Outsourcing growth has been steady in Ireland and this upward trend is going to continue with more Irish companies seeking to outsource in the future, PricewaterhouseCoopers (PwC) has claimed.
Speaking at the annual Operational Risk Forum Conference today, Paul Halpin, lead partner at PwC’s outsourcing advisory services division, said that it is no longer a question of “if” Irish firms will outsource functions like IT, but “how” the relationship will be managed between the business and its selected outsourcing partner.
He added that in opting for outsourcing, businesses should take a more proactive stance in their approach to operational risk management, which has increased in importance due to high-profile losses in recent years. “Operational risk managers have a key role to play in reducing risk in outsourced and managed services arrangements,” Halpin said.
“This is achieved by participating in the operational aspects of developing the outsourcing solution and in the oversight of the outsourced operations. Of course, operational risk is but one of the many factors that need attention during the negotiation of an outsourcing contract. The other principal factors include service, commercial and relationship issues.”
According to Halpin, many people think that operational risk inevitably increases when processes are outsourced. “The introduction of more effective controls and better management of risk, by an outsource provider, can often reduce operational risk,” he pointed out.
“There has been considerable growth in outsourcing in Ireland over the past year and we expect this upward trend to continue with more and more Irish companies seeking to outsource in the future. It is therefore essential that operational risk managers play a positive role when their companies are outsourcing,” Halpin said.
“Outsourcing is not suitable for all types of companies in all types of circumstances. A strategic decision has to be made regarding the future direction of the corporation. The cost-cutting benefits of outsourcing are well known, but these will not be realised if the strategy is not well aligned with the business. Or cost savings may be realised, but at the expense of another important factor, such as customer service, which may not lead to improved shareholder value,” he said.
Halpin said that the relationship between the company and its selected outsourcing provider should be healthy at all times. “Detailed transition planning should take place in parallel with the contract completion stage. During this time, the future solution should be designed and processes re-engineered to take into account hand-offs and ensure a well-controlled environment is created. Tasks should be clearly assigned and strong project management is required to ensure on-time, within-budget delivery. Items that could become show-stopping issues such as IT needs and processing backlogs should be identified and managed as soon as possible,” he urged.
“Once the implementation has been completed, the ongoing relationship and service delivery should continually be reinforced. A dedicated service delivery manager should be appointed to manage the outsourcing provider and to keep abreast of service delivery and day-to-day issues. Service delivery should be regularly monitored, by using pre-agreed key performance indicators that feed into the fee structure, eg resulting in incentive payments.”
Halpin concluded: “Outsourcing only works well if the contract and service delivery is underpinned by a good client-provider relationship. If the relationship breaks down, this will be felt in service delivery and the contract may become unsustainable.”
By John Kennedy