Notes

The Hidden Costs of Business Process Outsourcing YOU HAVE TO KNOW
It's been difficult to calculate the total cost of outsourcing services. However, the changing nature and unexpected expenses that were revealed through the COVID-19 crisis could make it a lot more challenging.

The biggest mistake an organization could make when outsourcing involves failing to assess the entire cost of the partnership, including any hidden costs. These financial risks have been hidden from service providers for a long time. Customers must be vigilant about identifying and managing these extra expenses.

Outsourcing customers and their providers have shifted from traditional software and infrastructure answers to cloud and everything-as-a-service. Make it possible for digital transformation, agile working methods have been developed. All this is on top of the disruptive effects the effect of a global pandemic.

The buyer is in charge of being aware. Here are several common hidden costs that can arise during an outsourcing engagement.


Common Hidden Costs of Outsourcing

Unanticipated disruptions
COVID-19's crisis demonstrated the costs of sudden and drastic change that was not included in outsourcing agreements.

Globally, work-from-home was learning to be a standard. Enterprises had to not only accommodate their employees but also cope with the consequences of these providers.

The project timelines were extended, deliveries were negatively affected, and enterprise control was compromised. It became clear that business would be affected if there weren't clear and relevant continuity plans.

Organizational Change Management
Many outsourcing projects are changing the role of the retained tech resources. That is due to the company's shift towards product centricity and business outcomes.

Not only is it important to continue steadily to manage supplier relationships also to onboard new suppliers, but additionally, there are opportunities to understand and adapt to new ways to use outsourced providers.

It is expensive to hire the mandatory skills, orient managed providers, and restructure critical controls. This cost is not contained in most outsourcing agreements.

Unnecessary Change Orders
In case you have internal staff, it is common for them to undertake special projects or make changes to the way work is done. This happens at no extra cost. Within an outsourcing environment, this is simply not the case.

You ought to know that you might be charged for just about any minor changes in your requirements or little effort.

Lax Demand Management
It is very important understand and follow the approval process for new services. Scope creep is really a problem for many clients, as it makes it better to request new services.

Consulting Creep
Clients complain that the high fee of consulting during engagements causes costs to spiral unpredictably. Nearly all IT and digital engagements are actually managed by consultants, that is driving up costs.

Consulting continues to be mostly charged on a per-hour basis. For clients who expect engagements to be priced precisely, this is often confusing. Some enterprises can start to see the added value to getting their engagements right the first time. Others will not.

Insufficient Governance
Many new services can't be fully realized without effective governance. Although this is more about the loss of value than it really is about additional costs, the end result can be in the same way bad.

No matter how strong the contract is, outsourcing success hinges on the opportunity to define, improve, and implement new processes in addition to the roles of process owners and stewards. Clients often forget the cost of maintaining these capabilities and processes.

Insufficient governance has had the most severe consequences as the COVID-19 pandemic erupted. Lacking investment in governance resulted in exponential costs to adapt or right-size delivery.

It was difficult to find important information like the providers of the very most affected services, the positioning and price of these services, and the business enterprise continuity plans. Inadequate data and protocols to manage provider relationships led to costly delays and churn.

Third-party risk
COVID-19 highlighted risks that enterprises face if they have a variety of providers in their environment.


An enterprise's ability to maintain reliable service depends on its information security, provider sustainability, and geographic and socio-economic factors. An enterprise's ability to innovate and scale is dependent on its relationships with providers. However, additional precautions and controls could be necessary to reduce risk.

Inability to innovate
Many companies are locked in a traditional sourcing model during times of dynamic change. In addition they miss out on new technology opportunities such as for example AI, robotics or blockchain.

Companies are also eager to upgrade their sourcing relationships in order to support mobility, data analysis, and other components of their digital strategy. However, this is often time-consuming, costly, and difficult.

Aspirational services
A single point in time is used to draft an outsourcing contract. This is in line with the client's expectations because of their future needs. However, clients change and the business evolves. What may sound good initially may not be necessary in the end.

It is important to ensure that suppliers deliver that which was promised and that the contract covers all costs.

https://innovatureinc.com/top-10-it-outsourcing-companies-in-vietnam/ Loss of Knowledge
It is crucial to ensure that knowledge transfer and retention of employees during and after the transition period are successful. Ineffective knowledge transfer and high attrition by the company may lead to institutional knowledge being lost which could never be recovered.

Work Duplications
New outsourcing customers tend to be more inclined to resolve problems than to allow their supplier to do so. This results in the client keeping more staff than is necessary and causing duplication of effort.

If some business units decide to stop utilizing the outsourced services, it can cause a loss of value.

Employee disengagement
Outsourcing companies rarely address the transition risks and impacts beyond those that directly affect their scope of services. Retained organizations tend to be left overlooked.

Provider integration
Outsourcing companies provide specific tools for managing their clients and expect them to use them. Many organizations don't understand that vendor tools must be implemented with superuser training and retained resources.

Customers who have not previously cleaned master and transactional data must do so in order to make the most of the new tools. Although you may have discovery tools, don't underestimate the price of cleaning data and maintaining referential integrity.

Regulatory requirements
An outsourcing provider's service delivery solutions can make compliance issues worse for companies when they store or process their data in different locations.

Outsourcing customers should be aware of whether the proposed service delivery solution will make it purchase cybersecurity or privacy requirements that it wouldn't otherwise have to comply with.

Bubbly costs
Most providers will offer secondary and primary support during any outsourcing transition. Customers can expect significant disengagement fees as existing service providers transfer knowledge and support the brand new outsourcing provider.



SOURCE
https://www.cio.com/article/222181/the-hidden-costs-of-outsourcing.html

Website: https://innovatureinc.com/top-10-it-outsourcing-companies-in-vietnam/