What to review before outsourcing a business process

Outsourcing decisions are often justified on unit cost alone, which is the part of the business case easiest to calculate and least likely to determine the outcome. The questions that matter concern control, process readiness and what happens when the arrangement needs to change.

1. 01

   Is the process stable enough to hand over?

   A process with undocumented exceptions and informal workarounds will transfer those problems along with the work, and the provider will price the ambiguity into the contract or absorb it into errors. Standardize before transitioning, or accept that the first year is a stabilization exercise.

2. 02

   What controls exist today, and who will operate them afterwards?

   Segregation of duties, approval limits and reconciliation checks frequently depend on the people currently doing the work. Moving the work without redesigning the control environment creates exposure that surfaces at audit rather than at go-live.

3. 03

   What is the true baseline cost?

   Comparing a provider's fee against direct salaries usually understates the current cost, because supervision, systems, premises, recruitment and error rework sit elsewhere in the budget. It also frequently omits the retained cost of managing the provider, which is real and permanent.

4. 04

   Who retains accountability, and to whom?

   The regulator, the auditor and the board hold the organization accountable, not the provider. Retained oversight capability has to exist and be resourced, and it is a different skill set from performing the work.

5. 05

   What does the data arrangement look like?

   Where the data sits, who can access it, how it is protected and what happens to it at termination are contract terms that are painful to renegotiate later. This is more consequential where personal or financial data is involved.

6. 06

   How does this end?

   Exit provisions are negotiated most effectively before signature. Knowledge transfer obligations, data return in usable form and a defined transition period determine whether the organization has an option or a dependency.

7. 07

   What improves over time?

   An arrangement priced purely on headcount rewards neither party for reducing effort. If automation, process improvement and analytics are not written into the commercial model, the cost base is fixed at day-one efficiency for the life of the contract.

• Standardize before transitioning, not afterwards.
• Redesign the control environment as part of the move.
• Baseline the full retained cost, including oversight.
• Negotiate the exit while you still have leverage.