subject: Risks Involved In Offshore It Outsourcing [print this page] IT outsourcing is growing at a great speed; technical issues and geographical risks are easily overcome and the results are impressively great. You will read the positive points of offshore outsourcing all over the Internet, however, there are a few negative points involved in this as well and they are as follows:
"The primary risk involved in that of cost reduction expectations. Companies who not have a previous experience of offshore outsourcing go ahead and outsource their IT work to a different company in the hope of reducing costs. The internal organization expects savings from offshore outsourcing without considering the hidden costs and differences in operating models. Usually, most of IT companies are able to save only 15%-25% in the initial first year but as they continue their alliance with the outsourcing company, cost savings go up and often reach 35%-40%, by the end of third or fourth year. The internal organization modifies its operations according to an offshore model and eventually things fall into place.
"Another very important risk factor lies in the data security and protection. Before outsourcing to another company, you must make sure that the privacy concerns are addressed. It is advisable to document all the requirements and define the methods and integration to the vendor before starting anything. The vendor must have sufficient robust security and they should be able to meet the security requirements of the organization. The security risk is highlighted mostly in cases of vendors working for international business. This problem can be taken care of with right documentation and research before finalizing a vendor.
"Vendor's failure to deliver poses a direct threat to the company's performance. Vendor's standard and quality of work are the most important factors to be taken into consideration before security and other things. When outsourcing, a company must consider all the possible failures from the vendor's side and their impacts on the company. High risk might need you to reconsider your outsourcing strategy; you may want to move from a single vendor to multiple vendors.
"One very important hidden cost in that of time and effort that is used in transferring knowledge to the vendor. While IT companies spend their time and effort on the vendor in the initial stage, the productivity goes down my almost 20% in the first year. Transferring all the relevant technical knowledge in the first year brings down the productivity, although, now there are solutions like video conferencing and classroom settings to save time lost in traveling and teaching.
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