Abstract

https://ssrn.com/abstract=2802578
 


 



Outsourcing Risk: A Separate Operational Risk Category?


Jürgen Bott


University of Applied Sciences, Kaiserslautern

Udo Milkau


DZ Bank AG

September 25, 2015

Journal of Operational Risk, Vol. 10, No. 3, 2015

Abstract:     
Financial authorities and supervisors have emphasized concerns about outsourcing risk for about a decade. A recent European Banking Authority consultation paper discusses "outsourcing" as a subtopic within "operational risk arising from outsourced services and activities, and whether these can affect the institution's ability to process transactions". However, it remains open whether there is an additional operational risk if one compares internal and external sourcing, qualifying "outsourcing" as a separate risk category. Starting from the perspective of the boundary of a firm (ie, the boundary between internal and external production), this paper identifies three steps in sourcing. First, there is business risk, linked to the ex ante entrepreneurial decision to "make or buy", with the required due diligence to make the "best" selection with regard to the allocation of resources. Second, all sourcing has intrinsic risk, although this is independent of the selection of internal production or external sourcing, ie, the boundary of the firm. Third, multisourcing generates a new type of risk, which emerges from the complexity of the sourcing ecosystem at either provider or firm level.

Number of Pages in PDF File: 30

Keywords: outsourcing, regulatory requirements, make or buy, governance, multisourcing, complexity


Date posted: July 1, 2016  

Suggested Citation

Bott, Jürgen and Milkau, Udo, Outsourcing Risk: A Separate Operational Risk Category? (September 25, 2015). Journal of Operational Risk, Vol. 10, No. 3, 2015. Available at SSRN: https://ssrn.com/abstract=2802578

Contact Information

Jürgen Bott
University of Applied Sciences, Kaiserslautern
Morlauterer Str. 31
Kaiserslautern
Germany
Udo Milkau (Contact Author)
DZ Bank AG ( email )
60265 Frankfurt am Main
Germany
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