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Outsourcing Risks and Ways to Mitigate Them

by | 16 January 2020 | Outsourcing

Setting up an organisation requires entrepreneurs and business owners to accomplish significant things that can impact the success or failure of the company like a risk assessment plan. This particular plan helps an establishment to determine and mitigate potential uncertainties the organisation may face. The same approach is required in outsourcing and offshoring ventures to decrease the likelihood of outsourcing risks breaking the business.

Many overlook the potential damage these risks can bring their offshoring ventures. Risk assessments are critical in every business’ success and must be planned out to identify the best ways to mitigate them in advance.

WAYS TO BEST MITIGATE OUTSOURCING RISKS

 

OUTSOURCING STRATEGY RISKS

Outsourcing Strategy Risk

 

1. Failing to define the goals and objectives of the offshoring venture

It’s a necessity to define and determine outsourcing and offshoring tasks. Without these guidelines, your offshoring staff can crumble and get lost during the transition. It will leave them unsatisfied which possibly lead to employee turnover.

The best way to prevent these kinds of scenarios is to prepare and clearly define the roles and responsibilities of the professional. If your company is looking to offshore developers, clearly state that you are looking for one. Then provide a clear job description for the role, set certain requirements and qualifications, and determine standard KPIs for the role.

2. Failing to compare and research estimate costs on outsourcing

It’s best to consider pricing when looking at offshoring. Although it’s common knowledge that outsourcing can save you up to 70% on expenses, it’s not necessarily as transparent as that. Many BPO companies have taken advantage of hidden costs, increasing business spending of organisations offshoring some of their core processes.

Nip this in the bud by directly asking third-party providers if they offer transparency in pricing. Check the cost of the:

  • Equipment and tools
  • Software programs and updates
  • Utility charges
  • Salary and mandatory government contributions
  • Additional charges like HMO and facility usage and services

This is a small list of the things you can check with outsourcing companies offering you a variety of services. It’s also best to ask them to elaborate on the extra charges they did not include in the initial quotation.

3. Failing to consider the impact of outsourcing venture on the internal functions and processes of the business

Another thing businesses overlook is ensuring the existing team is onboard with offshoring. Internal problems can easily occur when businesses fail to get consent or compliance of the internal staff. Such things can cause internal conflicts which affect business processes and internal functions.

Getting everybody on board will not be an easy task. Open the idea to your internal staff and explain the on-going processes and the reason for outsourcing some of your business functions. It’s also best to guarantee the safety of their job positions.

Use outsourcing to expand the business without letting go of internal staff. That’s the best and most effective way to earn your team’s respect and trust, getting them everybody onboard.

4. Failing to understand employee relations and regulations in the offshoring country

Employee regulations vary from one country to another. It’s necessary to conduct extensive research to understand employment laws on the country your outsourcing business functions too.

 

OUTSOURCING SELECTION RISKS

Outsourcing Selection Risk

 

1. Failing to research different outsourcing providers, their limitations, flexibility, and pricing

Inexpensive price quotations can be tempting. However, keep in mind that pricing depends on many factors such as the skills of the candidate, location of the outsourcing company, rate exchange, and such.

Avoid getting blinded by the cheap price of outsourcing and go for the model that will suit your business needs. Outsourcing and offshoring must be more than cutting off prices and shall be about taking on globalisation to stay competitive in this digital age.

2. Failing to compare quotations

It’s best to talk to different offshoring providers and get quotations from them to compare. Keep in mind that it’s also necessary to check the limitations and flexibility of the outsourcing company and align that with their pricing. Compare. Always compare then choose the provider that can deliver and meet your organisational requirements.

3. Failing to identify which outsourcing providers have transparent pricing

By getting price quotations, you’ll be able to see which companies are hiding charges. As listed above, it’s best to ask these establishment details on how they compute pricing and quotations for their clients. Intelligent questions will get you answers to more meaningful and helpful guidelines to make wiser decisions.

 

OUTSOURCING IMPLEMENTATION RISKS

Outsourcing Implementation Risk

 

1. Failing to understand the third-party provider’s limits and flexibility

Every company has its limitations and flexibility. Learn about what each company can offer and the limits of their services. Concerns regarding management, employee benefits, and other related things can start small disputes that can lead to bigger problems.

It’s necessary to handle these kinds of affairs at the beginning of your offshoring journey to ensure you are proactively mitigating outsourcing risks that can begin from the smallest things.

2. Failing to recognise great talents and making a biased decision in the applicant selection process

Many organisations fail to recognise talents as they fall short to meet their outsourcing obligations. It’s essential to conduct interviews to further test and assess an applicant’s abilities to perform specific tasks.

Test and interviews will provide you with the necessary data to make an objective decision in the selection process. It’s best to look past educational attainments and certifications unless required for the role.

The Philippines’ local talents have great work ethics thus guaranteeing businesses that they will have the opportunity to talk with experienced professionals with great personalities.

3. Failing to induct and train employees up to business standards

It’s the client’s responsibility to introduce new employees to the business. An alternative is to provide direct managers who can support them and train them in their first three months in the company.

It’s also the client’s responsibility to conduct and train new employees up to their company standards to maintain the quality of service they provide to their customers. Third-party companies can only provide as much as they can by equipping both client and employee with the facility and technology to communicate freely.

4. Failing to set a realistic timeline and deadline for projects and tasks

It’s a must-do for every business. Deadlines set specific KPIs for employees to target. It’s your obligation to set realistic timelines to allow your staff to do their job and train them to meet company standards.

Without deadlines, projects can delay for as long as employees can. Set standards and rules especially for time-sensitive projects and tasks.

 

OUTSOURCING MANAGEMENT RISKS

 

1. Failing to consider the impact of offshoring venture on the company’s financial condition

It’s vital to check with the company’s financial condition and see if outsourcing or offshoring is worth maintaining for the business. It is potentially cost-effective. Many businesses benefit from it and allow their establishments to allocate a bigger budget to departments that boost conversions of the company. However, companies must study their financial stability and check if this business venture is bringing them profit

2. Failing to keep open and constant communication

The key to offshoring and outsourcing success is open communication, which also is, the biggest outsourcing risk there is.

The progress of your offshoring venture lies on how open and willing are you to communicate with your offshore staff. Make sure to keep the lines open or at least direct them to a manager or supervisor who can oversee their tasks and ensure there is progress in their work.

3. Failing to adapt and accommodate changes as the company expands

Changes will happen, it’s inevitable. Adapt to the ever-evolving pace of your industry. Each industry differs but all improve with time and technology. Don’t get left behind by other companies for the sake of maintaining traditions.

Everything evolves and the world is forcing everyone to conform to newer and fresher things. Learn which aspects of change you must implement to the company to further its success and learn when to say no to things that can only damage its reputation.

 

CONCLUSION

There are many risks to venturing into outsourcing but the same applies to other businesses. There is no one straightway to avoid these offshoring risks, only plans to best control them. Preparation and cooperation with your staff is key to ensuring small problems as such don’t evolve into something big. Equip your company and staff with tools to prevent them and fight them. Best remember that you and your staff are the solutions to these risks.

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