Managing Outsourcing and Offshoring Risks


Can outsourcing and offshoring help to decrease costs associated with launching or aggressively developing a product? If organized correctly, both models can prompt growth. However, one of the popular mistakes, due to which task delegation may fail, is disregarding the related risks. Those businesses that actively share their tasks already know that one cannot act without having a reliable risk management system in place.

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Risks to Prepare for

Explore some types of risks that go in hand with outsourcing and be prepared to face them.

Time zones. When starting to work with a company on a different continent, consider the time difference. It may be nighttime at your location while your provider works by day, so one of you will have to adjust. Alternatively, you could turn this into an opportunity (have people working day and night, etc.).

Quality risks. When delegating tasks, you lose some control over performance and the results of the vendor’s work. Initially, there is no 100% guarantee that you will get the expected and satisfactory outcomes.

Risks of competition. When engaging a third party into your development process, you must share valuable data. In some cases, that information can leak out, or the vendor might utilize it and create a competing product.

Security risks. When handing activities to external providers it’s important to organize everything securely, so that customer data is not at risk – in a case where anything happens to this data your brand could experience significant loses.

Though all mentioned risks are inevitable, one can mitigate their impact with specific precautionary measures.

Ways to Scale down the Risks

While one can’t avoid the mentioned risks, any business must weigh every decision and review the alternatives before making the ultimate choice. So, if you are considering transferring some of your activities externally, below are some useful ideas.

  1. Thorough selection. One of the best ways to lower the risks is choosing a trustworthy provider. This requires dedicating enough time to research the options, assess opportunities, and pick the most beneficial variant. Finding a vendor with a crystal reputation may take some time, but preventing troubles always pays off.
  2. Contract examination. With your partner, you will follow the rules as identified in the contract. Thus, it’s essential to include the following important terms and conditions:
  • clear and defined expectations;
  • regulatory and security requirements;
  • intellectual property protection articles.

Once you have come clear with all the critical issues in the contract, it’s very likely your cooperation will be fruitful.

  1. Performance standards. To eliminate quality risks, create well-defined procedures to follow. For instance, include a standardized reporting system and a schedule of meetings to discuss all ongoing matters. Don’t engage in micromanagement but keep an eye on reports and set performance audits to check how everything goes.
  2. Efficient interaction. To lower the risk of ineffective communication, set clear rules. First, you must have direct access to the team of developers to be on the same page. Besides this, ensure that your vendor always responds to your queries. Visiting your partner may also be useful to build better relationships.

Despite the difference between outsourcing and offshoring, the ways to mitigate risks are quite similar, yet a question arises: if you develop your own product will you be ready to give up control over the central part of your activities?

If not, then pay attention to a model that will allow you to keep the core tasks in-house and delegate the rest. With the so-called Alcor Model you will engage the best Ukrainian experts and set up your own office in Ukraine. Meanwhile, Alcor will handle all operational tasks, such as recruiting, legal compliance, and real estate to reduce your headaches and allow you to focus on the product. But to stay on the safe side with any business model, check that you did your homework and are ready to face the challenges.

It might be wise to go with a transparent model, like opening your own development hub and keeping complete control over its activities. Yet no matter how you act, remember that you’re primarily responsible for the results – so make the right choices and stay calm about your business.


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