How to Manage Risks of Outsourcing

2022.12.12 01:25 PM By Joshua Taddeo, Principal Consultant

The era of globalization turned outsourcing into an obvious solution for coping with demand, budget, and time restrictions. Many companies choose it to reduce their costs while increasing the efficiency and flexibility of their marketing operations management

managing risks of outsourcing

Outsourcing became a global strategy for contracting important functions to experienced and specialized agencies. However, some difficulties may occur during the process. Let's look into the most common challenges of outsourcing and how to overcome them.

Outsourcing Risks and Mitigation

Outsourcing your marketing isn't easy to manage, and many projects fail even though much research exists within the area. However, with solid preparation and planning, many risks of outsourcing your service delivery can be mitigated. Still, nothing helps more than understanding the potential pitfalls and how they might be avoided. We've compiled a list of people's most common worries about outsourcing and outlined how to manage its dangers. Hopefully, these suggestions will help you overcome your reservations.

Common Outsourcing Problems and How to Deal With Them

No wonder successful companies take the help of experienced third-party service providers while outsourcing their non-core business tasks. But there are multiple risks included in the whole process of outsourcing. We will discuss the probable solutions to those issues that will help you experience the benefits of the process. Let's get started.\

Core Competencies

Compared to an experienced company in outsourcing, smaller companies that are very new to outsourcing might feel the whole process overwhelming. While conveying your vision to another company, you can know the best practices, costs, common concepts, and workflow. Lack of experience is a commonly faced outsourcing problem that can be solved if handled properly.


If you lack outsourcing experience, finding an experienced outsourcing partner is a solution that will help identify the bottlenecks and mitigate the possible risks. Those vendors will help you define the whole process and help you in matching your expectations, and define the project requirements.

Cost vs. Value

The main objective of outsourcing is gaining a competitive advantage compared to maintaining an in-house team handling non-core business tasks. Before choosing any vendor, always compare your in-house team's cost estimate and the vendor's quoted price. In many cases, additional expenses like redeployment, troubleshooting, software upgrades, etc., may not have been included earlier. All of these can add up to your original budget, which can be a problem later.


The only way to minimize the outsourcing cost is to communicate with the vendor and ask for a transparent cost estimate while making the deal. You need to clearly define the outsourced project requirements so that the vendor can give you the exact cost estimate of the process of outsourcing.

Vendor Management

Companies that successfully expand their business overseas have a very important and reliable outsourcing partner. Sometimes you might feel tedious to find the right partner for your outsourcing needs. It is one of the common outsourcing problems that many companies face as they do not follow a proper background check on the vendors. It may lead to lower quality of the project that you have outsourced.


There are a few checkpoints that you can consider while selecting the right vendor, such as the experience of the firm, the number of projects and clients the firm has handled, the average project size, ranking and reviews of the company, and access to the latest technology, and so on. However, the list varies from one company to another. Frame your questions and get them clarified before you choose your outsourcing partner.


Cultural and language differences are the inevitable outsourcing problems that most companies face when considering outsourcing. Companies facing language and cultural barriers fail to focus on innovation and attention to detail in outsourced projects. Lack of research and communication generally leads to cultural and language differences significantly impacting the outsourcing process.

managing outsourced team

Companies that are new in the outsourcing process have difficulty maintaining proper communication with their outsourcing partner. If you have language and cultural barriers, then there is a high chance that you might face a lack of communication with your outsourcing vendor. The communication barrier is one of the most common outsourcing problems faced by companies that sometimes lead to decreased quality of project delivery.


A difference in organizational culture can be solved only when there is ample communication between the two companies. Check the company personnel can speak in English or any other preferred language so that you can communicate properly.

To bridge the communication gap, you can set proper business hours where you can communicate with each other. Using effective project management tools, you can set a standardized format of communication which can be enhanced by setting proper escalation mechanisms.

Contracts and Legal Processes

Unlike the in-house hiring process, the legal outsourcing process is not as standardized and depends greatly on the vendor's location. From country to country, you might need to sign various additional papers that are not part of your location's legal process. The outsourcing issues begin after the contracts have been signed and the work has started – small misunderstandings in the agreement might lead to serious outcomes that poison the entire dynamic between you and your vendor.


Be sure to prepare a non-disclosure agreement (NDA) for the outsourcing company to sign and other regulation documents if needed. Discuss every possible part of the process, including situations where your vendor fails to perform or messes up something, and do not forget to cover the security issues. Your contract should entail clauses about compensation, working conditions, freelancer's responsibilities, ownership information, and other relevant things.

Outsourcing Pros and Cons

Understandably, outsourcing is highly beneficial in helping a business achieve efficiency. However, knowing the advantages and the inherent disadvantages will go along with shaping your perspectives before outsourcing some of your essential operations. Here, we will examine some advantages and disadvantages of outsourcing that business owners should know.

Pros of Outsourcing

  • Reduced labor cost: By outsourcing some of your business operations, you save the cost of recruiting and training more employees. Additionally, the burden of employee benefits is also removed from you. Money saved can be channeled into other business aspects to ensure sustainability and maximize profit.
  • Access to experts and professionals: Outsourcing grants you access to experts in specific fields. Understandably, your in-house employees might have competencies in doing a few things. Still, they cannot be perfect at everything, especially new employees. There is, therefore, the need to hire experts in those niches where the in-house teams may not deliver. For instance, technical expertise is required to perform specific tasks efficiently, and you may not have that in your group. Outsourcing the job to people with the proper knowledge will guarantee quality and timely delivery while boosting productivity.
  • Great competitive advantage: You gain a competitive advantage by leveraging the skills and vast expertise of professionals in specific fields.
  • Tasks are done faster: Outsourcing is a great way to get extra work done within a short period. When specific roles are assigned to experts who know how to do it, output time is drastically reduced, and productivity increases. Increased productivity is good for a business's overall profit margin.
  • Freedom to focus on other vital issues: Outsourcing creates greater freedom and flexibility. This is especially so for small businesses and startups at the growing stage. Moreover, outsourcing tasks will allow such business owners to concentrate on improving other core business operations. Flexibility guarantees efficient decision-making and proper management that enhances business performance. Additionally, it gives you time to focus on skills that'll sharpen your business orientation to become a better business manager.
  • Easy project management: Managing different projects when you outsource is easier. For instance, most outsourcing platforms have automated project management features. With the automated feature, you can manage the overall operation flow, and key issues — like how the project will be done, the due date of submission, and how payment will be made — become clear. This way, you don't need to think much about how the project is done since everything will be in place, and payment will only be released when you are satisfied with the job. All that is required from you is to monitor the progress from time to time to ensure everything is going according to the plan. You then have enough time for other business matters.

outsourcing risk management

Cons of Outsourcing

  • Loss of confidentiality: Your business or company risks exposing confidential data when outsourcing tasks like payroll, recruitment, and HR services to a third party. It becomes a serious issue, especially when you fall into the hand of an outsourcing company that is not credible. At this point, your business can be in danger of intellectual property theft, or some of your confidential personal data could be used for malicious purposes.
  • Loss of control: When outsourcing, you give specific guidelines on how you want the task to be done, but the reality is that you lose monitoring control — unlike when a full-time employee completes the same task. This may be problematic, especially if your outsourcing partner lacks the competency or skills to execute the particular tasks. The remedy is to ensure you are outsourcing work to someone whose skills you have tested to some extent.
  • Delay in service delivery: With outsourcing, there is a high possibility of delayed delivery because most gig economy workers and outsourcing companies service many clients simultaneously. The issue of disappointments and delayed delivery is rampant. In addition, the difference in time zone can be a factor in delayed service delivery since you might outsource a job to someone in a different location. This can affect your business performance and productivity, eventually defeating the reason for outsourcing the task in the first place.
  • Quality issues: Freelancers may be servicing multiple clients simultaneously, which can affect the quality of the work delivered at the end of the day. Although they are experts in the field, servicing numerous clients under strict deadlines can be overwhelming and may impact the desired quality. Discuss quality delivery upfront and ensure that the contract worker is given sufficient time to complete the task.
  • There can be hidden charges: Generally, outsourcing tasks are cheaper, but you can be at a disadvantage when you get hit by hidden costs you were unaware of at the contract's start. For example, there are some contract agreements that you and the outsourcing partner need to sign before you begin. If you don't read the agreement paperwork carefully, you might end up agreeing to pay for additional charges.

Risk Categories to Plan for

Risk categories can be defined as the classification of risks per the organization's business activities and provide a structured overview of their underlying and potential risks. The most commonly used risk classifications include strategic, financial, operational, people, regulatory, and finance.


Operational risks can be defined as the risks of loss arising from improper implementation of processes, external issues (weather problems, government regulations, political and environmental pressures, and so on), etc. Operational risks can be better understood as a type of risk due to inefficiencies in business operations carried out by an organization. Examples of operational risks are insufficient resources, failure to resolve conflicts, etc.

Data Security

Data security risks are concerned with the breach of the confidentiality of a company's or clients' sensitive data. The violation of such data can be a huge risk for an organization, and it might not 

just cause financial losses but also result in a loss of goodwill.


Violations of local or international laws, codes of conduct, and business standards that damage the company's financial, reputational, or organizational standing are classified as compliance risks.

Business Continuity

If data is lost, services are rendered unusable, or productivity is lost due to a lack of access to systems/services, your business is displaying a business continuity risk on your hand. In other words, if something happens that renders one or more critical business processes inoperable for any time, it could financially put the entire company at stake.

Quality and Process Risk

Quality and process risk occurs due to improper application of customizing a process and hiring of staff to the process that is not well trained and as a result of which the outcome of a process gets compromised.

Steps to Risks Mitigation

Many businesses nowadays are looking to outsource their secondary functions. Since there are considerable benefits to outsourcing, why not? It's cost and resource-efficient. It allows you to access a bigger talent pool. It gives your staff more time to focus on core business activities and the business' figure strategy.

creating a strategy for managing outsourcing risks and mitigation

As always, when there are benefits, there are risks that follow. No matter what you are outsourcing, there are risks of compromised quality, breaches in confidentiality, and data loss. There might even be a loss of control and visibility over the entire process. With proper preparation and precaution, you can ensure that your business won't fall victim to these risks. Here are three ways to mitigate outsourcing risks and prevent failure!

Plan and Communicate

Control should always remain on your side. After all, no one knows the business better than you and your employees, so it makes sense. You tend to lose some control and visibility to the outsourcing company when you outsource. Outsourcing takes the work out of your employees' hands. However, at the same time, it also takes out a lot of the decisions. How can you ensure these decisions made by the outsourcing company don't lead to the failure of your business?

It's extremely important to plan with your employees. Discuss what decisions are acceptable to be left to the outsourcing company and what aren't. Create a management plan comprising processes and communicate this with the other side. This can include a progress timeline with key dates for meetings.

A good tip is to hold frequent stand-up meetings that are short and quick. The provider's team should dial in on these. These meetings can be as frequent as daily and should last no longer than 15 minutes. The focus is to give a brief update on how the project is going, tick things off the list and identify those still outstanding. This will keep both ends on track!

Another thing that is crucial to the success of outsourcing is to identify the main contact on both ends. Make it easy for both your employees and the provider to communicate. Having someone on your side of the business is also important to deal with any questions the outsourcing company may have. This way, you can receive updates and provide feedback more efficiently.

Research and Monitor

One of the biggest risks of outsourcing is that the quality of your output will be compromised. The outsourcing company doesn't know the business as well as your employees. Not to mention, you hired your employees for a reason! They're the cream of the crop. Outsourcing means entrusting your business to those who you did not hire. It can be daunting when you aren't sure whether the people working for your company have the right skills.

The key is to do your research. Your provider must share your values because quality is their main commitment. Many factors play a part in choosing the right outsourcing company for your business. Important things to consider are the provider's reputation and performance rankings. A company that has been around for a while and has been involved in many successful projects is a good indicator. Be sure to check the provider's website – if they can create something that presents themselves well, it's a sign they can do the same for your business.

Once you've found a good provider, consider arranging for one of your employees to be placed in their organization. This is a good way to monitor what is happening at the outsourcing company. It's also a great way to increase the quality of communication because it gives your company another channel. Doing so can allow you to understand how the provider works and help them understand what your business is after.

Protect Information

Most, if not all, business relationships have underlying confidential information. This is what forms a transaction between a client and a service provider. When it comes to outsourcing work, it means giving the outsourcing company access to sensitive client data. A worst-case scenario could be that the provider steals or leaks information, which is why it should be protected.

The outsourcing company understands it is being entrusted with sensitive data. To ensure none of this is disclosed, an agreement should be signed. This can be confidentiality or a non-disclosure agreement. This will safeguard your business and allow the provider to be responsible if anything happens to this information.

creating a strategy for managing outsourcing risks and mitigation

It's also a good idea for your business to invest in cyber insurance. Cyber insurance will protect your business from loss of information and privacy breaches. There are many insurance companies out there that offer cyber insurance. They can give professional advice and help ensure that your business has the right protection.

Once you have identified outsourcing risks, you can put in place mechanisms to mitigate these risks. If you follow these three tips to mitigate outsourcing risk and prevent failure, your outsourcing plan will be a success!

Outsourcing is the best way to get your work done at a lower cost. However, like everything, it has its risks. 

Wrapping It Up

But don't let that stop you from helping your business grow. You must check regularly, pay close attention to the details, and work towards risk mitigation. Use the mentioned tips to create a risk management strategy and avoid such situations. Once done, choose the right outsourcing provider and be free to focus on your core competencies!

Universal Creative Solutions can help devise an outsourcing strategy to help mitigate the risks. We offer strategy consulting to help you identify the key areas that should be outsourced in your business. Also, we can provide marketing operations consulting to boost the efficiency and effectiveness of your marketing activities. 

Schedule a free consultation today and learn more about our operations consulting services.