Do the Pitfalls of Outsourcing Outweigh the Benefits?

Filed in archive Outsourcing Issues on October 19, 2009

© lumaxart

This is a question that was asked by Law.com in this October 20, 2009 article. Highlighting the threats arising from data loss or supplier failure, the author suggests that the risks may outweigh the benefits. What the article fails to address, however, is that while the contracts for many, if not most, outsourcing deals contain significant protections, the monitoring and management (particularly with regard to risk mitigation) is inconsistent, at best.

Truth be told, in-house processes that go unwatched and unmanaged are often sources of fraud. However, management usually does watch (at least at some level), reducing the risks posed by in-house employees. It's a different story when outsourcing, where the rule "out-of-sight, out-of-mind" generally prevails.

Of course, risk monitoring and management is an added cost, one that adversely affects the economics of an outsourcing deal – particularly when compared to in-house deals. Why? Because the costs involved in in-house monitoring are not readily quantifiable and usually excluded from the deal.

Risk mitigation and management must become a vital and active part of outsourcing management – just like it is a vital part of most firms' internal management. Until then, the risk profiles presented by outsourcing deals will be greater than the risk profiles of in-house deals.