In a competitive banking industry, banks continue to consider the selection and management of outsourcing partners as a way to achieve growth and add shareholder value. By outsourcing through experienced service providers, a bank can quickly improve the quality of its services, increase its operational or financial efficiencies, and, in many cases, reduce costs. Outsourcing may also allow bank management to increase its focus on the core business functions, expand the availability of bank services, and accelerate the delivery of such services.
What Are the Risks?
Even though banks may have successfully passed through the infancy stage as far as IT deployment is concerned, several risks associated with outsourcing must be understood and carefully managed. For many banks, the decision to outsource and the application of the service can be complicated, particularly when the bank has become more complex in its products, services, and customer base. Some of them are highlighted below:
- Strategic Risks: Not choosing the right service provider may result in unnecessary costs to the institution. In addition, the bank may fail to implement appropriate oversight of the provider or lack adequate expertise and may not be able to recognize and manage problems caused by the provider.
- Reputation Risk: Reputation risk can result from poor service from third parties or from customer interaction that is not consistent with the overall standards of the bank. Sometimes third-party practices and activities may not be in line with the bank’s practices or desired image.
- Compliance Risk: When consumer or legal compliance controls are inadequate, or if an outsourced provider has inadequate control systems in place, compliance risks may occur.
- Operational Risk: Operational risk may result from technology failure, inadequate financial capacity to fulfill obligations or provide remedies, and fraud or error.
Hence, deciding whether to outsource information technology (IT) or to keep providing these services oneself is a key management responsibility. Once a decision to outsource has been made, relations with external providers have to be established and managed.
IT outsourcing governance therefore encompasses those structures and processes that should ensure the delivery and utilization of IT services complying with the objectives of the participating organizations.
Governance in IT outsourcing is designed to ensure that the IT services delivered add value to the business and that any risks are mitigated. Because two organizations are involved, both have goals they wish to achieve, which may not be aligned. Governance assists in ensuring that both clients and suppliers are better able to meet their goals and thus, have a successful relationship.
A Must Attend Roundtable for –
CIOs, CMOs, CEOs, MD, Directors, VP/GM, AVP/AGM from IT and IT/Business decision makers and influencers along with the other Line-of-Business Managers from BFSI vertical.
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