Outsourcing risks in the telecommunication industry in kenya. While risk analysis is a valuable tool, it must be accompanied by ongoing risk management to effectively mitigate outsourcing risks. Basel committee on banking supervision the joint forum. The principal risk drivers are the viability of the service provider, relative size of the customer, conflicts in service level agreements, legal liabilities, knowl edge.
This case is focused on public sectors where decision makers must try different ways to increase productivity. Even though other areas have adopted risk management as their patching. In viability of service providers, the fear of customers in the third party services is the. So, is there more that might be done to manage operational risks in this area. A guide to evaluating the risk and value of outsourcing.
Raiborn, butler, and massoud 2009 some risks, such as potentially higher offshoring costs due to the eroding value of the u. Pdf in the last few years, webbased surveys have received increased attention given their potential to cut the costs and time associated with. The outsourcing risk management survey, cosponsored by apics and protiviti, was placed on the. As outsourcing has become an increasingly standard business practice, it has created a new set of risks for organizations. The risks, if not managed, will lead to outsourcing failure. This article describes the internal and external risks associated with pursuing a kpo strategy and includes strategies to improve the probability of success and. One downside to outsourcing your it operations is having to let go all of your existing staff whose jobs will be replaced by your outsourcing partner. It outsourcing risk is the risk that engaging a third party, or another group entity intragroup outsourcing, to provide it systems or related services adversely impacts the institutions performance and risk management. However, the customer pays a premium for the convenience of having all of the services organised by the supplier. An effective governance approach has a clear insight in the performance of a supplier and the risks associated with the service being delivered.
Through literature analysis only the dynamics of risks can be. Risks include threats to security, availability and integrity of systems and resources, confidentiality of. Pdf on jan 1, 2011, lawrence ness and others published information technology outsourcing risks find, read and cite all the research you need on. It is a means to drive value by realizing the objectives of outsourcing and supplier relationships, while minimizing risk and costs. Good outsourcing or service provider governance is not an end in itself.
Outsourcing operations can be a costeffective move, but if companies are not aware of the inherent risks, that move could end up costing more than the anticipated savings. Others, however, are harder to anticipate or deal with. The rationale for outsourcing hr functions includes financial savings, an increased ability to focus on strategic issues, access to technology and specialized expertise, and an ability to demand measurable and improved service levels. According to berinato 2001 and wright 2003, the principal risks of outsourcing are the viability of the service provider, relative size of the customer, conflicts in service level agreement, legal liabilities, knowledge transfer and hidden costs. Since the beginning of outsourcing, different countries have been in focusing on outsourcing centers but. This working paper on risk management within an outsourcing governance framework presents our best current thinking on the topic and is intended to provide insight and encourage discussion internally and externally. Managing outsourcing and offshoring risk protiviti. Conceptual framework on risk management in it outsourcing. But even though outsourcing hides many risks it is still a preferred strategy for many businesses handfield, 2007.
Make sure the contract includes a full list of additional expenses that may occur. Pdf risks, benefits, and challenges in global it outsourcing. Large facilities management contracts in the late 1980s signaled a timely convergence of supply and demand factors. If a service provider has many customers for instance, more than 50, it is to be expected that the 8020 rule, or similar, will apply, whereby 80% of business belongs to 20% of the customers. The present paper proposes a set of outsourcing reasons and risks, subsequently. Speak with a knowledgeable it professional to understand the rewards and risks of outsourcing it. And while this holds the potential for greater efficiency and effectiveness, it also comes with major risks.
Aubert et al 1998 proposed a framework for categorizing risk factors identified in the literature. A questionnaire was designed and sent to forty commercial banks operating in kenya. Some of the other risks include damage to the data center, international issues for companies that have offices abroad, and other concerns. Sometimes the percentage is more skewed, with a handful of large customers and hundreds of relatively small organizations. The specific objectives of the study were to examine the role of supplier relationship management, contract management, supplier appraisal and. Outsourcing is a typical strategy adopted to address resource shortage or improve efficiency in organizations. Identify your current it needs and also factor in the future needs if you are planning. Outsourcing risk management and information transparency. The regulatory framework has evolved considerably over the last few years and banks now find themselves under increased scrutiny by regulators, as they strive to meet more challenging capital, financial reporting and corporate governance requirements. In the last issue of the bulletin, we noted that audit committees should make it a point on their 2009 agendas to understand how outsourcedoffshored operations are being managed. If you think managing the risk of it projects is all about throwing everything over the fence to an external supplier, think again. Knowledge process outsourcing is not immune to these factors and managers need to manage the complete process of outsourcing carefully to avoid failure when pursuing a kpo strategy. This study has as its aim to show the main risks computer outsourcing entails for the largest spanish firms.
And it is not just suppliers and distribution channels that are at risk. Outsourcing risks using several sources to compile a list of 23 outsourcing risks, 2 the study considered personnel. Since the supplier is acting in the role of systems integrator, it will charge the customer a management fee, as well as a. Being aware of the potential risks involved and having an ability to monitor, evaluate and manage these risks is critical for any successful outsourcing relationship.
The popularity of outsourcing is well justified as it generates significant advantages in cost and efficiency. Loss of knowhow losing touch with new technological breakthroughs that offer opportunities. The case of dart and nictbb rashid nourdin ibrahim a project report submitted in partial fulfilment of the requirements for the management universiti. Outsourcing has the potential to transfer risk, management and compliance to third parties. Benefits and risks of outsourcing outsourcing it services. Outsourcing your it needs has a lot of benefits as it is cost efficient and provides instant access to specific knowledge and expertise. If the risks and challenges are not clearly understood and systematically addressed, organizations could face unnecessary exposures, failure to realize expected objectives and loss of substantial investments of time and money. A catalog of information systems outsourcing risks international. Outsourcing the benefits and the risks sciencedirect. Nonetheless, these benefits go hand in hand with risks that cannot be avoided. A key to a successful outsourcing relationship is outsourcing transparency, which requires communication between the two parties on priorities and information requirements.
Compliance risks arise when the services, products, or activities of a service provider fail to comply with applicable u. In writing this guidance we built on a the guidance on managing outsourcing risk by the board of governors of the us. Guidance on managing outsourcing risk federal reserve. For example, systems development has been sourced from outside through application packages or software houses for many years. There is an abundance of outsourcing literature where many bene. A lot of upsides to doing both if it is a right fit for your organization. A study of information systems outsourcing risks semantic scholar. Outsourcing can bring big benefits to your business, but there are significant risks and challenges when negotiating and managing outsourcing relationships. In evaluating the risks associated with an outsourcing arrangement, management of the risk may be scaled to take into account the different levels of risk attendant to a particular arrangement.
The decision to outsource inevitably entails an evaluation of the risks and value associated with a given sourcing approach model. Information systems outsourcing risks are a vital component in the. Pdf on jan 1, 2010, soni agrawal and others published outsourcing risks find, read and cite all the research you need on researchgate. To study the effects of these risks on outsourcing, the researcher applies correlation coefficient and regression analysis. While a number of good practices have been observed, this work has however revealed significant deficiencies in board awareness and understanding of the extent of the reliance within their firms. A study of different types of business risks and their.
Most companies recognize this and respond by adopting a thorough risk analysis process. This issue of the bulletin explores the advantages, disadvantages and risks associated with outsourcing and offshoring, and how those risks can be managed when decisions are made to outsource andor. Basel committee on banking supervision the joint forum outsourcing in financial services february 2005. Outsourcing requirements iso 90012000 standard official position since the publication of iso 9001. Outsourcing benefits and ways to mitigate possible risks. This study examines outsourcing in the kenyan banking sector.
There needs to be a greater understanding of the risks that make up operational risk, as. It outsourcing is worth your investment as long as you conduct a thorough risk assessment at. Pdf in the recent years, as a result of globalization, internet and it progress, the outsourcing of it services has seen an exponential growth. Costcutting is still a major motivator but so is outsourcing detailed it work to companies that specialize in it. Outsourcing of information and transaction processing and settlement activities involves risks that are similar to the risks that arise when these functions are performed internally. Each chapter of the handbook focuses on one stage in the lifecycle, beginning with the all important initial assess phase, when you first consider the pros and cons of outsourcing and determine the right strategy for your business. It outsourcing is the contracting of it functions, previously performed inhouse, to an external service organization. Organizations provide employees with a sense of identification and feelings of security and belonging. Similarly, in any outsourcing relationship, each party will have a different lens on the requirements, depending on which side of the relationship they represent. Outsourcing is a form of restructuring that always results in displaced employees. Managing outsourcing risks at the early stages risk. Apics web site on june 6, 2004 and closed on june 27. Outsourcing is promoted as one of the most powerful trends in human resources management. Main risks of outsourcing as identified in literature 10, 8, 2, 7, 5 main negative outcomes of outsourcing 1.
Despite the many benefits of outsourcing, you dont want to go down this path until you compare these to the potential drawbacks. Outsourcing has quickly become a commonly used practice in organisations. Outsourcing can have significant benefits but is not without risk. While outsourcing it has been a trend in the 1990s, it is not a new phenomenon. The aim of the study was to find out the role that procurement play in managing the outsourcing risks. While outsourcing has become a standard business practice, it has also created newer challenges for banks related to its quality of service, continuity of operations, oversight over the outsourced process, and compliance with regulatory requirements.
Outsourcing activity brings a significant set of risks. In particular, the study analyses the perceived benefits and risks associated with outsourcing. To date, we have not been successful in our attempt to internationally agree upon a suitable definition for this term. Pdf information technology outsourcing risks researchgate. The different types of risks were also found to be having an impact on the managerial decisions since the. Lossofcontrol the other side of the coin to handing over responsibility and blame to service providers is loss of control over outsourced operations. Risks, benefits, and challenges of outsourcing it services.