Outsourcing and project risk

A risk category that is not unique to outsourcing, but nonetheless relevant, is project risk. The selection of a suitable vendor, contracting and transition of the service from the own organization to the vendor is typically managed as a project. Some of the standard project risk categories are:

1. Business risk: Is the business reasoning behind the decision to buy sound, independent from emotions and ‘me too’ rational?
2. Organizational risk: Are the relevant stakeholders (e.g. business, senior decision makers, workers counsel) willing to support decision to outsource and able to make the transition from making to buying the service?
3. Execution risk: Can the outsourcing and disentanglement be done on budget and on time? Can the project handle the complexity of outsourcing both business process and IT (hybrid contract) or should it be done in separate projects?
4. Result risk: Will the outsourcing project deliver the business the anticipated results (e.g. services, quality, products)? Which generic sourcing risks could endanger the downstream delivery of the expected benefits and how are they mitigated as part of the project deliverables (e.g. inability to manage the third party after contract sign, inadequate contract leading to tension between parties).
5. Value at risk (VaR): Is there too much riding on this single outsourcing initiative? Would a failure of the project lead to unacceptable hardship for the company? With more than 100 megadeals (contracts with values of greater than $1 billion) in the past ten years makes VaR in certain cases even a strategic risk.

The risks mentioned above can be more or less prominent during the various stages of the outsource project. An example. The business risk related to outsourcing for the wrong reasons will be more prominent during the start of the project, while result risk will become more prominent later during the project when the intentions and requirements are described in the contract and sourcing governance framework.