Out of Sight can lead to Out of Mind

Once you have outsourced a process, there is a tendency to forget about it. 

Outsourcing has become possibly the most popular management practice of the past 15 years.  Companies large and small have outsourced many of the non-essential elements of their business.

Many property and casualty (non-life, general) insurers have, for example, outsourced their investment processes.

Over time, if the insurer had any expertise regarding investments, that expertise withered away.  It is quite common that there is only one or two people at a P&C insurer who actually pay any attention to the investments of the firm.

But when Out of Sight becomes Out of Mind, outsourcing becomes dangerous.

Boeing had an outsourcing problem in 2012 and 2013 that resulted in the grounding of their latest jetliner.  Batteries produced by a third party were catching fire.  The ultimate cause of the problem was never identified, but it happened at the point of connection between an outsourced product and the jetliner systems manufactured by Boeing.

There are many possible causes of outsourcing problems.  RISKVIEWS believes that primary among them is the reluctance to recognize that outsourcing will require a higher spend for risk management of the outsourced process.

More on Outsourcing Risk at http://blog.willis.com/2015/02/emerging-erm-risk-of-2015-outsourcing/

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