A guide to evaluating the risk and value of outsourcing

All outsourcing relationships hold value and risks. 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. Here’s what you should consider.

The decision to outsource inevitably entails an evaluation of the risks and value associated with a given sourcing approach model.

As outlined below, there are five nodes of risk mitigation and value creation that can be used in assessing the viability of emerging sourcing approaches related to specific activities or business process.

It’s all about balancing the risk and value

Businesses should look to maximize value while minimizing risk when engaging in an outsourcing arrangement, by considering the risk and value associated with the people, process, and sometimes the systems involved.

When risks are comparable to the value for a given activity or business process, you have reached a consideration point – outsourcing now should be considered as a viable alternative to keeping the activity or business process in-house.

When the value outweighs the risks, you have reached a decision point – the decision to outsource should be taken at this point. If the value far exceeds the risks associated with outsourcing an activity or business process – you have come to a compelling point. Organisations should be compelled to outsource by overwhelming logic alone.