What is De-Risking ?

Outsourcing is a process that involves selection of vendors who would then do the necessary work for their clients regarding handling such work that the clients deem can be done by Third Party Vendors.

What this means is that the clients first narrow down the list of outsourcers that can be entrusted with the work, selecting a particular vendor after due diligence, and then closing the deal by entering into contractual agreements with the vendors.

Due Diligence in this respect usually means evaluating the capabilities of the vendors to perform the assigned work to the satisfaction of the outsourcers, estimating the risks that can arise from outsourcing work, and then check if the returns on outsourcing outweigh the inherent risks to such projects.

Thus, outsourcers usually perform adequate evaluation and estimation of risks as part of their tendering and bidding processes.

In this context, the term de-risking is usually used to indicate the strategies employed by the outsourcers to ensure that the risk from the outsourcing deal is spread over the course of the project.

For instance, a particular outsourcer can determine that selecting a specific vendor to handle the project all by themselves can be risky to the clients and hence, they select multiple vendors so that they have backups and fallback options in case the project runs into trouble.

Indeed, the fact that outsourcers in the United States and Europe often choose multiple vendors in Asia and even within the same vendor country is a given when one considers the geopolitical, political, social, economic, and operational risks that the outsourcers have to take into consideration.


Do not put all your Eggs in One Basket:

Lastly, de-risking is a very valid strategy for any firm and more so, for the outsourcers since their entire business depends on the projects and the operations continuing smoothly and without interruptions and disruptions. To conclude, it is better not to place all eggs in one basket and hence, follow de-risking as far as possible.

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