Frontiers of Risk Management, Volume II by Dennis Cox

Author:Dennis Cox
Language: eng
Format: epub
Publisher: Business Expert Press
Published: 2018-07-04T12:30:46+00:00

Entire ­decision-making process in-house

Requires combining inherited culture and processes

Decisions made jointly (strategic and operational)

Vendor owns assets and equity

High investment and exposure to risk

High investment and risk

Reduced exposure to risk and divided returns

Limited risks and returns

Source: Author’s own.

Speed. Outsourcing can offer the quickest route by exploiting partnerships with vendors who have built and invested in an existing operation and are therefore prepared to take on incremental services for different clients. If the deal ultimately does not work out, the exit option is smooth and less painful than terminating an in-house operation.

Access to expertise. Third parties specializing in particular processes will have a demonstrated expertise and accumulated experience in conducting comparable ventures, which can be fruitfully leveraged. This means that the client would not have to bear any risks associated with the learning curve effects.

Management focus. As it is the noncore activities that are ­principally outsourced, there is less management distraction and, hence, time is freed up for more value-added activities.

Predictable financials. The outsourcing option can allow the company more certainty regarding costs. Margins and investments are agreed upfront and secured by the contract and the third party would take any additional financial burden that materializes in excess of this. In addition, the vendor can ­benefit from economies of scale and can pass some of the ­benefits onto the clients.

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