In a previous article we examined several of the risk factors associated with Business Process Outsourcing. Many of these risk factors are applicable to both offshore and onshore outsourcing. When a company decides to outsource, it often ensues layoffs. Now consider the scenario where the outsourcing deal does not yield desired results. What if the company has to bring the work back in-house? This can be an expensive decision on many counts- damaged public image is not the least among them. This is also a decision that has a major impact on the careers of the people involved. Needless to say, it is imperative to take all possible measures to minimize risk in an outsourcing venture.
Outsourcing risks could be classified into three categories. One category is operational risks, which could be due to lowering of quality levels, costs going way above the calculated levels or the execution going out of hand. Then there are issues like failure to protect intellectual property rights, security and privacy; these come under the strategic risk category. Long term risks like losing capability to execute the process are also not to be overlooked.
Of these risks, the risks of the second and third categories can be prevented to a good extent by developing a well-planned contract and employing control procedures. But operational risks need ongoing management. This involves continuous monitoring, regular reporting and employing proper parameters as the situations demand. Let us now examine how this can be done.
Have a Framework
Operational risk factors could be related to people, technology or process factors. These are not watertight compartments. Each of these factors has an influence on the others. A proper risk management system needs to take reasons related to each of these factors into account.
One commonly known people issue is turnover. Turnover rates in developed countries like USA are put in the 30% range, while it is found to be around 50% in countries like India. This has a great influence on the conduct of the process. This is more so in voice-based arrangements like help desks. Thus absenteeism is a serious matter to be given high priority.
Another related issue is the hiring, training and deployment of new recruits, which becomes necessary due to absenteeism and high attrition rates.
Risks in this area often come related to the integration of the client company's systems with those of the service provider. Often, the service provider uses the client's internal systems through a browser or a dedicated network. The work often involves scanning and digital conversion of documents that are on paper. Add to this factor that the client and the service provider are often separated by long distances and different time zones. All this can cause great deal of delay and confusion, unless the parties employ a seamless communication and computing infrastructure and ensure high levels of availability.
This often necessitates that service providers invest in their own dedicated systems, networks and applications. The service provider would benefit by investing in technologies that are widely used by their likely clients. Also, elements like system uptime, network uptime and application uptime have to be analyzed, to prevent possible interruptions to the process.
The process is a side that could run into any number of complications specific to the particular category. Here, the perspective of the client may differ from that of the service provider. To the client, the end result has to be high levels of customer satisfaction- everything is secondary to that goal. However the service provider is the most interested in covering risks pertaining to contract obligations, since most contracts these days have incentives and penalties for meeting or not meeting certain parameters.
Internal performance of their workforce is also high priority area for many vendors. They might also have other priority areas, especially those that ensure smooth running of the contract, whether these are known to the client company or not.
Process risks may be quality or quantity related. Qualitative risks are mostly directly linked to customer satisfaction factors, and are usually an area of concern for the client. Quantity risks on the other hand have to do with efficiency and effectiveness of the processes. Efficiency is generally measured against time parameters, like the average time taken to handle the case or time the case is held, in voice based services. It could also be measured against average number of complaints/ enquiries managed in an hour and so on. Effectiveness on the other hand is measured against the outcome of the process, like the number of conversions or sales volume.
The benefits of business process outsourcing come from cost savings, greater access to resources and enhanced efficiencies. However these benefits can be optimized only by employing appropriate metrics. It calls for a systematic approach and a proper framework of metrics and parameters. Ongoing monitoring is integral to the success of the processes.
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