OUTSOURCING RISK

OUTSOURCING RISK

While we covered aspects of Outsourcing risk in the above sections, there are several specific aspects that need to be looked into:

Hiring of an outsourced vendor/service provider has to cover the following aspects:

•  Clearly defined objective of outsourcing; this has to be brought into the scope of work; 
•  Contractual documentation to be adequate to ensure the service provider does only what is assigned and to the standard mutually agreed to by all parties involved; 
•  Legal indemnities to the organisation to be assessed while hiring a service provider; 
•  In agreements where the client and the service provider are in different states or in different countries, the respective countries’ or states’ laws have to be complied with; 
•  The BCP of the service provider has to be reviewed.
•  The operational risk assessment covering regulatory risks, financial risk, financial reporting risk and other risks as delivery to end customers of the client in case the service provider fails to deliver for whatever reason. 
•  If technology or its disaster recovery itself is outsourced, all the attention is required to ensure the business operations work as designed and agreed. 

It is advisable for an operational risk manager to have an oversight of different department’s adherence to the management of their respective outsourcing risks, and have it covered in their respective RCMs.

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