How to minimize risk in the IT outsourcing process?

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IT outsourcing opens up many opportunities for small and large companies - it allows us to solve problems, complete challenging projects without delays, better control the budget, and is the key to carrying out a successful digital transformation of our business.

This is a particularly attractive solution for countries in the DACH region (Germany-Austria-Switzerland), which, thanks to their proximity to Polish IT providers, can opt for beneficial nearshoring cooperation and gain access to experienced experts. However, it is important to remember that outsourcing can carry certain risks.

Before your company decides to work with an IT partner, learn how to effectively minimize the risks that arise in the outsourcing process.

What is outsourcing?

IT outsourcing, which is gaining in popularity, is the solution of using external resources and services to perform internal tasks or complex IT development. In its most popular forms, outsourcing involves expanding a team of programmers with external specialists or delegating an entire task or project to an outsourcing partner.

You can read more about what outsourcing is and what cooperation models we can distinguish, as well as why you should start working with an outsourcing partner, in our previous articles. 

Is IT outsourcing safe? - outsourcing risks

The level of security of outsourcing services depends largely on our business partner - we wrote in detail about where and how to look for a reliable partner in our previous article

Thoughtful and well-planned outsourcing will bring many benefits to our company - from launching a refined application, to implementing marketing automation tools, to developing and maintaining business analytics systems. All of these, in turn, can clearly affect our company's position in the market and translate into efficiency in achieving business goals. However, handing over the care of important elements of our IT infrastructure can carry certain risks - after all, we are entrusting an external company with, among other things, vital data and access to our systems. On the other hand, extensive implementations or a dynamic digital transformation can significantly affect the nature of our business, and even lead to a partial loss of control over the company's identity and mission. It is worth keeping this in mind especially at the stage of selecting the right outsourcing partner.

IT Outsourcing - types of risk

IT outsourcing, despite its attractiveness, carries several risks that can more or less affect our company. Among the most significant, experts mention: strategic, operational, technological and legal risks, among others. What should we know about risks in IT outsourcing and how can we minimize them?

Technology risk

One of the primary risks of IT outsourcing is technology risk. It is related to the choice of technology, the way in which solutions are implemented and the effects they may have on our company or on the provider itself. Before we start outsourcing cooperation, we should answer some important questions - will the supplier we choose be able to provide us with a high-quality solution, tailored to the company's level? Will the chosen technology provide us with optimal results and will it not generate additional development costs? Will the choice of technology allow us to achieve all our goals? And most importantly - will our IT partner understand our needs and deliver satisfactory value?

Technological risks can be minimized or completely ruled out if you get the answers to the above questions even before choosing the right IT partner. At this stage, it is worth carefully checking the credentials of IT suppliers for information on, among other things, the level of satisfaction of the outsourcing company's previous customers. 

Financial risk

Another equally important risk associated with IT outsourcing is financial. One of the main arguments for delegating tasks to an outside company is better control over expenses. However, in the case of a wrongly chosen partner or cooperation model, our initial budget may prove insufficient. Wrong decisions can lead to hidden costs or unforeseen additional expenses. Financial risks can also arise from the financial instability of the supplier, unexpected increases in costs due to, for example, additional working hours or software upgrades, or even a poor assessment of the budget before the project begins.

The easiest way to reduce financial risk in IT outsourcing is to make precise calculations and choose the right billing model to fit the needs and expectations of our company.

Strategic risks

Choosing outsourcing as one of the pillars of a company's development strategy involves close and long-term cooperation with an IT provider. Such a relationship requires a clear definition of the goals our company wants to pursue, the nature of the process and our requirements for it. Failure to agree on these issues with our outsourcing partner will significantly increase strategic risk. A misunderstanding of the goals, or a complete divergence of them between the company and the IT provider, can contribute to a situation in which external specialists focus on the needs of their own company and not ours. In another case, on the other hand, the outsourcing partner may suggest to us solutions that are favorable from his perspective, which will not necessarily improve the processes and areas we really care about.

We can minimize strategic risks in IT outsourcing already at the stage of searching for a candidate with whom we will start cooperation. On the part of our company, it is necessary to clearly present our own strategy, goals, planned direction of development and identify the areas we want to improve. It is also important to define the benefits we expect from outsourcing. A trusted and valuable business partner will strive to fully understand our company's needs and offer support in achieving our goals.

Operational risk

Another type of risk that occurs when using outsourcing services is operational risk. Most often, it is associated with imprecise definition of the scope of services, responsibility for the project and improper division of competencies of people both on the side of our company and on the side of the IT provider. Other important factors are inadequate development of communication methods and problems arising from geographical or cultural differences between business partners - the best way to avoid the last obstacle is nearshoring cooperation. 

In this case, the reduction of operational risk lies primarily on the shoulders of managers and specialists representing both parties in the project. The stability of the IT provider's team is also of great importance here - frequent turnover can greatly disrupt the course of services provided. Therefore, it is worth choosing a partner that cares about a low level of turnover in teams.

Legal risk

When deciding to outsource to an external company, we should keep in mind the legal risks. A well-written contract will be able to protect us from most of the problems we may encounter during outsourcing cooperation. If the IT provider violates the law in any way, or causes us damage as a result of non-performance or improper performance of the contract, we should have documents that clearly specify the conditions for renegotiation or withdrawal from the contract and compensation for the losses incurred. If we want to avoid similar problems, we should take care to prepare a precise contract and take into account even the darkest scenarios - especially if we decide on long-term cooperation.

IT outsourcing risks - how to reduce them?

At this point, we may feel that IT outsourcing, despite its many benefits, is a risky solution. However, taking the right steps will allow us to reduce or even completely exclude some of the risks that cooperation with an external company may entail. Many important decisions can be made at an early stage of preparation for IT outsourcing - the key here is, among other things, choosing the right partner and billing model, and clearly defining the goals and expectations from the business partner. Among other things, it is worth discussing with the IT supplier all the most important issues and sharing the burden of responsibility for the success of the project. Despite the concrete and clear definition of our needs and goals, we should remember that the situation on the market and in the world of new technologies is constantly changing, so it is important that cooperation with the IT supplier is flexible and resistant to possible changes.

Risks in the IT outsourcing process - is it worth it after all?

IT outsourcing is an extremely attractive solution. The list of advantages that cooperation with external specialists gives our company is very long. And although it involves certain risks and dangers, proper preparation will allow us to minimize most of them. Knowing the credentials of a potential business partner, being aware of the advantages and disadvantages of billing models and clearly defining our own expectations and needs will allow us to make the right decisions and protect ourselves from potential risks, as well as enable us to take advantage of the full opportunities offered by outsourcing services.
We also wrote about the advantages of outsourcing cooperation in the article: 5 reasons to opt for outsourcing IT services.