Outsourcing your non-core operations to a service provider has ceased to become a prerogative. Almost everyone is doing it even the top Fortune 500 companies. Definitely, outsourcing has become another option for business viability and survival.

Apart from lowered cost and enhanced quality of work, outsourcing enables companies to tap the expertise of the outsourced service provider into its own operation, thus the outsourcing company stands to benefit more than just getting its non-core jobs done by an outsource provider. Yet, as beneficial as it seems, there are attending risks. Just like an ordinary business transaction, outsourcing, too has loopholes.

Here are ten (10) outsourcing risks identified and the steps to ward them off:

RISK #1: Outsource provider’s track record.

Taking a closer look at the outsource provider’s number of years in the outsourcing industry, size of his company as to number of his employees when he started out compared to his present organizational structure, taking into account the ratio of employees’ turn-over, his financial background, etc… – all these are determinant factors of an outsource provider’s track record.

RISK #2: Competencies.

Is the outsource provider competent to deliver quality services? Is the outsource service provider ISO9000 compliant, or are there verifiable certifications from competent independent agencies like CMM, issued in its favor? What are the procedures the outsource service provider undertake to ensure that it delivers quality service?

Clients’ references are the best source of information concerning competencies of the outsource service provider. Their satisfaction guarantees yours, too.

RISK #3: Hidden costs.

The apparent reason why you outsource is cost. Undeniably, outsourcing cuts down cost, but be wary about hidden costs that can spring like panthers aiming for your throat!

Areas to watch include connectivity expense, infrastructure maintenance and development, transition cost, licensing and consultancy.

RISK #4: Meeting deadlines.

Are commitments attainable? Is your outsource service provider apt to the challenge of delivering to you the service you need within prescribed, and agreed upon, time frame?

RISK #5: Data safety.

Now, caution should be emphasized here. You will be sharing information about your business with your outsource service provider. Is non-disclosure agreement an issue? Get an affirmative response from your outsource provider that any information, data or work processes that concern your business should not be disclosed to a third party. A privacy statement should be included, and form part of your contract with him.

Your team at the outsource service provider’s company should undergo pre-hiring orientation which will inculcate their adherence to non-disclosure of vital information and privacy agreements.

Security settings such as firewalls, anti-spam ware, access controls and data encryption should be discussed and agreed upon as well.

RISK #6: Contingency Plans.

Find out about contingency plans. Does your outsource service provider have one in place?

Your outsource service provider should have considered measures to undertake before any contingency strikes. Equally important are its recovery plans. How well does your outsource service provider expect to continue with its business should a disaster occur?

Businesses are beset with risks. When you outsource, you become involved with whatever risk your outsource service provider face up to. It is best to know that you will be dealing with a service provider that has foresight. This is a sign of maturity and responsibility.

RISK #7: Transparency.

Always invoke transparency between you and your outsource service provider in all phases of your business undertaking. This will immobilize intrigue, dissension, and will affirm trust.

Is invoicing done on time? Are contracts feasible?

Eradicate minor flaws as they take root, by being transparent and trustworthy. This will be the ground upon which your business will flourish.

RISK #8: Adherence to labor laws, state laws and regulations.

Your outsource service provider should operate within the legal tenets of its own country. Its non-conformance of state laws, regulations, ordinances, etc… will affect you, if not legally, then on moral decency.

You as the outsource service provider’s client should ensure your moral ascendancy in environmental concerns, and employees’ welfare.

RISK #9: Employees’ Issues.

Cross-training of employees is necessary to avoid disputes and needless work stoppage. As most outsourcing is done to foreign countries, employees should receive orientation as to what they can expect from a foreign client, as well as the client understanding situational factors, such as time-zone difference, length of work hours, etc… from the point of view of employees.

RISK #10: Cultural Match.

Akin to risk No. 9 is finding a “match” or a “fit” between the outsource service provider and the client. Cultural factors can influence, positively or negatively, the outcome of the working relationship. For a suave interaction, the “fit” should be found.

A mismatch can cause problems ranging from pre-termination of the contract, faster turn-over of employees and a host of other concerns. Any of these reasons means loss for both parties.

Most common reasons why outsourcing goes sour are outsourcing services getting expensive or poor performance by the service provider.

The key is to choose wisely and carefully. Avoiding guesswork will eliminate unnecessary expense, wasted time and efforts. Selecting a service provider who possesses integrity, honesty and competence remains a sure-fire formula.

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