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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 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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