Nov 16, 2021

Why Outsourcing Risk Mitigation Doesn't Work

Risk mitigation is a critical business function. You want to make sure that you protect your business as much as possible, including decreasing the impact that potential threats can have on the business as a whole and on your customers. Many businesses choose to outsource those services to a third party. They want to decrease their personal responsibility, cut costs, and try to streamline daily business flow. Unfortunately, outsourcing risk mitigation doesn't always work as effectively as you had hoped - and in many cases, it may not work at all. 


Who ultimately bears responsibility for a problem?

If you outsource your risk-management function to a third party, who is actually responsible if something happens? Suppose, for example, that you asked another company to verify the credentials of a contractor you use - and never double-check them yourself. The contractor has an incident on the job site that results in severe losses to the client, either in terms of funds and damage to the property or in terms of actual injury to someone working on the property. During the investigation, it might come out that there is an issue with that contractor's credentials. In some cases, the contractor may not even be licensed to work on that particular area.


Who bears liability? Ultimately, you do - even though you had passed that responsibility on to a third party. You may bear responsibility for making things right for the customer, resulting in a significant financial loss to your business, or you might face an immense loss of reputation because you failed to fully research and check those vital credentials. As a result, you may find yourself struggling to repair your position in the community or losing out on potential jobs. 


By giving up control of the risk mitigation process, what do you lose?

Many people think of what they stand to gain by outsourcing services. What you may not consider as clearly, however, is what you stand to lose when you give up control of your risk mitigation efforts. One of the biggest challenges you may face is the loss of the ability to clearly define your own risk management standards. 


When you outsource your risk management, chances are, the team you outsource to will have their own standards for determining acceptable risk or how to mitigate those risks. You may discover that your outsourced risk mitigation provider does not come up to your usual risk mitigation standards. They may have unexpected slowdowns or introduce solutions that simply do not fit your individual needs. Furthermore, they may not understand the unique needs of your specific business, the services you offer, and your personal risk comfort levels. 


Will your outsourced risk mitigation specialist deliver on their promises?

You hired someone to manage your risk mitigation. You likely trusted that the company you hired would take care of those risk mitigation efforts. However, you need to know that your risk mitigation specialist will actually deliver on the promises they have made to you. 


Around 20% of small businesses fail in the first year. 50% will fail by the end of year 5. Even if you think you can count on the small business you have chosen to manage your risk mitigation, you stand a high chance of losing that business, potentially during the course of their contract with you--and you may find yourself paying the full cost of that contract in spite of a decline in services. 


Furthermore, high turnover in your outsourced risk mitigation company could spell disaster. In August 2021 alone, around 2.9% of the American workforce chose to leave their jobs. Some sought better work/life balance. Others sought a better rate of pay, or better working conditions. Chances are, your risk mitigation specialist will be dealing with an equally high level of turnover. High turnover could lead to a disruption in your services or leave you consistently dealing with a different member of the team each time you connect, which could require you to re-explain your requirements and solutions--and leave you feeling less confident that your risk mitigation specialist actually understands what you need.  


Unfortunately, a high percentage of outsourced service providers may also fail to deliver on the high standard they seem to promise up front. Think about your subcontractors. All too often, you may find yourself dealing with subs--especially new ones--who make impressive-sounding promises, but who fail to deliver on the services you expected. When you outsource your risk mitigation, you may find yourself dealing with the same challenges--only in an area where it could cause considerably more harm, overall, to your business if the company fails to deliver. 


Are you sure that you have a clear set of expectations in place?

What will happen if your business sees a higher level of risk--or a potentially higher number of projects--than anticipated? Will you notice your costs increasing? Will outsourcing your risk mitigation lead to higher expenses than you would face handling the same tasks in-house, especially if you see a sudden increase in risk mitigation needs across several projects?


Miscommunication can also spell disaster in many outsourcing scenarios. Frequently, you may find yourself contending with alack of understanding on one side or the other--and that miscommunication can make it very difficult to determine your next steps or make sure that you're getting the standard of service you suspected. Miscommunication may increase even more when you decide to outsource to a company overseas, where cultural differences could change the work needed.


Are there benefits to handling risk mitigation yourself?

Handling risk mitigation yourself can, in fact, have a number of advantages. By taking on risk mitigation in-house, you can ensure that it always meets your high standards of quality and your personal risk tolerance. Furthermore, you may find that ultimately, handling these processes yourself can make it easier to maintain your overall reputation and keep delivering the high standards your customers expect. 


Having the right software can make a huge difference.With effective risk management software, you can keep your construction workers cafe on the job site, protect your clients, and ensure that you have the tools you need at your disposal, all from one easy-to-use platform. Contact us today to learn more about our risk management solutions and how they can improve your ability to handle those critical tasks for your business.

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