What Are the Risks in Cloud-based Outsourcing & How to Fix Them

by | Published on Dec 6, 2019 | Business Process Outsourcing

Most businesses that seek business process outsourcing services are looking to expand on their current products and services but do not have the time or resources to do so. BPO services can offer organizations the opportunity to free up time to focus on their core offerings.However, the outsourced services are better delivered with the use of the cloud. The cloud promotes easy collaboration and communication between the outsourcing party and the virtual remote team.

 Risks in Cloud-based Outsourcing & How to Fix Them

To improve efficiency, business functions are commonly outsourced to cloud providers. It also provides other benefits such as scalability, lower cost, better performance etc. Although outsourcing has proven to be very beneficial for businesses, it also has some legal risks. Here are the four key areas of risk when it comes to cloud outsourcing:

  • Reliability: The redundant structure typically given to customers is more tolerant to hardware failures. However, IT leaders should ensure that a proper SLA (Service level agreement), RPO (recovery point objective) and RTO (recovery time objective) are maintained that specify how quickly functionality is restored and how much data is possibly lost. Proper inspection of the cloud provider’s deployment and a strong SLA can assure reliable cloud deployment. Connectivity is one of the most overlooked factors in cloud reliability. However efficient the cloud service may be in other aspects, if connectivity or network access is faulty, users will consider the service unreliable.
  • Loss of control: Loss of control is another major concern that many IT managers have as they give up physical control over their own infrastructure and resist the opportunities. Many people fail to see that IT is maintaining operational control over how the cloud provider is used and how business needs are met. IT leaders set the direction for the infrastructure and managea cloud provider to implement their design. This keeps control of the overall network with IT and it is equivalent to hiring contractors to rack and stack equipment spec’d out by IT architects and designers and the difference is only regarding ownership of the equipment. It would be best to assign the maintenance of commodity infrastructure to a reliable provider so that you can focus on application development, business intelligence, and other significant things.
  • Security: Another risk is network security. Whether that data resides on company owned equipment or with an outsourced partner, all organizations want their data and its application to be protected from cyber criminals. Regulatory compliance means simply adhering to government mandates but it does not create a secure environment. It is important to understand how the cloud provider designs their solutions, how maintenance activities are handled, who has access to the infrastructure, how data is encrypted, whether the infrastructure is dedicated or shared, and what the terms of the service level are in case there is a data breach and loss of data.
  • Cost-effectiveness: Earlier, businesses spent money mostly on operating equipment and a large portion of the firm’s capital budget was consumed by IT purchases to manage the needs over several years. However, those budget forecasts may change when changes occur to the business such as mergers & acquisitions, or unstable markets. This would lead to difficulties in financial planning and money allocation. Ideally, capital budget of the organization can be allocated to other requirements within the business so that IT and front-line operations do not compete with each other for capital. It is best to have an operating model for your IT infrastructure wherein you pay for what you need only when it is needed. Also, outsourcing the running of IT infrastructure will prove to be more cost-effective.

To ensure successful cloud-based computing services, organizations should first make an informed business decision about the type and sensitivity of data and how to migrate to the cloud, specific configurations and the type of cloud service needed etc in order to comply with the organization’s legal obligations. In the US, you need to consider state, federal and industry specific data privacy and security laws. Here are some of the steps that can mitigate legal risks in cloud outsourcing:

  • Set new standards: Before choosing a cloud provider, analyze what type of data needs to be sent to the service providers, potential financial and public fallout from a data breach and the basic legal requirements. Once you are clear about all these facts, you can consult with the IT team and draft the required data security requirements. A good questionnaire should reveal where service providers store data, the security measures in place and also identify whether they have had any recent security incidents.
  • Keep clause in the agreement: Once you have a clear understanding of the service provider’s security measures, shift to master service agreement (MSA) which governs the performance of the services. MSA will have a “representations and warranties” section, where each party makes promises and assertions to the other party. Ask the service provider to represent and warrant, which means the collection, use, storage, processing, disclosure and disposal of your data complies with applicable laws. If there are any gaps in the service provider’s answers to your questionnaire, then you must include additional security in the MSA that the service provider must enact.
  • Data breach procedures: The MSA should have a clause that requires the service provider to notify you immediately after any suspected security breach. It also requires the service provider to take a few steps to fix the breach, and assist with notifying third parties. There are chances that the service provider may rebuff some of your demands. So, it is better to discuss breach procedures now rather than in the midst of an actual security incident.
  • Compensation for loss of data: The answer to who is responsible if the data is stolen lies with the several data-breach laws, federal statutes and the terms of your MSA. If your service provider is statutorily on the verge of a data breach, your company may still be sued by customers, employees, shareholders, or regulators claiming that your business was negligent in choosing its service provider. So, seek an indemnification provision in the MSA in which your service provider defends and indemnifies your organization for any losses or claims that are related to harm resulting from the service provider’s failure to comply with its security obligations, or from unauthorized disclosure of your data.

Business organizations and their cloud service providers should have a clear-cut policy regarding their respective rights and obligations pertaining to data security. This will ensure that the data is safely maintained with access limited to those people who have the appropriate legal rights, and that the organization remains in control of their data to the extent required by law. A reliable business process outsourcing company providing cloud storage solutions will have appropriate security measures in place, and regularly conduct a thorough review to secure the cloud storage system.

Recent Posts

Tackling eDiscovery Challenges: Proven Tactics for Success

Tackling eDiscovery Challenges: Proven Tactics for Success

Delving into electronically stored information (ESI) to find relevant information for a case is a major challenge for legal professionals. With the massive increase in data volumes, both structured and unstructured, eDiscovery has become even more difficult, leading...

How Can HR Outsourcing Support Businesses?

How Can HR Outsourcing Support Businesses?

Today, organizations’ investment in business process outsourcing services has increased drastically. This is mainly because of the need to improve efficiency and customer service, enhance employee productivity, reduce cost and optimize business processes. Utilizing...

Share This