IT OUTSOURCING: MITIGATING RISK IN THE FINANCIAL SERVICES INDUSTRY AN INSIGHT FROM SRI LANKAN CONTEXT

Abstract

This study investigates the managerial issues and practices that are associated with IT outsourcing in the context of the Sri Lankan Financial Services Industry. This study seeks to explore the manner in which financial institutions mitigate the risks inherent in outsourcing IT functions. It attempts to understand the approaches taken by banks in particular, to circumvent such risks, as well as the problems that face those who have opted to outsource IT activities despite the risk. The contribution of this study to the research literature pertaining to risk management is the conceptual framework that is presented. This framework seeks to understand the reasons behind the decision to engage in sourcing and how such decisions are influenced by contingency variables and risk factors as well as identifying the role played by decision sponsors in deciding the scope of sourcing strategies. The research methodology was based on empirical research. Questionnaires were sent out to several financial institutions based in Sri Lanka and overseas. In the case of overseas institutions, their subsidiary institutions based in Sri Lanka were included as part of the study. The respondents needed to have enough stature to answer strategic and IT management related questions. Interviews were held with those involved in the decision making process regarding sourcing decisions. This study revealed that certain practices have hedged the risk accruing from IT outsourcing to a significant degree. This has been achieved through careful contracting, retaining skilled in-house staff, and post contract management of the vendor as well as total in sourcing or selective outsourcing of noncore periphery IT activities under short term contracts. A perusal of the data gathered revealed that the degree of risk depended on contingency variables to a significant degree.

Keywords: Financial Services Industry, Insuring, Risk Management, Selective Outsourcing, Service-level Agreements

For full Paper: fmscresearch@sjp.ac.lk