Implementing Effective IT Governance and IT Management by Gad J Selig

Author:Gad J Selig [Selig, Gad J]
Language: eng
Format: azw3, mobi, epub, pdf
Publisher: Haren Publishing, Van
Published: 2015-03-22T16:00:00+00:00

Figure 7.11 Sourcing contract/agreement types

7.4.5 Sourcing risks

Risks are a fact of business life and it only requires a review of the daily news to see the impact they have on an organization. The consequences of a business or process disruption affects corporate revenues, drives higher costs, poor asset utilization, excess inventory, shareholder lawsuits, and personnel turnover as well as the implication of negative publicity. Managing risk is a corporate-level effort and sourcing represents only one of many potential exposures that a company needs to plan for and handle carefully. Anticipating ‘what could happen if’ involves the development of multiple scenarios describing possible business outcomes affecting the company.

Before the catastrophic event of 9/11, New York City and its Mayor Giuliani used a multiple scenario approach to prepare the city for catastrophic events. As we all know, 9/11 represented the worst possible outcome but, despite this, the earlier risk management exercises using planned scenarios assisted the city in an orderly recovery. Anticipating a sourcing event requires similar scenario building and related risk analysis and mitigation. It should also be noted that some clients use sourcing to mitigate risks such as diverse suppliers or redundant data processing facilities. Sourcing could also involve exposure to secondary or tertiary risks from a supplier that is sub-contracted for work without the knowledge of the client. If the prime contractor does not agree to share information about its sub-contracting arrangements with the client, then it is impossible to plan for a failure of one of the secondary providers. An enterprise sourcing operating environment from a provider, customer and shared risk perspective is shown in Figure 7.12.

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