Levels, Factors and Risks of Outsourcing

The meaning of word varies sector to sector as per their application. This a combination of two English word “Out” and “sourcing”. Definition of Outsourcing is also given by many experts in this sector. Outsourcing is a business process activities or mutual contract between organizations, persons to do a particular work. To reduce the process the complexity in every process, companies are outsourcing their work to another company in contract basis. Companies are outsourcing their products and services to their contractor company to anything they wants to enhance.

It may be anything like process, analysis, design, development, testing.

is a term taken over from the United States industry meaning an abbreviation of the combination of English words” Outside Resource Using”. ‘Outsourcing’ is the transfer or delegation of the operation and day-to-day management to an external service provider. The consumer receives a service that performs a specific function embedded in his capability (Brown and Wilson,2005).

Military outsourcing is the process of contracting out those tasks to private entities that were earlier carried out by military organizations.

Militaries outsource services to become free to concentrate on military missions and activities. Outsourcing of noncore competencies is based on fact that an organization rarely can excel at more than one activities .The defence organization is no exception. Historically, concept of military outsourcing has been in vogue since the advent of militaries. Outsourcing gained corporate acceptance during 1990s. There were many skeptics who thought that relinquishing control of functions in favour of external agencies was a retrograde step.

However, sheer economic benefits of the arrangement have made outsourcing to be a significant development and buzzword in the corporate world.

The economic perspective differs with levels of outsourcing from its generic expression. There are usually three levels of outsourcing (Brown and Wilson,2005):

The phases of any outsourcing process are almost similar irrespective of levels (Brown and Wilson, 2005).

Private sector and corporate concept of outsourcing suggests a critical analysis to prioritize and decide the sectors to be outsourced. This is also equally important to select the appropriate vendor to serve the organizational objective. The core value of individual organization should be restored as it would be performed by in house capacities. The concept of outsourcing in defence environment may not be in a similar posture with corporate ideas. Therefore it requires no emphasis when the question of selecting a suitable vendor comes (8th Annual Outsourcing Index,2005).

Numerous benefits are listed in the favor of this business function in different research literatures. Few are appended below (McIvor R, Humphreys, 2009):

The outsourcing process involves some degree of risks as well. Some risk factors are listed below ( McIvor R, Humphreys, 2009):

A detail study was carried out to check the feasibility of outsourcing. To find out the prospects of outsourcing the maintenance, only a segment was selected. After discussing with the GE (Army), Savar Electrical maintenance sector -3 seemed to be the ideal segment. So, relevant data of Electrical maintenance sector-3 was collected. At present, there are 72 personnel in Electrical maintenance sector-3 of GE (Army) , Savar. The budget for this sector including pay , allowance and ration is 2,45,91,540 taka. But to outsource the same maintenance function Ideal Engineers & Technology and M/S Shelly Enterprise placed quotation price of 2,51,65,500 taka and 2,46,37,000 taka respectively. (Source: Prepared by researcher basing on data collected from GE (Army ), Savar )

Apparently, it seems that outsourcing is increasing the cost. But if the pension benefit is added with the present cost , the scenario changes. The average pension was considered and added with the present cost. Then the present cost increased to an amount of 2,72,91,540 taka which is more than the outsourcing cost. Details of calculation are shown in annex J. (Source: Prepared by researcher basing on data collected from GE (Army ), Savar )

If outsourcing is adopted, it has to be done judiciously. It has to be practical and cost-effective. It is evident that two main guiding principles in this respect; it must not affect operational readiness and efficiency and secondly it must be economic. Operational readiness and support must never be compromised when activities are outsourced. To ensure this, the various measures to help integrate the vendors into support systems are: