5 Critical BPO Risks and How to Mitigate Them [+10 Bonus Tips for Success]

Read about business process outsourcing (BPO) risk considerations – and some practical steps to overcome them – when planning your outsourcing program.

In the face of ongoing economic challenges and declining revenues, it’s crucial for business leaders to examine all opportunities to cut operating costs. Business process outsourcing presents an attractive option that can bring considerable financial benefits to your organization. However, if poorly executed, BPO risks can create significant operational and reputational risks.

Therefore, it’s essential to understand and manage these BPO risks effectively during the planning and transition phases of your outsourcing initiative. This blog highlights key risk factors and provides practical steps to mitigate them, both before and after transition.

5 Important BPO Risks To Consider

1. Misaligned Expectations: Be Clear and Continually Check Understanding

In our experience, the most common reason for failed outsourcing arrangements is misaligned expectations between client and vendor. Factors that exacerbate misalignment include differences in culture, language, or time zone.

Clear documentation, open two-way communication and strong governance will help set expectations and avoid misunderstandings both before and after transition. Investing time up-front to tightly define parameters will pay dividends down the line.

Key Questions to Set Expectations

Define the Scope: Exactly what processes are being outsourced, what are the boundaries, how are hand-ins and hand-offs managed?

Establish the Operating Model: What is the division of labor between your organization’s retained in-house team and the vendor?

Agree on Performance Metrics: What does success look like and how will it be measured and reported? Remember, “what gets measured gets managed.”

Understand the Pricing Model: Who pays for what, what are the triggers for a price increase or decrease, what is the review frequency?

2. Effective Resource Planning: Essential to Maintain Service Levels

Before transitioning any processes to the vendor, you should be confident in their ability to assemble a team with necessary resources (levels, numbers, skills and experience) to deliver the required services. At the same time, it’s crucial to maintain service levels with your existing team, who may feel disengaged and demotivated until the transition is complete.

Strategic Resource Planning Considerations

Clarify Onboarding Lead Time: What is a realistic onboarding lead-time? Consider the vendor’s access to and quality of local labor resources as well as the integrity of background checks. Are the vendor’s assumptions plausible? Can you validate assumptions by reference to past experiences?

Consider a Phased Transition: In the light of the information the vendor shares on lead time, consider a phased transition of work to minimize the risk of service disruption.

Account for Expected Attrition: How does the proposed ramp-up timeline align with both your organization and the vendor’s forecasted attrition rate? Consider the need and expense to backfill for service level maintenance. Then, include these costs in your business case. Make sure the vendor addresses forecasted attrition as part of the post implementation resource planning.

Confirm the Vendor’s Employment Terms: What contractual terms does the vendor offer? If the vendor recruits additional resources on fixed-term contracts, how do they mitigate against mass attrition at the contract term’s end?

3. Knowledge Transfer: Ensure a Smooth Transition

Requirements for Successful Knowledge Transfer

Avoid Process Disconnects: Service failures often stem from process disconnects. To prevent this, conduct a detailed impact assessment on all upstream and downstream processes. Make sure all transitions between processes (hand-ins and hand-offs) are clearly understood, including roles and responsibilities, and well documented.

Define Responsibilities: Confirm responsibility owners for each process map and SOP’s ongoing maintenance along with change control. Will this remain with the retained in-house team or migrate to the vendor? If you transfer responsibility to the vendor, consider making a provision in the contract requiring the vendor to maintain subject matter expertise to manage transfer knowledge to a third party upon contract termination.

Assign SME Support: How much support from SMEs is required for the design and delivery of training, both initially and for ongoing business-as-usual operations. Also, how and where will training be delivered?

Reflect Societal Norms in Training Materials: In addition to process execution, training should include both societal norms and cultural expectations to minimize potential customer impact. This means that training should cover more than “what” needs to be done. Training must address “how” to handle customer interactions.

Consider Differential Training Treatments: Think about implementing different training strategies, such as full immersion for new hires, as well as focused modular refresher courses for more experienced agents. The contract should specify if the vendor maintains process level training material, which will be handed over to the organization upon contract termination.

Establish a Robust QA Process: Define a Quality Assurance (QA) process that includes a scoring methodology, defined tolerances, clear interventions and an escalation path. Also, set reporting requirements to provide your retained in-house team with timely insights into process adherence, performance issues and corrective actions taken.

4. Post Transition (steady state) Monitoring: Vendor Management, Governance and Engagement Models, and Key Performance Indicators (KPIs) are Essential

BPO risks such as poor service can potentially cause serious reputational damage. Therefore, your retained in-house team must continuously monitor key interactions through regular management routines and reporting on those interactions handled by your BPO.

Vendor Management: The vendor management process oversees and optimizes the relationship between your organization and vendor. This process enables the business to monitor and maintain positive relationships with the vendor. An integral part of this process involves actively evaluating the vendors’ performance against set expectations.

Engagement and Governance Models: The Engagement model outlines the basic structure of the relationship between your organization and the vendor. This model clearly defines the roles and responsibilities for both parties, establishing how you will work together and collaborate to achieve common objectives. On the other hand, the Governance model refers to the framework of processes, policies, and controls implemented to ensure the outsourcing arrangement meets its objectives while mitigating risks. This framework typically includes mechanisms for monitoring and evaluating the vendor’s performance against agreed-upon service levels (SLAs) and key performance indicators (KPIs).

Both models are essential to mitigate financial, regulatory, and operational risks.

SLAs and KPIs: Continuously assessing vendor performance guarantees that your organization’s standards and contractual expectations are consistently met. You both need to agree on the SLAs and KPIs that the vendor will monitor, the calculation of the KPIs, and reporting frequency. Proactively tracking these measures and results enables timely identification of any issues or areas needing improvement.

5. Commercial Terms: How to Protect Against Future Disputes

Your vendor contract must be clear and unambiguous. Clarity ensures protection for your organization against potential cost increases or service failures, helping to avoid time-consuming and costly contractual disputes. Additionally, a carefully worded contract ensures that your organization benefits from any efficiency improvements claimed by the vendor.

Contract Planning Considerations

Account for Cost Inflation: How does the pricing structure account for potential cost inflation during the contract lifetime? Clearly document pricing model terms and conditions, including additional items such as inflation.

Reflect Claimed Efficiency Gains: How does the pricing model reflect process improvements? If the vendor claims they can deliver more value for less cost, this claim should be factored into their pricing model and contract cost.

Provide for Changing Resource Requirements: How are unforeseen increases or decreases in FTE requirements accounted for in contract pricing? That is, what happens if the demand profile changes, either upward or downward? The contract needs to address changes in staffing due to an increase or decrease in volume.

Include Redress for Delays and Failures: Are delays or service/performance failures addressed in terms of compensation, such as service credits? What specific events or conditions trigger compensation due from the vendor? The contract needs to address compensation (service credits – reducing the monthly payment) related to missed service measures due to a vendor issue, such as staff attendance, system outages, transportation strikes, etc.

Ensure Access to Vendor Performance Data: Reserve full audit rights over vendor performance data. This includes ongoing financial viability of the vendor, customer satisfaction scores, complaints, and business recovery test results. Access to this data enables early management intervention if you identify negative trends.

Set Expectations for Contract Exit: What are the vendor’s obligations in the event of a decision to exit the contract in the future whether it’s retiring a process, bringing it back in-house or transitioning to another service provider? Make provisions for these scenarios in the contract.

BONUS: Ten Tips to Prepare for a Smooth Transition

Outsourcing services to a new vendor is complex. But with thoughtful planning and expectation-setting, you can manage it effectively. Use these ten proven tips for a smooth transition:

1. Craft a Detailed Statement of Work: Invest time creating a comprehensive Statement of Work. This document will serve as the cornerstone of the go-forward relationship and must set out the obligations of both parties in precise, unambiguous language.
2. Allocate the Right Resources: Don’t compromise when mobilizing a project team. Agree on the realistic level and type of support needed for a smooth transition (process SMEs, IT, training, PMO, etc.)
3. Assign Subject Matter Experts: Pinpoint named SMEs for your organization, as well as the vendor to support the transition process. Identify primary and secondary SMEs to safeguard against attrition. The vendor’s project team should include SMEs and/or Managers that will own the processes once transitioned.
4. Establish a Project Management Office (PMO): Set up a PMO, document the transition plan and define management routines to track progress and resolve issues. The PMO should remain in place for a minimum of 45 days post transition. The PMO can address any unforseen issues in a timely manner by either organization as the vendor moves into a steady state. Steady state is when processes are business as usual and they meet agreed-upon service measures.
5. Maintain a Comprehensive BPO Risks Log: Pay particular attention to the Risk Log. Clearly communicate all risks and mitigants to project sponsors and escalate when necessary. Maintain the BPO Risks Log until the vendor reaches a steady state.
6. Accelerate Decision-Making: Establish a short chain of command to support close management of the plan, transparent reporting of risks and issues, and agile decision-making.
7. Leverage Your Past Performance Data: Collate historical performance data to serve as a baseline for go-forward vendor performance management.
8. Define Business Readiness Criteria: Establish business readiness tollgates and supporting controls, checks and balances.
9. Test Customer Journeys: Thoroughly test all customer journeys and stress-test for anticipated future transaction volumes.
10. Implement Vendor Oversight Routines: Define BAU vendor oversight/management routines, KPIs and governance framework upfront to avoid surprises down the line.

Bridgeforce Can Enable Outsourcing Benefits While Reducing BPO Risks

Risk management is a Bridgeforce core competency. We have 24 years of real-world change management experience, with tried and tested project management methodology in ~1,000 client engagements. We have extensive experience managing complex change projects involving third party service providers, both onshore and offshore. Our in-house BPO and vendor management expertise provides credible challenge at all stages of the outsourcing process.

Contact us today to find out how we can support your outsourcing needs.