Business Process Outsourcing and its Underlying Risks

January 2008 and written by Al Title of Horwath Orenstein – “Hope is not a method. Without a risk management program that identifies, reports and mitigates principal business risks using a systematic and disciplined approach, your organization will be spending most of its time with crisis management instead of being focused on achieving its business objectives.

Recently Al Title, a partner in Horwath Orenstein’s Risk Management Group, led a discussion on Business Process Outsourcing (BPO) and its underlying risks at York University’s Schulich School of Business Masters Program for Operational Risk Management.

The highlights of the discussion were the following:

1. Good business theory suggests that most activities that are not part of an organization’s core competency should be outsourced.
2. Presently, there is a tidal wave of outsourcing activity worldwide resulting from a lack of resources, a global economy and the need to remain competitive by focusing on core competencies.
3. The key to successful BPO is ensuring that there is a clear understanding by your organization and the service provider as to where they fit into the value chain of interdependencies and alignment with your business objectives
4. Once you understand your principal business risks, you realize they are the same or similar whether they are outsourced or internal. The difference is that you have to manage these risks with a different style and process while operating in an outsource environment.
5. The benefits of BPO include a) Drives an organization towards achieving its objectives; b)Improves ability to enter new markets; c) Improves resiliency; d) Improves the ability to adapt and innovate; e) Improves the ability to expand production and market share
6. A risk matrix framework is recommended to identify all the risks. The matrix should include the following components based upon people, process, systems and external factors: a) Strategic; b) Selection; c) Implementation d) On- going management; e) Contingency planning

If you would like to discuss any of these highlights, other risk management issues or obtain a copy of the presentation please contact Al Title at 416-260-3513 or email atitle@hto.com.