How to Mitigate IT Outsourcing Risk Factors

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By Pratik H

Problem with It outsourcing

Change is never easy to accept because it comes with a certain level of risk. The last thing an IT entity wants is to carry more risk in the business.

Companies have embraced outsourcing as a  way of reducing costs and resources. But outsourcing has its own set of problems that if not managed well, it can cost a lot.

If a company doesn't prepare well, it can lose control over the projects and this can affect the quality of the final products. Worse still, they may incur hidden costs.

The IT offshoring industry is growing and changing. New IT providers come, the old one go, and each has their style of management. With all this uncertainty, your company needs to measure and reduce risks exposed to them.

In this article, we want to look for at least 4 factors in mitigating outsourcing risks. If you can manage these factors in the beginning, you will have a smooth outsourcing experience.

With all this uncertainty, companies need to know how to measure and minimize the risk they’re exposed to from the very beginning.

Risk #1: Loss of Control

No one will know your business better than you and your staff. Your team has formulated policies and practises which make your company what it is today. You and your employees know what to do, and how to do it.

The result has always been your company’s success and team collaboration. When you outsource your project, you lose managerial oversight to the outsourcing company. This is scary at first because it means you won’t have insight and control of the project.

Not only are your employees not involved, but you can also lose giving directions to important decisions that may need your insight and oversight.

This is hard for some companies to cope up with. The biggest problem happens when businesses and providers don't work to achieve the same goal. The lack of collaboration can hinder the project before it even starts.


Before you give control, know who you are and what you can’t give your provider. Create a detailed project management plan that describes how you want the outsourcing provider to manage the project and areas where you will collaborate or need updates frequently.

Your typical plan can include:

  • Timelines for meetings

  • Reporting  progress updates and issues

  • Protocols for changes to business and operational goals, 

  • Key staff to contact on both sides and their areas of specialty

When you hire a provider, you must place a temporary employee in their company. This will ensure you have a direct connection with the outsourcing company so that you can better understand how they work. It also creates an open channel of communication where you will receive updates and give feedback fast.

Risk #2: Compromised Quality

IT development is all about ensuring quality. Your staff understands the needs of your company, and more importantly, they know how to deliver them. When your staff commit to quality, you are always sure the final products will shine.

When you outsource, you need the same level of commitment to quality and extend it to the third-party provider. The biggest challenge here is outsourcing providers won't have the same kind of experience and insight into your business as your staff. 

This can cause a big problem for entrepreneurs who need to outsource their project but fear to sacrifice quality.


The goal here is to find a committed outsourcing provider who cares a lot about the quality. That said, when you do your evaluation, ensure they have the same mindset as you. 

The best way to do an evaluation is to look at their past work. It is common for a provider to say they deliver quality work without showing you the proof. What you need to do is to talk to at least three past references or current customers. Past clients are great for inquiry since they have nothing to close when they tell you the truth.

Learn and understand how it is like to work with them, the challenges they faced, and how the final products turned out. If they don't have references, you need to run away. That's because they are people you can't trust, and without their work, there's no way you can build trust.

Risk #3: Hidden Costs

Outsourcing will save you money but if it comes with hidden costs, then the beauty of outsourcing is lost.

Transparency is important here. Hidden fees come from things like:

  • Hardware and software upgrades

  • On-site troubleshooting

  • Charges for after-hours services not covered in the contract


When you create a contract ensure you have listed all the expected services, and read carefully to find out any surcharges. Use a Service Level Agreement(SLAs) to limit the number of hidden costs that may appear.

A Service Level Agreement (SLAs) will the services, guarantees, and maintenance routine the outsourcing company will carry out. In short, a SLAs will answer:

  • If the overall consulting cost includes new hardware and software

  • If the provider offers staff training, and how much it costs

  • After-hours services offered by the provider, 

  • The cost and availability of on-site visits

In short, the contract needs to cover your needs and expectations to lower the risk of extra charges. In the agreement, you also need to specify the length of consultancy. That way, you won’t be paying every time.

Risk #4: Legal Issues

Intellectual Property (IP) is the lifeblood of your company. Intellectual property is anything your company will create, brand, patent, trademark or yours.

If you work with outsourcing providers, your IP is at risk. While it is not common for outsourcing companies to steal or leak your IP. It is still vital for you to protect your assets.


Before you start any negotiations, inquire if your provider is willing to sign a confidentiality agreement to safeguard your business secrets. That way, if anything happens to your IP, they are responsible.

You can use a Non-Disclosure Agreement (NDAs) to describe the kind of IP you have, how they should treat it, and what happens if they violate the agreement.

An excellent NDA will reduce the risks and lessens IP breaches. In the negotiation don't hesitate to ask your potential provider "why should I trust you with my IP?''. Any trustworthy person will give you an honest answer and will sign the NDA.

Start Assessing Risks Early

The time to start assessing your risks starts now. Your first plan of action is understanding the problems you will face at the start and figure out what your company needs to do to ensure the process is smooth.

The worst nightmare you can face is getting stuck when surprises happen. Never leave things to chance, always assess the risks before you start the project. Once you know the risks and how you will mitigate them that's when you can outsource.