Managing Risk: After the Contract Is Signed

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By Stephen Reed

When planning to outsource all or part of an organization's IT functions, it's important to perform active risk management throughout all stages of the outsourcing lifecycle. Active risk management is a process of continually identifying and monitoring potential failure points in a plan, determining the probability of occurrence, estimating the impact of each failure and then developing ways to lessen or avoid those risks (i.e. mitigation). The more unknowns your service provider faces, the greater the risk. Risk costs money, so the more risk that can be driven out of an IT outsourcing solution, the less a vendor will charge you and the greater the chance becomes for a successful outsource. In this article we address the risk factors of oversight and relationship building.

How things change... The heady days of courtship are long gone, the thrilling late nights together working furiously to create the new entity, the terrifying race to transition and the nail biting cutover have all passed. Now, sitting with rumpled clothes in your office that looks like a tornado hit, you're thinking, "What the heck did we do?" Congratulations, it's a brand new outsourced operation!

You've made a tremendous investment to reach this point, but you can't step away now and expect the operation to grow and flourish by itself. Risk management is a continual process of planning, monitoring and control that will last the lifetime of the project. It may seem intuitive, but a surprising number of companies think they can just turn over the late night feedings of the outsourced IT functions to the supplier and go back to sleep. On the contrary, this new endeavor requires regular oversight, frank discussion of acceptable behaviors, and lots of bonding... Still sounding familiar?

Oversight

In terms of oversight, typically the best way to handle the management of risks and issues is through an upward cascade. The individual teams should be meeting weekly with their project managers to update their project plans and to address open issues and risks. The project managers should in turn meet with the program manager weekly to provide a similar status at a consolidated level. High risks and urgent issues identified at the project level should be routinely escalated to the program level, where the program manager decides whether it's critical enough to be escalated a final time to the executive committee.

It depends upon the size of the outsourced operation as to whether the executive committee meets weekly or monthly to review projects, issues and risks.

To keep this level of effort from becoming overwhelming, try using a strategy of exception management. I've never understood why organizations will sit in three-hour marathon status meetings where manager after manager reads off every possible green item until there's only 10 minutes left and everyone must either make a rushed judgment or plan on attending a follow up meeting to address the relative handful of true risks and issues that should have gotten all the attention.

Here's a simple way to cut that meeting in half: Green projects and issues are not to be addressed. If there's a detailed plan, full documentation and an up to date issue/risk log for each IT project easily available for review, then there's no need to take time briefing on it. Instead, focus on projects and issues that are in the red or are "too yellow, too long" as I heard one client executive describe it.

Change Management

As I have stated previously, change will occur on this outsourcing project. So I'd hope you've already defined a strong, effective change management process. If not, now is the time to define one. Interestingly, now is also the time to try it out.

This may seem Machiavellian, but choose a relatively innocuous issue early in the relationship and send it through the change management process. It's better to try out the process now on an easy issue rather than wait until the fate of the world hangs in the balance and wonder if the process can handle the strain.

Learn how to handle "the dog ate my homework" before tackling "It's not a cult!"

In a similar vein, it's good to coach the teams on how to escalate issues that may not need change management but can still harm the project. Nobody likes being the bearer of bad news, and all too frequently people will sit on a bad situation in the hope it will resolve in time. "I can't tell him/her/my customer/my provider -- they'll think I'm an idiot for allowing this to happen!" is a very human trait and it's one that it takes encouragement to overcome. This is especially true in developing nations where associates may loathe speaking up and risking disappointing the client or embarrassing their employer.

To continue straining the metaphor, it's better to teach and encourage your child to call you at midnight to pick him or her up at the party rather than at 2 a.m. to pick him or her up at the police station.

To encourage these behaviors for handling conflict and escalating issues, it helps to develop the personal relationship between you and the service provider. You can be cold and distant but that is definitely not the way to develop a responsive, adaptive organization.

Associates outwardly groan at bonding exercises, but almost always come away closer-knit than when they entered. Budget for sending your people offshore regularly to visit the remote facility and make sure they bring souvenirs from the US. Also budget to bring offshore personnel to your office. (No need to remind them about souvenirs; they're already planning to bring gifts!) Teams that interact on a personal level will be much more comfortable about airing risks and issues without feeling foolish or defensive.

In Conclusion

That grand day arrives. Your outsourced project has hit ROI, service levels are being met, the right choices are being made, and the partnership is looking forward to the next milestone in four years. You stand tall with pride, with relief, with enough frequent flyer miles to take you and your spouse to Hawaii. This is when your COO will come and stand next to you, smile happily and say, "This is great. Let's do another one! I've been thinking about web product development..."

Useful Links:

Alsbridge
http://www.alsbridge.com

Managing Risk in Outsourcing: The Strategy
http://www.sourcingmag.com/content/c051010a.asp

Managing Risk in Outsourcing: The Basics
http://www.sourcingmag.com/content/c051017a.asp

Managing Risk: Evaluating Proposals and Providers
http://www.sourcingmag.com/content/c051031a.asp

Managing Risk in Outsourcing: A Guide To Setting SLAs
http://www.sourcingmag.com/content/c051128a.asp

Managing Risk: Covering Disputes in the Contract
http://www.sourcingmag.com/content/c051114a.asp

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