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Project risks

1,144 Comments · Business outsourcing

Project risks are defined as the potential that the business process outsourcing (BPO) initiative may not provide the cost savings, strategic advantages, on productivity improvements anticipated.

The reasons for this potential risk are too numerous to list. Unexpected incompatibilities between software infrastructures could prove intractable and lead to delays, cost overruns, and lost business.

The cultures of the two companies may pose unyielding challenges that become more trouble than they are worth. Changes in U.S. or foreign labor laws could upend the cost equations that had been the primary reason for the offshore outsourcing.

To mitigate project risks, the BPO buyer should first assess its readiness to undertake the outsourcing project before making the leap.

This includes assessing the organization’s ability to adapt to change, the presence of an internal BPO champion, and the time that is available to make the transition and ramp the project to full operational mode.

Organizations that have a poor track record in managing large-scale change are at a higher risk of project failure than those that have a record of successful change management.

An organization’s record of success in this area is indicative of its organizational culture and is likely to be consistent in the BPO initiative.

The presence of an internal BPO champion, especially one with broad influence within the organization, can reduce project risk.

The internal BPO champion can be relied on to work long hours and lay awake nights thinking about solutions to project problems when other members of the RMT are sleeping well.

The time available to transition a process from buyer to vendor can also affect the risk profile of the project.

In general, the less time available for the transition, the higher the risk. It is often not practical to move all of a process to an offshore BPO vendor at once.

Buyers should increase the time available to implement a BPO transition, building on successes along the way.

A technique that can be used to mitigate risks associated with project timing is to develop a reasonable value horizon.

The term value horizon refers to the amount of value the organization expects to receive from the BPO project in a specific amount of time.

For instance, an organization that expects to reduce costs by 25 percent within three months may not be able to realize that value horizon because of project implementation costs.

Nevertheless, a 25 percent cost savings within two years may be achievable and would set the appropriate value expectations.

The project management team (PMT) often ignores the risks associated with unrealistic expectations on the part of the BPO buyer’s executive team.

Project expectations must be managed from a variety of perspectives: up, down, horizontal, and external.

Upward expectations management refers to the procedures the PMT follows to ensure that the organization’s executive team (and the BPO project steering team) is informed about project risks, their potential costs, and mitigation strategies.

Downward expectations management refers to the challenge of managing employee expectations as the project unfolds.

The PMT must also manage the expectations of managers in nonoutsourced functions and those of customers, suppliers, and other stakeholders external to the organization who have a need to know.

Managing senior leadership expectations is critical to the BPO project. Too-high expectations among senior managers can lead to overly critical feedback and potential plug pulling on a project that cannot meet excessively lofty expectations.

Elevated and maybe even unreasonable expectations among senior management should be expected with the current level of media attention and hype that surrounds outsourcing.

The PMT must ensure that senior managers are aware of the many challenges a BPO project faces and manage expectations accordingly. Some have called this process “managing up.

There are many effective techniques for managing up. Of course, this can be a delicate process because managing expectations up the chain of command may also often require that senior leaders be educated on technical or other issues.

To manage the expectations of senior leaders, the PMT should develop a project plan that articulates not only the problems and challenges likely to be encountered, but also those that have a lower probability of occurring.

A good technique for communicating risk and managing expectations is to develop a BPO risk-probability matrix.

The matrix will include as many reasonable risks as the PMT can envision, including those that are classifiable as worst-case risks.

The BPO risk-probability matrix will also include the mitigation tactics that are either in place on that would be mobilized in the event that the risk became real.

The BPO risk-probability matrix should be widely circulated and updated is needed. This document will serve as the starting point for understanding the wide range of potential risks associated with the project and their potential costs.

Managing horizontally means ensuring that managers of functions not being outsourced are informed and aware of potential risks.

We have spoken before of the potential for a BPO project to have cross-functional impact on organizational processes and workflow.

Regardless of the process outsourced, it is likely that the output of that process is utilized by others within the organization.

Changes to that output, whether in quality, quantity, or timing, can affect the ability of internal functional units to maintain their standard operating procedures.

Managing expectations horizontally means minimizing workflow surprises and bringing managers from the nonoutsourced functions into the workflow redesign process.

It would be disastrous to simply launch a BPO project without first determining in detail the effects of process output changes on units that depend on that output.

Managers who are surprised by changes in data quality, quantity, or timing will defend the integrity of their wonk units and may become obstructionists to the BPO project.

Customers, suppliers, and others external to the organization may also have a vested interest in the BPO project.

Customer reactions to BPO have been precipitated by several different factors. Some customers are concerned about BPO from a political perspective-they are worried about outsourcing jobs to offshore workers, for example.

Dell responded to such political pressures when it pulled some of its technical support work in-house after outsourcing most of it to India.

Organizations need to consider BPO as a political issue that may affect customer perceptions.

Communications with customers who are concerned about outsourcing jobs should include a recitation of the benefits they are likely to receive as a result of the outsourcing project.

It may also include a statement about the domestic jobs that the company has created and the number of new opportunities that may be generated as a result of moving some of the lower value-adding jobs to foreign labor markets.

Suppliers should be managed in much the same way as the PMT manages the expectations of internal managers whose functions are linked via workflow to the outsourced process.

Suppliers linked to the outsourced process should also be included in workflow redesign so they are aware of changes and who to contact in the case of disruptions or inefficiencies.

Managing expectations is not difficult, but this process is often overlooked because it involves proactive decision making and confronting problems before they arise. Engaging everyone-internally and externally-whose responsibilities, livelihood, or performance capabilities may be affected by the BPO project is the goal of the PMT.

The PMT must communicate with these individuals (and groups, in some cases) to manage their expectations and to increase the amount of slack available in the event that some things go wrong (and they almost always will).

If the goodwill of these stakeholders is won early in the process, and expectations are appropriately managed along the way, the PMT will have more latitude and time to fix problems that arise.

Failure to properly manage expectations means that some will be out to kill the project at the first signs of trouble.
 

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