Outsourcing - Securing the Benefits

Outsourcing – Securing the Benefits

Companies source services from third parties for many reasons including:

• immediate achievement of a variable cost base;
• economies of scale in accessing services from specialist organisations;
• access to technical expertise not easily resourced internally; and/or
• access to services which themselves are evolving rapidly (cloud computing or similar).

Much focus has been on the additional risks assumed by financial services companies when outsourcing, and on the risk management framework required to mitigate these risks.  This is entirely appropriate and the recent consultation paper from the CBI provides real and effective advice in this area.

Generally, companies source services from third parties for efficiency, nobody outsources services to create additional risk, though it is clear that with the efficiencies comes some additional risk.  So, when developing the management framework for outsourced services it is as important that processes and procedures are in place to achieve the forecasted benefits or efficiencies as to manage the additional risks.

This equity of emphasis, as between risks and rewards of outsourcing, should be evident in every aspect of the outsourcing discussion, and should at a minimum cover:

• Developing the business case and rationale with clear articulation of the expected benefits of individual outsourcing decisions, together with suitable performance metrics;
• In carrying out due diligence on potential providers, consideration of their ability to deliver the benefits should be assessed as well as the risk of failure;
• The contract should set out the expectations of both parties, not just in minimising risks but to ensure achievement of the objectives with consequences up to and including termination if the planned benefits are not materialised;
• The SLA and associated interactions, developed to monitor the outsourced arrangement should emphasise the delivery of the benefits as well as controlling the risks; and
• Internal reporting through the governance chain should address the continuing benefit of the outsourced arrangement and the metrics evidencing the realisation of that benefit.

A holistic approach to the outsourcing framework will ensure benefits and risks are well understood at the outset, are managed during the life of the arrangement, and are reassessed on a regular basis.

Supplier Management becomes a necessary skill set for all managers in the financial services sector and should be referenced accordingly in company training and development programmes.