Even though outsourcing brings substantial benefits, it is not without risks. This article guides you through the 5 biggest risks you face when outsourcing Facility Management.
Every outsourcing relation has a life-cycle. A typical outsourcing life-cycle can be divided into the five following stages:
Source: Deloitte, the risk intelligent approach to outsourcing and offshoring
Customer organizations and outsourcing providers alike are facing risks at every stage of the outsourcing life-cycle. The earlier risks are identified and mitigated the better outsourcing outcomes can be reached for the parties involved. Failure in identifying and managing risks can lead to the breakage of supplier/ client relationships and result in substantial financial loses.
Outsourcing life-cycle: the five biggest risks
Recent Deloitte research identified the five biggest risks faced at every stage of the outsourcing life-cycle process.
Stage 1: Risks related to Strategic Assessment
Misalignment between outsourcing objectives and the overall business strategy of a client can lead to inability to focus on the core business, cause outsourcing dissatisfaction, and eventually monetary losses. Getting the strategic assessment right can minimize time spent on micromanagement and ad hoc tasks related to outsourcing.
Tips to manage Strategic Assessment Risks
To avoid strategic assessment risks, it is crucial to integrate and align companies core objectives and outsourcing objectives. Make sure that there is a match in your culture, expectations and visions.
Stage 2: Risks related to Business Case Development
Incorrect outsourcing assumptions can result in major monetary losses if expectations of the expenses and investments needed are not matching the reality. A business case should consider all direct/indirect costs related to contract implementation, transition and continuity.
Tips to manage Business Case Development Risks
To develop a solid business case for an outsourcing decision your company’s governance structure needs to be examined and evaluated. Identifying potential risks and mitigation costs will support the assessment of costs and benefits of the outsourcing decision. It is a good idea to classify the upcoming expenses into one-time and ongoing. Furthermore, reviewing success and failures of your previous outsourcing decisions can help to identify the causes of previous issues.
Stage 3: Risks related to vendor selection
Misalignment in expectations is the number one reason why outsourcing relationships fail. Don’t rush through the vendor selection process. The more you invest in communication and alignment in the early phases of your relationship the stronger foundation you’ll build for the future.
Conducting proper due diligence and assessment of the vendor capacity is key.
Tips to manage Vendor Selection Risks
Entering outsourcing relationship automatically transfers your vendor’s risks to you. It is therefore recommended that vendor assessment examines vendor’s operational readiness, capabilities and compliance. This can be done through a RFP, with clearly defined performance requirements, validation of initial assumptions, assessment of a vendor’s delivery model and creation of exit and switching strategies.
Stage 4: Contracting Risks
Following the risk assessment and mitigations steps in the first three stages of the outsourcing life cycle will make the contracting process relatively easy. Invest time in reviewing successes and failures of your previous outsourcing decisions. Rigid contracts leave no space for amendments or changes. Moreover, contracts with inadequate provisions regarding service levels, transition management processes, SLAs, contingency plans, price protections and termination pose major risks. Clearly defined contracts enable a smooth outsourcing process, provide transparency and encourage collaboration.
Tips to manage Contracting Risks
The contract is the foundation of your relationship. The criteria for risk intelligent contracting lies in the quality of provisions and metrics developed to monitor the outsourcing performance, compliance and global delivery. The rule of thumb is to identify performance criteria and metrics linked to business value, have mechanisms to manage variations in volume and cost, create checklist of legal, regulatory, contract, and insurance requirements and clearly stated implications for non-compliance and lastly to include termination and transition rights in the event either party wishes terminate the contract.
Stage 5: Service Transition, Delivery & Post-transition Management
The last stage of the outsourcing life cycle highly depends on the success of the previous stages. However even if all the risks were managed correctly there is still some work to be done in the last stage. Transition plan needs to be formalized to secure knowledge transfer and change management. Poor transition management can result in high turnover rate and breakage of relationships with employees, customers and other stakeholders. Active management oversight must be present both during and post-transition.
Tips to manage Service Transition, Delivery & Post-transition Management
Plan adequately for the transition and focus on, transition planning, knowledge transfer, training and personnel training. Monitor vendor performance and set the right expectations.