Mitigating Risks in Outsourcing: A Step-by-Step Approach

Considering outsourcing important business functions is a smart idea. It means your business is scaling and you are looking for affordable solutions to continue business development and growth without feeling encumbered.

However, outsourcing doesn’t come without challenges. If you want to have more certainty and confidence in your approach to outsourcing and in your outsourcing partner, this post is for you.

Below, we cover some frequently encountered outsourcing challenges and offer a few key steps to mitigating risks in outsourcing. Let’s begin.

Common outsourcing challenges

Business owners that have already tried outsourcing will tell you that there’s a right way and a wrong way to go about it.

Doing outsourcing right means a certain commitment to risk management, which is only successful if you are aware of the challenges involved before diving head-first into the outsourcing relationship.

Here are a few worth considering:

  • Language barriers
  • Misunderstandings and miscommunication
  • Cultural differences
  • Differences in time zones
  • Lack of control
  • Security concerns
  • Hidden costs
  • Incorrect cost estimations
  • Challenges in knowledge transfer
  • Data privacy and data security
  • Legal loopholes
  • Quality assurance
  • Unrealistic expectations

Steps to mitigating risks in outsourcing

The list above may look downright scary but it doesn’t mean you’ll face any of the challenges outlined if you follow the outsourcing risk mitigation steps below.

Step 1: Do your research

Research is the first critical risk to risk mitigation. If you are wondering what research you should do, it starts with vendor identification. Put together a list of vendors that you think may be suitable for the task at hand. Next, research them thoroughly.

This means looking at both positive and negative customer reviews regarding their services as well as their responses to the negatives in terms of how quickly they reply, whether they seek and offer problem resolution, and how quickly the problem was resolved.

Any vendor selection process will also consider previous or existing customers and contacting them as a way of getting references. Remember that the third-party outsourcing vendor should offer these references to you freely and not hold back. Any indication of holding back could be a sign to be wary.

Step 2: Get the legalities in order

Once you’ve settled on a vendor, it’s time to discuss the terms and conditions of your agreement. As a critical starting point, you should begin with putting in place confidentiality agreements or non-disclosure agreements (NDAs). This should protect your operational processes, intellectual property, and business know-how from being exposed unfairly or from being used in malicious ways. 

Another part of your contract negotiation process involves signing Service Level Agreements (SLAs) that outline the manner in which you are going to conduct the business relationship. This is where you should set out the rights, responsibilities, and obligations of each party as clearly and in as detailed a manner as possible.

This will ensure that both parties are aware of what they are responsible for and within what timeframes with the necessary quality assurance in place to give you the much needed peace of mind and confidence in the partnership.

Step 3: Put in place mechanisms for monitoring and evaluation

Next, put in place mechanisms for monitoring and evaluation of how the project you’ve outsourced is working out. Make sure you implement incremental milestones so that there are no surprises at the end and that you remain in the loop as the project is underway.

This gives you the opportunity to clarify any specific requirements and ensure you can still exercise an oversight role over the project as it progresses so that there are no unpleasant surprises at the end.

Step 4: Get quality assurance

Although we touched on quality assurance earlier, it’s necessary to have this clearly stipulated. Make sure you speak to your outsourcing partner about what steps and assurances they can provide you with to be certain that you are getting a quality project outcome.

Whether it’s a part of your SLA or there are other tangible elements that prove their dedication to your task, such as regular reporting and insights extraction, it’s critical to have the necessary assurances that your project is proceeding as planned. This will also help you meet your compliance obligations.

Step 5: Negotiate the costs (including unexpected or variable ones)

Choosing an outsourcing partner should never just be about the cost. It’s not about choosing the cheapest or most expensive option on your list. It’s about finding a middle ground between cost and quality deliverables.

For this reason, you should negotiate absolutely every single element of the project’s cost and make sure that you take unexpected or variable costs into account to prepare you for the partnership ahead without any unwanted finance-related surprises.

Step 6: Start with a pilot project

The last risk mitigation step we recommend for your outsourcing strategy relates to putting your partner to the test. Everything may look great on paper. The agreements, the costs, their reputation. However, if they can’t deliver, you are stuck and you’ve wasted a lot of valuable resources on simply pinning them down.

That’s why you need to consider starting with a pilot project that ensures you can get a taste of what the vendor can offer you in terms of quality deliverables. By giving them a small project with a short deadline, you can really see how they operate and what potential challenges could arise in the future so that you can mitigate against these more effectively before going full steam ahead.

Conclusion

Concerned about potential outsourcing risks? You’re not alone. However, it could be the perfect solution you’ve been waiting for as your business experiences new stages of growth. If you would like to have the full assurance of a truly reliable outsourcing partner, you’ve come to the right place. Let our experts guide you through a risk-free outsourcing strategy. Reach out now for personalized advice.

Published: April 14, 2024

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StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.