How to Mitigate IT Outsourcing Risk Factors

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IT outsourcing comes with many benefits, with it comes a lot of risks. The risks are important to be addressed prior to outsourcing. For business to realize utmost value for outsourcing they need to do a risk assessment of their business and develop a way to mitigate the risk factors that surround their business. This article primarily focuses on how to mitigate risk factors that surrounds IT.

Confidentiality of Information

When business outsource their IT functions to another firm, part of the requirements for the IT function to be successful is to share the organization secret information such as passwords and company records. Such information is given based on the faith that the outsourced firm will not share with any party. Though there might be an official arrangement binding the other party no to share any information, this sometimes depends on goodwill and integrity of the outsourced party.

Solution

In order to address this challenge organization need to take the following measures.

Ensure the outsourced firm sign an NDA. This will bind the parties to the agreement to ensure that each party’s interests are protected. At least the outsourcing firm will have some leverage in case of a legal battle.
Conduct a background check of the outsourcing firm. Firms that have previous exposure in working with financial sector firms would be preferable. Frequents site visits should form part of the background check.

Hidden Costs

Vendors would expect to bill you for additional work that they might have delivered to your project even if it was not written in a binding agreement. This implies that your budget may inflate and realize that at the end of the project you have overspent. This is a serious problem that need to be addressed beforehand. It is even worse if a contractor has a repetitive behavior of escalating cost during the course of a project.

Solution

Arrive at estimates using a reasonable baseline. Have the vendor disclose some of the incremental costs that are common with the project.
Have the contractor disclose to you if the price that is quoted is inclusive of the VAT and other fees that may be statutory mandatory to pay.
Break down the project into milestone and agree on the prices of each milestone.

Vendor Lock-in

This is an unfortunate scenario to find yourself in if you are a business. Sometime vendors might have a software that works well with your business and gives you the false sense of moving on to innovative technologies that could improve business performance.

Sometime Vendor Lock-in might get to an extent that price and poor service might still not distract a business from using the service of a certain vendor. When it reaches to these levels the best a business could do is to find a new vendor or find a solution to the problem. However, since Vendor Lock-in is a problem business are unable to move on. Therefore, business should employ the following solutions.

Solution

Documentation is a solution to this menace. It is essential for a business to document its business process or software. This helps transition from one vendor to another. It would have been a serious fault if business don’t document since they might find themselves in an awkward situation of using crappy services from a vendor just because business don’t have a solution to the problem they are in.
Retain ownership of your data is a good step to mitigate this problem. Once ownership of the data remains with the business the outsourcing firm will have less control of the command in the processes.

The Outsourcing Firm Ability to Complete the Project

If you have placed an open tender to firms to take part in your project. You will likely to receive many bids from companies telling you how experienced they are in the field you are outsourcing. Some will parade credentials of resource that have over 30 years of experience all in an effort to win the tender. However, the ability of the firm to undertake your whole project to the end is not guaranteed by the papers they have demonstrated.

Cases of companies leaving a project halfway are common, either a key resource of the project have abandoned the company or other risks from within the outsourcing firm that render the project unable to be completed.

Solution

You should take a look of the company reviews on a neutral platform that has customer reviews.
It is sometimes better for a CIO to conduct an onsite visit to confirm compatibility. Some companies are only briefcase companies and conducting official meeting might be a problem.
It might be a better idea to ask may be for a demonstration of a code that would help solve a problem within your organization. In the end you are aiming for value for money.
Sometime the website would tell you a lot about an IT firm. If an IT firm has a shoddy website you wouldn’t expect much from them. At least a nice website is enough to sell some of the basic skills such as HTML programming.

Compatibility

There exists a compatibility problem when part of the IT services are outsourced and part of them are kept in-house. It gets even worse when fractions of the IT process are outsourced to different firms. While outsourcing looks to be a good measure to cut on cost. Compatibility problems arises since, your in-house staff need to be in sync with whatever the firm being outsourced is doing. The management hierarchy needs to be smooth in order for everyone to clearly know from where they should be picking instructions.

Solution

Draw a clear organization chart of reporting. Let outsourced firm know whom they should be reporting to.
A conflict of interest sometime arise out of compatibility since some in-house employees would want to take credit of a job done by an outsourced firm. To avoid such problems encourage your vendor staff and your in-house staff to work in teams. With team comes synergy and the problem of compatibility is addressed.