Managing Risks of IT Outsourcing

Abstract

Outsourcing is one of the most talked about and widely debated topics. Over the past few years, firms have been outsourcing their IT operations at increasing rates. The fact that firms are turning to outside vendors in increasing numbers in order to meet their needs does not mean that outsourcing is without problems. Firms often enter outsourcing deals without considering risks or assuming that all risks lay with the external service provider. In this chapter, we provide an overview of IT outsourcing, its risks, and a model for managing those risks. We identify different firm-vendor configurations for sustaining long-term relationships aimed at diversifying risk over time and discuss the need for psychological contracts to manage such outsourcing relationships.