files will allow your new vendor to take over or make changes to the project easily and without having to start from scratch.

Make your provider sign an NDA

A non-disclosure agreement (NDA) protects your business and bounds your outsourcing partner under a contract to keep your projects confidential. When you outsource a production job, such as app development or creative work, it is your privilege as an outsourcing client to have the product white-labeled. The signed NDA will not only protect trade secrets and proprietary knowledge, but it will also keep your outsourcing partner from revealing that they work with you and which of your projects they are working on or have worked on.

Shared responsibility

Outsourcing involves two parties: you and your outsourcing partner. And as any partnership goes, both of you should have accountability for accurate process execution. As we mentioned, reducing outsourcing risks is a shared responsibility. When something goes wrong, both parties will be affected and therefore should work together to cultivate a collaborative relationship.

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