Discover How to Identify and Tackle the Potential Risks That Occur in Outsourcing
In the past decade or so, outsourcing has become quite common among businesses. Services like customer support, software development, talent management, and more are often outsourced to specialists for a multitude of reasons.
One of the primary reasons businesses opt for outsourcing is affordability. In many cases, it would be more expensive to hire or bring on an in-house team when compared with outsourcing services. And in tough economic times like today, even a little bit of cost-saving can amount to huge benefits.
But aren’t their risks of outsourcing? Risks that could cost a lot more to fix than what business process outsourcing offers in convenience? Let’s dive in and take a look at common risks associated with outsourcing and how you can identify and mitigate them before those risks affect your business.
How Can You Identify Potential Risks?
One of the best ways to ensure that your business isn’t affected any potential risks of outsourcing, is to assess and address those risks beforehand. This process of identifying risks is known as risk assessment, where an entity identifies all known risks, and structures them according to the expected impact they might have over your business.
Now, you might ask, how would risk assessment help you in the long run, especially since this process itself would cost you resources like time and revenue. Well, unless you are hiring the services of an experienced software outsourcing company, risk assessment will help you identify potential issues that might derail or harm your project. In order to understand this in detail, let’s take a look at an example of this phenomenon in practice.
Let’s say you outsourced the development of a business app to an offshore company, which had a critical time to market deadline in order to capture the market before the competition. However, due to the offshore company having communication issues caused by the language barrier, the project is delayed by a month.
In that time, your competitor launched their product to great customer delight, with your product that was launched a little later receiving lukewarm response as it offered more or less the same services. Now, despite delivering a fully functional product, the time delay caused by communication issues resulted in a product that failed to live up to its potential.
So how could you have mitigated this risk? Had you assessed the language barrier and the communication issues it causes before starting the project, you might have identified this as a potential risk, and come up with clearer chains of communications. Or you might even have gone with another option of vendor entirely.
That is why risk assessment is important when outsourcing projects, especially critical tasks and jobs such as those found in finance or healthcare software development.
Risk Assessment vs. Risk Management – How are they Different?
When it comes to managing risks, there is a lot of confusion regarding the difference between risk assessment and risk management. People are often confused about how the two terms differ in function, and which of them is more important when outsourcing.
Well, to put it simply, risk assessment is a part of risk management, essentially. Think of it like this. In order to manage risk, you need to identify and assess it. Once you do that, you will be able to manage the identified risks by developing strategies to mitigate their impact, using the assessment reports as guidelines.
Let’s say that your risk assessment processes identify a few risks that could cause delays to your project, which could cause a significant rise in your proposed software development cost. With a risk management system in place, you would be able to turn those assessments reports into a proper risk mitigation plan, which would reduce the chances of those risks occurring.
So, we can say that while risk management is very important when outsourcing, in order to proactively and preemptively manage the risks, you need risk assessment. There can be no risk management without risk assessment, and risk assessment has no purpose if there is no risk management system in place to use it.
Top Risks of Outsourcing You Might Face and How to Tackle Them
Now that you know the importance of risk assessment for proactive risk management, the question is; what are the most probable risks that an outsourced project may face? We understand that for someone new to the domain of overseeing an outsourced project, it might be difficult to assess potential issues properly.
In that case, don’t worry. We have you covered. Compiled below is a list of some of the most common risks of outsourcing that you may face. Let’s dive in and understand each of them in detail.
Issue 1: Communication Problems
Many people, especially those in technical roles, find it difficult to communicate and convey themselves clearly. And with issues like geographical, cultural, and even language barriers, that communication issue can become quite severe.
One of the biggest problems faced by those involved in offshore outsourcing is the lack of clarity in communication. For example, if your company is based in the US, and you have outsourced your project to a company in Singapore, the first problem you will face is the time difference. Either you will have to accommodate them in their time, or they will have teams to communicate with you on your time.
Either way, it can quickly become a hassle. Moreover, the gap between the two teams can also cause problems for businesses who haven’t adjusted to the concept of remote working. They prefer their employees at their side, available when needed. This is something that cannot be possible in outsourcing.
Finally, the language barrier is one that has now become less of an issue in most circumstances> however, in a few circumstances, this can result in massive blunders, costing the business a lot of revenue.
So how can we address this risk?
In order to compensate for this communication gap, we can:
- Set core business hours that would allow both teams to communicate within a set window of time each day.
- Use project management tools to track all official communication channels.
- Create escalation protocols to raise issues properly, in an ordered and predefined manner of criticality.
Issue 2: Little to No Control
The lack of control on your project when you outsource it is another big potential risk. When you outsource a process or project to another company, its natural that you lose a lot of the control you would’ve had if the process had been performed in-house. That is because while you can dictate a few terms regarding what you expect and how you want it done, the simple fact of the matter is that you cannot control the processes of the company you outsource to.
And if your outsourcing vendor does not manage your project as well as expected, it can result in a subpar deliverable. And this is an issue that is quite common in offshore IT project outsourcing, as the geographical distance, as well as communication issues, combine to cause problems regarding the quality of the expected deliverables.
So how can we address this risk?
Well, for starters, it isn’t recommended that you outsource critical work processes, due to their inherent importance to your business workflow. Moreover, you can:
- Schedule regular progress and feedback meetings with the vendor
- Assign and track KPIs for the vendor and their team
- Have a strong rapport with the point-of-contact for the vendor
This will help you mitigate this loss of control effectively.
Issue 3: Poor Quality of Services and Deliverables
Quality control is an essential process that businesses need to perform, regardless if the project or process is performed in-house or outsourced. It’s natural for brands to rush development in order to be the first to capture the market. But in that rush, we should not forget about delivering quality too.
When you decide to opt for outsourcing, especially software development outsourcing, you need to ensure that your vendor also follows the same commitments to quality. Now let’s say that your specific industry has very distinct guidelines regarding product robustness. Unless your outsourcing vendor understand that and delivers the product accordingly, you will end up with a poor quality product that wouldn’t fit your bill.
And if the outsourcing vendor is offshore, the time difference and delay in communication would only result in a greater amount of time needed to rectify any quality issues.
So how can we address this risk?
In order to mitigate the risk of quality control, you can:
- Prepare distinct and comprehensive quality inspection and control frameworks to follow for the vendor.
- Propose strict QC checks at each stage of the project, so that they can only be approved once you ensure that the quality guidelines are being followed.
Issue 4: Unforeseen Costs
One of the driving factors behind outsourcing a process or a project to another company is the cost. Many companies find it cost-prohibitive to create and manage a process, when it can be done for cheaper if you hire an outsourcing company.
This is a good approach, and one that can boost your profits, unless it brings with it some hidden and unforeseen costs. That is when it becomes a risk. That is why it is always said that when choosing your outsourcing vendor, it is always a good practice to compare the expected cost of in-house implementation with that of the vendor’s proposed cost along with a contingency reserve to address potential risks.
That is how you get a true cost estimate for outsourcing that project or process. Similarly, if it is a development project, you might have to address unforeseen costs like:
- Change in material costs
- Troubleshooting services
- Talent relocation
These and others like them can drive up your cost quite drastically, if not addressed before the project starts.
So how can we address this risk?
In order to address this issue, you need to:
- Clearly define project guidelines for your outsourcing vendors
- Carefully monitor the expenses proposed by the vendor
- Incorporate the use of an employee management tool like Time Doctor or Desk Time, in order to track the hours worked accurately.
Issue 5: Not Finding the Right Vendor
Finding the right outsourcing vendor can be a difficult task, as you need someone who ticks all the boxes in order to deliver what you desire. Whenever, you assign someone else to perform a function for you, then you expect them to do it like you would yourself. But often you will find that experts generally have their own work processes, which are guaranteed to deliver results.
However, despite that, there are some concerns that you need to alleviate before choosing your vendor, like:
- Access to the latest technology required for your project
- Experience in solving problems similar to your project
- Passion regarding your niche or project
- Their time zone relative to yours.
And these are just the most common of them. There can be many additional concerns and factors relevant in your case that will need to be addressed.
So how can we address this risk?
The only way to avoid or reduce the chances of this happening is to perform your due diligence. Do your homework, research the vendors and their histories with similar work, to identify if they are going to be a good fit.
How to Avoid Risks of Outsourcing from Derailing Your Project?
Now that have seen and understood some of the most common issues that plague an outsourced project, as well as how you can tackle and avoid them, the question remains – how can you avoid all of it proactively?
Well, while your risk management strategy will be tailored according to the specific needs of your outsourced project, there are some steps that you can take to ensure that your project outsourcing strategies go as smoothly as possible. Those steps are:
- Plan a risk assessment process
- Aim for risk mitigation strategies
- Opt for a more collaborative approach instead of complete freedom
- Plan for the fact that your project scope will be dynamic
By ensuring that you have done all of these, you will minimize the chances of potential risks derailing or adversely affecting your project.
To conclude, risks are an inherent part of a project. And for an outsourced project, there are many different points of failure where those risks can affect your project success. However, if you do your due diligence, and define a risk management strategy, you will be able to mitigate a lot of the risks of outsourcing.
And if you follow the tips above, you will be able to easily avoid many of the common issues that plague such outsourced projects.
What are three major disadvantages of outsourcing?
- Delivery time issues
- Data confidentiality may be breached
- Difficulty monitoring and tracking of project
What are some risks of offshore outsourcing?
- Communications issues due to language barriers
- Time zone issues causing problems with meetings and feedback
- Cultural differences in perception of project elements
What are the four critical barriers to outsourcing?
- Potential risk