Risks of outsourcing IT services and how to avoid them

13 DEC 2021

For decades, the outsourcing of IT services has been a popular alternative. It has allowed companies to gain access to high-quality, specialized knowledge and save significant money. However, outsourcing entails inherent risks, and the risks should be understood and managed early on, as they can have a significant impact on a company’s competitive position and its ability to meet its strategic goals.

Although businesses like to outsource their projects since it frees them up to concentrate on their core business functions and lowers the expense of retaining an in-house staff, there are several ways to go wrong if this approach is not well planned due to the risks involved.

Most of them make decisions based on myths, or due to the lack of awareness about the outsourcing risks.

Risks of Outsourcing IT services and How to avoid them,

• Communication Barriers: 

Outsourcing IT services can be an effective way to improve efficiency and reduce costs in businesses of all sizes. However, it can also come with some risks, such as communication barriers between the provider and the business. Poor communication can lead to delays in response time, problems in service delivery, and incorrect interpretations of needs leading to unsatisfactory results.

How to avoid this risk,

To ensure that outsourcing IT services is successful, it is important for both parties to be clear about what is expected from the arrangement and to have systems in place to handle any issues that may arise quickly and efficiently.

• Unexpected or Hidden cost:

Businesses outsource their IT projects for software developers to save the cost of the project.

In the initial phase, companies may compare pricing models of the different vendors but, most of them offer discounted prices to attract customers, but at the later stages of the project, they will add additional charges for the unforeseen services like hardware or software upgrades, working overtime, double charges for weekend services, redeployment, and relocation cost.

How to avoid this risk,

At first, you need to define your project requirements clearly that helps to get the precise cost estimation for your project, which reduces the chance of getting billed for an extra cost.

Companies provide different pricing models such as fixed and non-fixed price contracts, where you need to select the plans carefully as per your requirements.

As a precautionary measure, you need to sign a service level agreement (SLA) that includes services provided by them and their costs. Also, make sure you are aware of all the hidden costs.

• Privacy and Security risk:

Outsourcing your IT project to a service provider will expose your business data either completely or partially to an unknown person.

This poses a greater outsourcing security risk to your data related to copyrights, patents, trade secrets, and the chances of getting data leaks can be prevented by hiring a reputed vendor who abides by the laws of his country.

How to avoid this risk,

To safeguard your company’s data from this type of IT outsourcing risk, you must execute a contract with the assistance of knowledgeable attorneys.

You can also ask the vendors to sign a non-disclosure agreement to prevent data breaches.

• Inexperience with remote teams:

At first, you might not be sure how to manage remote teams. To guarantee that there is no communication gap between you and the vendor, you must constantly evaluate performance, provide frequent feedback, and maintain strong communication. This calls for competence when managing a remote workforce.

If you don’t keep track of your projects, they could be poorly managed and deadlines might not be fulfilled.

How to avoid this risk,

To manage this outsourcing threat, you must select a vendor who has the experience to set up a remote team to maintain a successful relationship.

• Loss of control over the project:

This is one of the biggest threat that is associated while outsourcing your project.

When you outsource an IT project, you run the risk of losing control of the project or you will have minimal influence over it.

And if the outsourcing company is in faraway places, it will become difficult to monitor the performance and productivity by relying only on virtual communication.

How to avoid this risk,

Before choosing a software vendor, make a list of roles and responsibilities you want to hand over to the outsourcing company.

When discussing about the project, you should keep a few things in mind, such as establishing the meeting’s deadlines, devising a method for monitoring the project’s progress, and providing a list of people to contact with questions.

This process helps you get rid of the risks involved in outsourcing the IT service and also helps you to get detailed information about the project at every stage of the process.

• Risk of getting a subpar product:

The outsourcing vendor may produce a subpar product because the vendor is compensated for delivering it on a tight schedule. The vendor might also fail to provide the expected level of service. The vendor might go out of business.

How to avoid this risk,

The risk of getting a subpar IT product can be avoided by using a service provider with a proven track record, such as a Star Knowledge. A service provider who has a proven track record can offer better service at a lower cost.

Conclusion:

Outsourcing your IT project  to a genuine service provider will help you get your work done at a low price than building and getting the job done by your in-house team. But it comes at its own risk.

But it should not stop you from hiring a third-party vendor to get your work done. With the proper management and effective communication, you can mitigate all the risks related to subcontracting to get hassle-free service.