Nearshoring offers some substantial benefits, but it also presents some risks, as we have briefly described in our article on nearshoring versus in-house software development.
The aim of the IT Outsourcing Risks series of articles is to go through the risks of nearshoring in a bit more detail and to do so in a structured way, based on the stages of the IT outsourcing lifecycle. Our second article series – Mitigating IT Outsourcing Risks discusses practical ways in which these risks can be minimised.
As presented in the IT outsourcing lifecycle whitepaper, we have divided the lifecycle into 6 steps. Yet, for the purpose of describing risks in outsourcing, we will only concentrate on steps 2-4, i.e.
- Step 2: Selecting an IT supplier
- Step 3: Contract procurement
- Step 4: Implementation
The first article in this series focuses on risk involved in the opening item on our list, namely the supplier selection phase which covers the Request for Information (RFI) and the Request for Proposal (RFP), as well as IT Supplier Evaluation.
Step 2: Selecting an IT supplier
Main risk: wrong IT outsourcing supplier choice
Arguably, selecting an IT supplier is the most important phase in the entire outsourcing process for the choice of a partner determines what happens afterwards: how the cooperation evolves and how easy it is to work with them. The overall and the largest risk therefore is selecting the wrong supplier.
Some further risks connected with the wrong supplier choice that may occur at this stage (e.g. during the RFI/RFP) or indeed at the further stages of the outsourcing lifecycle may include (but are not limited to) the following:
- delays in receiving the documents back from potential suppliers
- misleading or incorrect information provided by suppliers
- unauthorised disclosure of confidential information belonging to you/a third party, or the supplier
- underestimating/overestimating time, workload, resources, price, etc.
- chosen supplier withdrawing from the tender or project
Ultimately, selecting the wrong IT supplier can result in a significant disruption to your business which may mean lost revenue, a damaged public image and/or customers or end users leaving you.
As you can see, there are many challenges involved in selecting an IT outsourcing company to work with. Thankfully, there are also a number of mitigating actions which you can, or even, should take in order to minimise the probability or potential impact of those risks. To find out how to do so, make sure to read the following article: Mitigating IT Outsourcing Risks: Part I – Selecting an IT Supplier.
Conclusion
Outsourcing presents many benefits but also many risks – not only at the stage of selecting a supplier, but also beyond – during contracting, implementation and project monitoring & controlling. And this will be the subject of the coming articles in the IT Outsourcing Risks article series.
With a thorough, proactive approach, however, many of those risks can be taken to the minimum. Having gone through the first stage of outsourcing ensured that you have chosen a reliable and trustworthy partner, should help us make risk management a little bit easier.