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Amit Dua

Amit Dua - CoFounder and CEO at Signity Solutions and ValueAppz.

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What are the Risks with IT Outsourcing and How to Mitigate Them?

When you outsource IT, you also trust the security of data with an outsider. Let’s say, you have Intellectual Property (IP) rights for your business.


Whether to outsource or not – this is a chicken and egg question that puts every organization in dilemma. Whether your organization is a new set up or climbing the growth curve, IT outsourcing can reduce costs to a significant extent. It lets you focus on the core aspects of the business and frees up the internal resources while leveraging the capabilities of the outsourced expertise.

However, outsourcing also comes with its own share of risks which if overlooked at the time of decision-making can land your organization in trouble. Let’s take a look at the four main risks and how you can mitigate them effectively.

Security Breaches

When you outsource IT, you also trust the security of data with an outsider. Let’s say, you have Intellectual Property (IP) rights for your business. You trust all business documents, processes and other business secrets with the vendor only to realize at some point in time that they have been compromised. If the service provider doesn’t deploy robust and secure architecture, the risk of data leaks is very high. According to a survey, bad outsourcing decisions cause 63% of data breaches.

Solution: Don’t rush the outsourcing process. At the time of evaluating the outsourcing proposals, conduct a due diligence exercise and look out for the security features and if they suffice your requirements. A non-disclosure agreement would also take care of security aspects. Post implementation, it is advisable to conduct IT audits at regular intervals to catch loopholes, if any. Such routine audits will ensure that the service provider is not involved in any data violation.

Lower Quality of Services

You know your business, people and processes the best. You know which quality parameters to measure, and even when and how. But, you are almost clueless after outsourcing. The service provider may make umpteen promises on paper, but might not be able to deliver the quality during and post implementation. In fact, in a research, 59% of organizations reported that outsourced end-user support delivers lower quality.          

Solution: Quality should not be compromised at the risk of cost-cutting. If you have to pay one vendor a bit higher than the other for quality services, be ready to do so. You should also seek references from the service provider’s previous or existing clients. In case the service provider hesitates to provide recommendations, it is a reflection of the quality of his services.

Loss of Control/Compliance Issues

You have complete control over internal employees and processes. With outsourcing, you have practically no control over the operations and deliverables. There is also visibility where the project is heading. The management decisions may get delayed and customer service may take a hit.

Also consider this scenario. You have to submit quarterly reports to the government. You leave the task to the service provider. Later, you get a ‘non-compliance’ certificate or warning from the government. When you follow-up with the vendor, he informs that the server was down or he didn’t get inputs from the concerned department during that period. If you are doing the compliance activity yourself, it may happen that your system, network or software may get ‘locked-in’ and the vendor support might not be immediately available to pull you out.

Solution: A concrete agreement with respect to the deliverables and timelines should be put in place by the service provider. All the IT processes should be documented and updated regularly at a commonly accessible place. It is also recommended to manage the outsourced services via an in-house employee/team in the initial phase. This will establish a strong and transparent communication channel between your organization and the outsourced party. Try to build a mutually beneficial long-term partnership for continued effectiveness and efficiency of the processes.

Hidden Costs

Just imagine you outsourced IT to lower your cost, but the vendor pop-up new overheads for changes, modifications and adaptations during the service period. Your overall outsourcing cost is bound to skyrocket this way. It has been found that hidden costs in outsourcing add an average of 25% to the price of engagement.

Solution: Identify your current IT needs and also factor in the future needs if you are planning to scale up or down. This will help you to negotiate the right cost with the service provider. It is advisable to sign short-term contracts of one to two years so that you can exit easily if the services if costs exceed your IT budget.

IT outsourcing is the worth your investment as long as you conduct a thorough risk assessment at the beginning, followed by a close monitoring during and after the implementation.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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