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Results of a new global study reveal the concerns, effectiveness and best practices in risk management by organisations that outsource projects. Of the 95 percent of organisations that buy, provide or both buy and provide outsourced services and functions, fewer than half are able to effectively manage risk of outsourced projects. That’s a pretty poor show, and risk mitigation activities – while they have an associate cost – generally mean less expenditure when things go wrong. Because you stop things from going wrong in the first place. Are you following? I hope so.
Outsourcing in itself is on the rise, as another opportunity to cut costs. More and more project managers are getting involved with projects that deliver outsourced services, like moving payroll or the invoice processing function to companies that do those activities as their core business.
It’s not surprising that outsourcing projects are managed poorly and don’t reap the expected financial benefits: this study shows that only one-third of organisations always clearly articulate and define financial goals to outsourcing partners. How are your business partners supposed to know what their tolerance boundaries are if you don’t tell them?
Project managers could put a greater focus on ensuring vendor performance and contract outcomes are clear and defined as part of the project initiation phase. While you are at it, add risk management to the list – that seems to be a key differentiator among outsourcing partners.
Here are some other figures from the survey:
- 63% of respondents said that vendor delays were the biggest risk to outsourcing projects.
61% said contract scope was the biggest risk.
76% of companies go to the effort to evaluate the vendor’s technical ability and past performance – which means that 24% don’t bother (what are they evaluating these companies on then?).
65% of companies issue comprehensive, clearly articulated requests for proposals/requests for quotes/tenders that enable standardised responses for comparable analysis – which means 35% don’t, and have to muddle through answers that are difficult to compare.
- Only 50% of respondents thought that their outsourcing team members have appropriate project management experience and skills.
75% of organizations do not always clearly define the requirements of outsourced projects, which serve as the foundation of successful project management. No wonder these projects are unsuccessful – the outsourcing people have no idea what is expected of them!
Outsourcing can save money, but you have to do it right – and it seems from these figures that large numbers of companies are most definitely not doing it right. If you don’t set clear requirements, choose the right partners, and monitor the ongoing performance of the relationship then you won’t get out of it what you wanted. Come to think of it, do you actually know what you want? Get that bit clear before you even start thinking about going out to tender.