Emerging Challenge: Risk Management in an Outsourced World
Accounting fraud at outsourcing giant Satyam and terrorist attacks in Mumbai and Jakarta should resonate with risk managers in any organization that outsources or is thinking about it. While it’s unlikely these events have tarnished outsourcing permanently or outsourcing providers as a whole, they emphasize the need to have a disciplined risk management and governance framework to select a provider and manage the relationship over the long term. Even without the red flags, companies who outsource are well-advised to examine their risk management standards and adjust them to account for the decision to turn over control of mission-critical functions to another party who delivers services from a foreign country.
For hundreds of U.S. companies, investments in outsourcing and offshoring are more important than ever to achieve strategic and financial goals. Outsourcing can simplify modernization, shift risks, and give buyers access to integrated system solutions. A growing reliance on outsourcing to deliver core business processes and knowledge-based services also increases risks and alters their scope and impact. Outsourcers are in control of key business operations and interface directly with clients and their employees and customers, very often from offshore sites.
