To continue with this month’s topic of the month on Managing Uncertainty, this week we’re focusing on the risks that can arise when working with external parties (such as BPO vendors) and how Operations can mitigate those risks when transferring critical services or responsibilities to a third party.

One institution we call Paulson Financial was faced with this challenge directly following a strategic business decision to outsource support for over 175 of its internally used applications, which affected both front-office and back-office functions.

To meet this challenge, Paulson conducts a comprehensive risk review and assessment of global sourcing and identifies the risks that are most likely to occur and have a severe impact. Next, Paulson develops a scoresheet with 18 key factors to consider and evaluate before moving each application over to its vendor (Examples of key factors include: the number of application users, level of complexity of application, whether the application is package of custom, the average number of problems or service quality issues that arise each month, etc.) These factors are organized into 3 main categories: system complexity, support level, and business criticality.

Paulson uses a scoring system to assess the relevance of each of the 18 factors on the application transition. This system helps Paulson to prioritize the resources the firm will allocate to each application’s transition and compare the relative complexity of different application transitions.