Measuring Offshoring Miscues

Easily monitored tasks are better candidates for outsourcing.
Roy HarrisJune 2, 2004

What’s the best way to make offshoring work? Performance measurement and on-site tracking, says Ravi Aron of the University of Pennsylvania’s Wharton School. Aron has studied the types of errors made, and which can be detected and “codified” easily. Work monitored in that manner may be the best for offshoring.

“Direct” mistakes — like typos in many processed transactions — are easily measured and corrected. By contrast, more-subtle “carry-forward” errors in pricing defy easy detection, and can become embedded in a company’s operations. “Even when you catch a carry-forward error,” the offshore vendor “can point the finger back at you and say, ‘I based it on the data you gave me,’” says Aron.

Complexity alone doesn’t disqualify corporate activities from offshoring, because some extremely complicated functions lend themselves to precise measurement. Conversely, undetected errors in some simple-sounding operations, such as certain call centers, can expose a company to major damage. Below is a sampling of tasks and their risk levels. (You can find a fuller discussion in CFO magazine’s June feature “Making It Work.”)

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Low Risk

  • Transaction processing
  • Telemarketing
  • Benefits administration

Moderate Risk

  • Underwriting insurance
  • Management information systems
  • Customer service
  • Loan-asset management
  • Tech support
  • Accounts receivable/payable

High Risk

  • Equity research
  • Yield analysis
  • Asset accounting
  • Investment analysis
  • Cash-flow forecasting
  • Customer data analytics
  • Pricing
  • Working-capital management
  • Executive-decision support