Risk Management

Are Outsourcing and Risk-Sharing Connected?

Organizations with a good management workforce are competent in identifying risks, analyzing and resolving them. Based on the companies’ methods of approaching risks and assessing, there are four preferred choices: risk avoidance, risk acceptance, risk mitigation, and risk-sharing. Experts believe that risk-sharing is used when the company shifts the risk to a third party. One of the examples of risk-sharing would be a situation of financial loss, where the susceptible organization can transfer its threat of financial loss to an insurance company for a certain premium. In his article for ‘ISACA,’ Sunil Bakshi talks about the connection between outsourcing and risk-sharing.

How Outsourcing Helps Risk Sharing?

With the advent of outsourcing, risk practitioners have begun to observe outsourcing as one of the aspects of the risk-sharing process. One of the reasons could be that organizations shifted the risks that were difficult to manage internally due to a lack of resources or finances. This widely accepted perception makes sense to a certain extent. When seen from the supply chain and business operations’ point of view, outsourcing should not be considered an out-and-out risk-sharing option.

Outsourcing as Viable Risk Sharing Option

Bakshi believes there had been several flaws with the supply chain when risks were transferred to outsourcing companies, and the pandemic has highlighted them more clearly. This is the reason why many organizations do not get their services or supplies in time. The ‘Bank of Muscat Heist’ in 2013 is a prime example of a fragile situation where a cyberattack targeted service providers and obstructed their services.

Outsourcing is a business aspect that can deal with the identification, assessment, and determination of suitable methods to resolve risks. However – many supply chain and outsourcing risks are usually determined by service-level agreements (SLAs). There must be an effective monitoring process that uses key risk indicators (KRIs) to enhance the outsourcing agencies’ performance.

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