Outsourcing Risk

Last week the Seattle Times had an incredible story about the ultimate costs of a failed outsourcing strategy at Boeing.

The story quotes Wall Street sources to say that ultimately the failure of outsourcing partners created $12 Billion of extra costs on a project initially planned to cost $5 Billion.

“We spent a lot more money in trying to recover than we ever would have spent if we’d tried to keep the key technologies closer to home,” said Boeing Commercial Airplanes Chief Jim Albaugh.

The story is probably one extreme of bad outsourcing.  In many cases it works out well.  But it is quite likely that firms often make the mistake of ignoring or downplaying risk and uncertainty and only look at cost savings when they make outsourcing decisions.

One simple way to look at the uncertainty is with the 5 point scale from “Getting a Handle on Uncertainty“.  But perhaps because of the “one off” nature of outsourcing, one point should be added to the uncertainty score.

But doubtless, firms who get “comfortable” with outsourcing, get comfortable with a higher degree of uncertainty.

Explore posts in the same categories: Enterprise Risk Management, Operational Risk

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