05
Recognizing risk
Without the right approach to understanding and allocating risk, government agencies risk endangering the success of any relationship and increasing hesitancy among BPOs to tender for future public sector contracts
05
Recognizing risk
Without the right approach to understanding and allocating risk, government agencies risk endangering the success of any relationship and increasing hesitancy among BPOs to tender for future public sector contracts
(Time to read: 1.5 mins)
Thanks to the growing threat and devastating potential impacts of cybercrime, it’s easy to keep risk front of mind as it pertains to information and system security. However, every outsourcing engagement carries other types of risk, and historically, government has sometimes struggled to identify and quantify these risks or ensure that they’re allocated to the party best suited to handle and mitigate them. Indeed, in many cases, BPOs have shied away from public sector engagements because of their concerns regarding inappropriate risk allocation.
Likewise, when government agencies become too preoccupied with cost or overemphasize time and materials during the procurement process, there is a subconscious creation and transfer of extra risk to the supplier as processes, solutions or mechanisms that would help to solve problems or deliver long-term benefits are removed from propositions solely because of an initial cost.
Avoiding this situation starts by gathering data from previous projects and from engagement with the wider market and using the insights to identify and quantify potential risks; i.e., how likely a risk is to become a reality and what the impact will be. This will help identify which party will be in the best position to act in those situations and allocate the risks accordingly.
However, that should be the starting point. The ultimate goal should be to focus on outcomes and negotiate agreements and risk allocation based on agreed long-term aims. As well as strengthening and aligning any working relationship, taking an outcome-based approach will allow for the implementation of advanced services, tools and processes that may appear expensive as line items but when integrated as part of a solution become invaluable in providing protection as well as performance.
By adopting pricing models that reflect delivery and outcomes, there is better risk sharing and mitigation, greater protection and, ultimately, a better partnership.
BPOs have shied away from public sector engagements because of their concerns regarding inappropriate risk allocation.
Checklist
Use insights from past projects to help identify all potential financial and reputational risks.
Engage with the wider outsourcing industry to gain broader insights into potential risks and their likelihood to occur.
Combine those insights to correctly allocate risks to the part best positioned to mitigate them.
(Time to read: 1.5 mins)
The right outcome
Many BPOs are moving towards engagements focused on delivering an outcome rather than simple service provision as it gives them greater latitude for continuous improvement and process refinement. Nevertheless, there are still risks in negotiating these types of contracts.
To ensure that you can arrive at an agreement with a potential partner that optimizes the possibility of future success while minimizing risks, there needs to be absolute clarity around the definition of the solution or desired outcome and, crucially, through which measures or metrics this outcome will be tracked and verified over time.
For the same reason, each party will need to agree on their specific and shared responsibilities during the engagement to remove any complexities from contract design or identifying and establishing service level agreements (SLAs). This will have the added benefit of establishing how much control a government agency or department will retain and how much freedom or latitude your partner will be awarded in order to achieve objectives.
Establishing the parameters of control and responsibility will ensure focus remains on long-term benefits rather than short-term gains and should also help in alleviating potential cost concerns and bringing a level of financial predictability to the partnership.
Best practice guide From misconceptions to mastery
