While this article spells out the primary risks of Outsourcing Accounting Processes, and we highly recommend you read about all of them, here is a quick list of the top 4 reasons:
- The Role Of Organizational Importance
- The Failure of the Outsourcing Effort
- “Change Management” Risk
- Loss of Control
The risks of outsourcing a business function to a third-party supplier fall into a few general categories.
Risks of Outsourcing Accounting – #1 The Role Of Organizational Importance
The first category is the risk associated with the selection of an in-house function to outsource if that function has a historical role of organizational importance or has valued individual resources in that department.
There may be some learning and development advantages to having certain functions performed in-house that contribute towards knowledge development necessary for future initiatives and talent development. In some cases, individuals can be transferred to other areas where they can add more strategic value to the business.
Subtle business culture advantages, such as an effective synergy between two departments, can also be disrupted by removing or reducing certain business functions. It is important to be aware of such situations to avoid loss in morale and reduce productivity. If managers keep these issues in mind and address them, the risks can be substantially minimized.
#2. The Failure of the Outsourcing Effort
The next category is the risk of failure of the outsourcing effort. For example, having poorly defined or unclear objectives and expectations could create confusion and result in an unsuccessful outcome, with the organization not realizing the cost benefits that motivated the initiative in the first place.
The way to manage this risk is by establishing clear measurable goals for quality and productivity which can be used to measure success after the transition of the function.
So, too, clearly defined systems and/or service level commitments will mitigate concerns about the risk of lack of availability of systems. And clearly defined processes and escalation levels for management and operational issues reduce the risks of poor communications during the transition and thereafter.
In addition, putting an overall management structure with representation from both organizations to monitor performance and maintain client satisfaction assures the success of the transition and thereafter. This should include representatives from both operations as well as corporate to maintain a mutually beneficial partnership, this group can meet periodically to update goals for continuous improvement.
#3. “Change Management” Risk
The third category involves “change management” risks associated with reducing an in-house function, such as the loss of organizational trust that could develop, whereby after a department downsizing remaining employees may become concerned about the security of their positions.
Without reassurance, otherwise loyal employees could seek more permanent opportunities in other organizations resulting in a loss of talent and irreplaceable expertise within the organization. Loss of key employees to competitors compounds unanticipated increased costs associated with recruiting and training their replacements. Proper proactive communication with employees will help negate some of these risks.
#4. Loss of Control
You may feel like you’re losing oversight of account services, especially if they are handled in different locations or time zones, but a straightforward outsourcing company will ensure that your company is updated in real-time every step of the process. From timestamping processed invoices to automating and digitizing a paper trail of approvals and exceptions, professional accounting outsourcing services ensure that your company retains tight control of the process.
The Risks of Outsourcing Accounting – Conclusions
There will always be potential risks in every partnership, however, the goal is to select an appropriate function for outsourcing, select an experienced service partner who will have tools and techniques to reduce risks, and then structure the partnership to assure expectations will be met.
In that way you will avoid increased or unanticipated costs, impacts on employee morale, lost corporate knowledge, or unforeseen future opportunities that result from cohesive and collaborative dynamics. A focus on defining requirements, adequate guidance during planning, and transparent communication between all parties will help prevent the more typical risks encountered during an outsourcing transition.
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