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Outsourcing Business Processes ( without In-sourcing the Associated Risks). Gregg Anderson – Crowe Horwath (risk manager) Doug Tripp – Crowe Dunlevy (outsourced provider) Leslie Lamb – Cisco Systems, Inc (facilitator) RMG 303 April 2012. The Scenario.

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Outsourcing business processes without in sourcing the associated risks

Outsourcing Business Processes (without In-sourcing the Associated Risks)

Gregg Anderson – Crowe Horwath (risk manager)

Doug Tripp – Crowe Dunlevy (outsourced provider)

Leslie Lamb – Cisco Systems, Inc (facilitator)

RMG 303

April 2012


The scenario
The Scenario

  • Sport Co is an industry leader in manufacturing sporting goods products and services

  • Revenues are $1B annually

  • Headcount is 10,000 worldwide

  • Headquarters is in North Carolina

  • Major locations include North Carolina, California, Bangalore and London

2



The coo s worst nightmare
The COO’s Worst Nightmare

4


The solution
The Solution

  • Outsourcing

    • Information technology infrastructure services, including data centers

    • Supply chain management

    • Customer care

5


The risk manager
The Risk Manager

  • Identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

    • Derived from COSOERM Definition

  • In other words – “Manage risk to achieve objectives.”

6


Our enterprise risks
Our Enterprise Risks

  • Market

  • Macro Economics

  • Customer Economics

  • Financing

  • Competition

  • Consolidation

  • Financial

  • Foreign Exchange

  • Budget

  • Revenue Recognition

  • Financial Reporting

  • Access to Funding

  • Margin

  • Human Resources

  • HR Compliance

  • Attract, Develop & Retain Talent

  • Employee Morale & Culture

Market

Strategic

  • Strategic

  • Right Solutions

  • Business Model

  • Brand & Marketing

  • Growth

  • Acquisitions

  • Organizational Design & Resources

  • Integrity

  • Regulatory Compliance

  • Legal

  • Fraud

  • Data Security

Financial

Integrity

Human Resources

Operations

  • Training

  • Aging Workforce

  • Incentives & Compensation

  • Operations

  • Facilities

  • Business Disruption

  • Policies & Procedures

  • Decision Making

  • System Capabilities

  • Authorization

  • Costs & Efficiencies

  • Customer Service

  • Contracting

7


Sample risk universe traditional third party risks
Sample Risk UniverseTraditional Third Party Risks

  • Market

  • Macro Economics

  • Customer Economics

  • Financing

  • Competition

  • Consolidation

  • Financial

  • Foreign Exchange

  • Budget

  • Revenue Recognition

  • Financial Reporting

  • Access to Funding

  • Margin

  • Human Resources

  • HR Compliance

  • Attract, Develop & Retain Talent

  • Employee Morale & Culture

Market

Strategic

  • Strategic

  • Right Solutions

  • Business Model

  • Brand & Marketing

  • Growth

  • Acquisitions

  • Organizational Design & Resources

  • Integrity

  • Regulatory Compliance

  • Legal

  • Fraud

  • Data Security

Financial

Integrity

Human Resources

Operations

  • Training

  • Aging Workforce

  • Incentives & Compensation

  • Operations

  • Facilities

  • Business Disruption

  • Policies & Procedures

  • Decision Making

  • System Capabilities

  • Authorization

  • Costs & Efficiencies

  • Customer Service

  • Contracting

8


Sample risk universe expanded third party risks
Sample Risk UniverseExpanded Third Party Risks

  • Market

  • Macro Economics

  • Customer Economics

  • Financing

  • Competition

  • Consolidation

  • Financial

  • Foreign Exchange

  • Budget

  • Revenue Recognition

  • Financial Reporting

  • Access to Funding

  • Margin

  • Human Resources

  • HR Compliance

  • Attract, Develop & Retain Talent

  • Employee Morale & Culture

Market

Strategic

  • Strategic

  • Right Solutions

  • Business Model

  • Brand & Marketing

  • Growth

  • Acquisitions

  • Organizational Design & Resources

  • Integrity

  • Regulatory Compliance

  • Legal

  • Fraud

  • Data Security

Financial

Integrity

Human Resources

Operations

  • Training

  • Aging Workforce

  • Incentives & Compensation

  • Operations

  • Facilities

  • Business Disruption

  • Policies & Procedures

  • Decision Making

  • System Capabilities

  • Authorization

  • Costs & Efficiencies

  • Customer Service

  • Contracting

9


Understanding the objectives
Understanding the Objectives

Primary Objective: Reduce Operating Cost

Secondary: Maintain Fixed Costs below a target % of Revenue

10


Other objectives of outsourcing
Other Objectives of Outsourcing

  • Improve Results – leverage the outsourcer’s expertise

  • Re-focus on core competency – redirect management’s skills toward what made Sport Co. the industry leader

  • Improve customer experience

  • Compliance

11




Understanding the risks
Understanding the Risks

  • Operational– poor service, disruption in operations, loss of control, deterioration

  • Financial – overruns, change requests, 3rd party charges, the outsourcer’s solvency

  • Compliance and Security– data breach, disclosure of sensitive information / customer data / PII or PHI, compliance with laws

  • Extraordinary Risks– armed conflict near service facility, tsunamis and earthquakes, major security breaches

  • Brand Reputation – spans across all of the above

14


Engaging the outsource provider things to think about
Engaging the Outsource Provider(things to think about)

Super IT Consultancy - Outsourcing IT Infrastructure

  • Flow of information from SportCo to Super IT

  • Super IT’s storage facility: cloud or data center

  • Understanding the type of data stored: HR related, customer info etc

  • Contractual issues

  • Super IT’s compliance with standards i.e. PCI

  • Super IT’s call center availability

15


Engaging the outsource provider things to think about1
Engaging the Outsource Provider(things to think about)

Flexible Outsourcing International – Contract Manufacturer

  • Location, location, location

    • what are the hazards?

    • International or US?

  • Flexible’s Quality Control Program

  • Intellectual Property

  • Contractual issues

  • Flexible’s Business Continuity Program

  • Social Responsibility

  • Environmental Responsibility

  • Political Issues (terrorism, govt unrest, employee care)

  • 16


    Engaging the outsource provider things to think about2
    Engaging the Outsource Provider(things to think about)

    Accentumetrics Technical Responders – Outsourcing Customer Care

    • Location and language

    • Hours of operation

    • Training programs

    • Brand reputation

    • Intellectual Property

    • Contractual issues

    • Social Responsibility

    • Political Issues (terrorism, govt unrest, employee care)

    17


    Managing the risks via the contract
    Managing the Risks via the Contract

    • Robust Governance Provisions

    • Comprehensive Audit Rights

    • Contractual Requirements

      • Continuity of Key Personnel

      • Compliance with Laws

      • Mandatory Technology Refresh / Release Versions

      • Key Performance Metrics with Meaningful Remedies

    18


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