There are many reasons to pursue business process outsourcing and project procur

Question

There are many reasons to pursue business process outsourcing and project procurement, including flexibility, improving methodologies, and increasing productivity. Taking into consideration budget, scope, schedule, and risk, what are some of the other reasons to contract part or all of a project or business process? What are some of the drawbacks to outsourcing? Again, consider this question from the budget, scope, schedule, and risk standpoint. Please remember to answer all components of the question.

Explanation / Answer

Reasons to outsource/procure contract also include,

Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process.
Lack of skills or resources: The organisation may not possess the necessary skills or may not have enough people with these skills, especially if it is undertaking a lot of projects at the same time.
Pressure to reduce headcount: It may be more ‘politically’ acceptable to have the work done externally – even at increased cost – than to retain people on the permanent establishment.
Relative costs: Sometimes, a subcontractor may be able to offer economies of scale and hence lower costs than with an in-house team.
Subject Knowledge expert: The project may call for very specialist skills indeed and these may only be available from specific organisations.
Quality: Extra attention and procedure will be followed to attain the best quality by outsourcing to specialists.
Morale of company:This is an often-overlooked but still notable benefit. Often a business's lack of internal expertise or dedication to non-core tasks results in poor attitudes and ultimately poor performance. This can lead to overlap and duplication of internal efforts. An effectively designed and ongoing communication process emanating from one or more outsourcers can greatly reduce or eliminate these duplications.
Risk transfer: The organisation may wish to transfer some or all of the risk (technical or commercial) to another party.
Apart from above, risk sharing or risk transferring, minimal operational and recruitment cost, great financial flexibility and accountability are the other benefits.
Drawbacks
A lengthy bid process could lead to loss of potential time.
It is important that the contracts between the main contractor and the customer and between the main contractor and subcontractors are back-to-back, otherwise, the main contractor may find themselves liable for things that they have entrusted to others, with no legal redress for their subcontractor’s failings.
Outsourcing often include penalty clauses to give the main contractor protection in the case of the supplier’s poor performance. Penalty clauses do not safeguarding the main contractor’s position. Penalty clauses only provide for monetary compensation to be paid in certain specified circumstances. Apart from the difficulty of enforcing penalty clauses, they seldom provide complete recompense for all the consequences of a supplier’s failure – like business loss or public damaged as the result of late delivery or poor performance of a system.
Risk of exposing confidential data. When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party.
Synchronizing the deliverables: In case a right partner for outsourcing is not choosed , some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner.
Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may
Communication process needs at most attention and care. Unapproved design communication could disturb the relationship.
Absence of performance measurement and witnessing tests, would increase the freedom leading variable results.
Poor management of risks within the outsourced could impact on the organisation.
Managing the customer interface becomes the biggest challenge. Assurance and strong checking has to be made that, customers only talk to subcontractors through the organisation or main contractor.

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