The last decade witnessed a remarkable growth in outsourcing. Buyers focused on cost reduction, improved time-lines and better productivity, while service providers automated processes, adopted best practices and explored new destinations to set-up delivery centers. In spite of the growth in outsourcing and its maturity, risks have only increased over the years. Newer forms of risk have emerged and it is important to factor those in when new outsourcing deals are struck.

Top Risks Perceived In Early 2000's

Uncertainty in cost benefit (Risk of Hidden Costs)

Data Security

Risk of increase in time for transfer of processes

Risk of SP failing to deliver

Risk of increasing scope of project in a fixed-priced contract

Differences in culture

Top Risks In Current Times

Destination/ political risks

Bringing processes onshore due to government regulations

Risk of the SP moving project to newer and cheaper delivery locations

In time of crisis, the SP prioritizing the repair of the largest customer first causing delay for the smaller ones

Uneven Performance

Risk of SP failing to deliver

According to Saugata Sengupta, Senior Analyst at Tholons, some of the intangible factors are: the quality of equipment used, the quality of training, time-taken to respond to a situation, number of times there have been political issues and public demonstrations in the country. He further says, “It is difficult to substantiate risks in the industry with real data. The major challenge lies in measuring the quantitative part of the qualitative aspects of risk management. Very often, we have clients (during a location assessment), who give 40% weightage to data security. This would mean that if a credit card issuing company wishes to outsource F&A activity, which requires high IT levels, India and China will never make it as the probable destinations.”

Stage 1	Management Risk	A part of the commercial risk, which is influenced by changes in the industry or in the business tactics of the company. Companies adopted outsourcing and hence, management risk was most prevalent. Risk Level: Cold
Stage 2	Optimization Risk	With the increase in the number of companies outsourcing, the need for optimizing processes arose. It became extremely important to ensure that the desired results were achieved post implementation of various best practices. Risk Level: Warm
Stage 3	Cost Risk	The rise in innovative automated solution for all kinds of outsourced work (specially IT), increased the pressure on the buyer to reduce cost for the end-user to stay competitive. Greater risk was being taken to ensure the costs were always kept under control. Risk Level: Warmer
Stage 4	Labor Risks	By this times most companies (including SP's) had realized the importance of training their staff to achieve higher levels of service. Employee skills were updated and the risk of iteration also got bigger. Risk Level: Hot
Stage 5	Recession Struck	Cost-cutting topped the priority chart and all training and skill-updation programs were shelved. Benches disappeared and uncertainty was high. Risk Level: Burning
Economic Recovery
Stage 6	Back to Optimization	The economy is recovering but the need for optimization has never been greater. Tried and tested best practices and processes are being used to ensure speedy recovery and greater margins. Risk Level: Still Hot

The numbers of intangible risks are higher in the current times. This makes it important to look within and organize (if possible, document each process) the sourcing operations. Further, there is a greater need to analyze various options for the right business model (Joint venture/ Captive/ Third Party). At a time when outsourcing is considered, the company must invest in educating its stakeholders and staff on the benefits of outsourcing. It always helps to have a team member with prior exposure to outsourcing.

For now, as the buyers continue to worry about the risks and commercial factors, SP's are expanding in different locations for cheaper talent pool and better economics. As times goes on, the risks will continue to grow, and greater globalization will make way for a new set of rules for the same game.