Risk Management in Software Outsourcing Industry

Industrial safety can be stated as “managing operations and events in an industry, to protect its employees and assets by minimizing of the hazards, risks and accidents”. Industrial safety is a move to mitigate risk as it identifies the risk associated with the operations and managing the same by assessing in terms of quality and quantity.

Risk management can be quoted as “the continuing process to identify, analyse, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss”.  Losses may be a result due to various factors such as:

• Operational risks

• Financial risks

• Strategic risks

• Perimeter risks

Enterprise Risk Management, explores risk management by defining risk as anything that can prevent the software outsourcing company in India from achieving its objectives.

Although occurrence of accidental losses are unforeseen and unplanned, there are methods which predicts an outcome. This points that more predictable is occurrence of an event, the less risk is involved as it can prevented or mitigated. Such an approach helps in estimating expenses and budgeted the required for the same. These processes designed to minimize loss is at the crux of insurance programs.

The notion behind the Industrial Safety and Risk Management in industries is to provide training through different programs and continuous practice in order to reduce the risk to:

• People

• Environment

• Asset

• Production.

Above mentioned are the four major areas of concern for any software outsourcing company and any damage to any of these areas can prove to be very costly for operations of an outsourcing company. This has led to an approach to minimize them which has helped in shaping the modern industry of software outsourcing and government legislation for safety and risk management practices. The software outsourcing industries adopting this type of approach have seen reduction in incidents and losses. Addition to this, there has been significant improvement in production quality and reliability. These risk management program are formulated and evaluated around the cost of risk.

This cost of Risk is comprised of:

• Retained Losses

• Loss Control Activities Cost

• Management Expenses Claim

• Program Administrative Cost

The benefits of all these safety measures and risk management program results in overall savings to an organization. Any one specific category may show an increase or decrease in cost when considered individually or by division in a specific time frame.

This program exposes the types of loss exposures existing within the boundary of risk management that includes:

• Property:

 Real & Personnel,

 Tangible 

 Intangible

• Net Income:

Reduction in Revenue or Increase in Expense; can be due to loss of Property or loss due to Civil or Statutory fines and judgments, or by loss of Key Personnel

• Liability: 

Civil and Statutory (Torts, Statutory Workers Compensation, EPA and other Administrative laws)

• Personnel:

Through Death, Disability, or Retirement Key Personnel or catastrophic loss to many employees

Thus, Risk Management in software outsourcing companies in India is concerned with all these loss exposures, and not only the ones that come under the jurisdiction of insured. Insurance is technique to finance some loss exposures and, therefore, a part of the broader concept of managing risk; not the other way around.

Courtesy - Bhavesh Bulchandani