Risks of Outsourcing

The overriding risk of outsourcing data entry is loss of control over the process. The burden falls upon the customer to ensure that delivered data is accurate, security is not compromised, and above all, that no violations of government and industry regulations occur. Without sufficient controls, quality issues, significant fines and expensive mistakes could wipe out any cost savings realized by outsourcing.

1. Accuracy: If inaccurate data is delivered, there may be expensive consequences, such as paying incorrect invoices or health claims, or degradation in productivity as problems are located and fixed internally. Even if an organization contracts with an outsourcer for triple-pass data entry, where each document is entered more than once, there’s no way to guarantee accuracy, short of frequent site visits.

2. Government Compliance:
Even more important is maintaining compliance with government regulations, such as the Health Information Privacy and Accessibility Act of 1996 (HIPAA), Sarbanes–Oxley (SOX), and the U.S. Patriot Act.

Choosing An Outsource Partner

When selecting an outsourcing vendor, there are common-sense guidelines for setting expectations, building in controls, managing the relationship, and evaluating results. Outsourcing veterans, like Chocko Valliappa of Vee Technologies, providing outsourcing since 1982, maintain that success begins and ends with good communication. “The services customer has to be very clear about their process, their expectations and continually voice their thoughts along the way.”

Outsourcing Benefits

The motivation to outsource data entry operations is fueled primarily by cost. Domestic service bureaus can offer low cost data entry services by taking advantage of economies of scale, inexpensive labor, and image-enabled, document processing technology that automates data entry and document indexing.

1. Reduced Capital Costs :
Outsourcing offers two types of savings:
Capital Expenditures - Companies can save 100 percent of their intended capital expenditure (land, facilities, hardware, etc.) by working with an outsourcing firm. If the company’s workload increases, outsourcing obviates the need to invest in additional capital or ramp up capacity. Similarly, a company may find that the service bureau’s capacity offers a competitive advantage, particularly when operating in a price-sensitive market. If facilities already exist, they can be sold or used for other purposes.
Revenue Expenditures - Organizations can save 50 percent or more over manual data entry, plus operational and administrative expenses.

2. Converting Fixed Costs to Variable
Most service bureaus operate on a ‘per item of work’ basis, which means that by outsourcing, a company can eliminate key operator salaries that represent the major fixed cost of data entry. The practice of paying only when the work is done has a major impact on the bottom line, especially when income levels or volumes are down.

3. Savings on Healthcare and Legal Costs
Other incentives to outsource data entry do not involve labor savings, but instead entail savings on legal and medical costs. These include complications due to repetitive strain injuries (RSI), which are especially common among the population of users who have little or no training in typing. Emil F. Pascarelli, in Repetitive Strain Injury: A Computer User's Guide, reports that the number of RSI incidents has increased dramatically since the first PC was released in 1981, when only 18% of all illnesses reported were RSIs. In 2000, an estimated 70% of all occupational illnesses reported to OSHA were RSIs. Such injuries cost companies $20 billion a year in legal and medical costs.

4. Cost-Effective Solution to Seasonal or One-Time Work: It is not unusual for catalog retailers, tax processors and subscription houses to experience peak loads of 80 percent over normal volumes. By outsourcing, companies don’t have to maintain peak level staffing throughout the year. Outsourcing also allows companies to augment the skills of their in-house staff so they don’t have to turn away business that their regular staff can’t handle.

5. Disaster Recovery : In a post-9/11 world, an offsite service bureau provides a U.S. company with additional backup protection in the event of a catastrophe, by warehousing data at a separate storage facility.

Evolution of Outsourcing

The outsourcing of operations and services, including data entry, is a long-standing tradition in America, going back to the early fifties, when back-file conversion dominated the first wave of data entry tasks.

A second outsourcing trend emerged in the 1980s, when the manufacturing industry had to adjust to foreign companies providing automobiles, electronic equipment and components at lower prices. To compete, U.S. manufacturers began contracting operations to offshore companies that could provide labor at significantly lower costs.

What is Business Process Outsourcing (BPO)?

BPO is the act of transferring some of an organization's repeated non-core and core business processes to an outside provider to achieve cost reductions while improving service quality. Because the processes are repeated and a long-term contract is used, outsourcing goes far beyond the use of consultants. If done well, BPO results in increasing shareholder value. The main difference between BPO and more traditional IT outsourcing is that BPO offers companies a way of achieving transformational outcomes much more quickly. In a typical BPO contract, a service provider takes over a specific corporate function. Effective BPO encompasses much more than just changing who is responsible for performing the process. In BPO, the outside provider not only takes on the responsibility to manage the function or business process, but also re-engineers the way the process has been traditionally done.