Risk assessment in IT outsourcing using fuzzy decision-making approach: An Indian perspective

Abstract

Outsourcing of Information Technology (IT) is a common practice in global business today. IT Outsourcing (ITO) refers to the contracting out of IT services (or functions) with the objective of achieving strategic advantages as well as cost benefits. Recently, many IT industries are facing daunting challenges in terms of healthy alliances on their ITO strategy due to existence of inherent risks. These risks must be recognized and properly managed towards successful establishment of effective ITO strategy. Therefore, risk assessment appears to be an important contributor to the success of an ITO venture. In this paper, a hierarchical ITO risk structure representation has been explored to develop a formal model for qualitative risk assessment. The basic parameters for defining risks have been presented including the metrics for measuring likelihood and impact that aid to achieve consistent assessment. An improved decision making method using fuzzy set theory has been attempted for converting linguistic data into numeric risk ratings. In this study, the concept of ‘Incentre of centroids method’ for generalized trapezoidal fuzzy numbers has been used to quantify the ‘degree of risk’ in terms of crisp ratings. Finally, a framework for categorizing different risk factors has been proposed on the basis of distinguished ranges of risk ratings (crisp). Consequently, an action requirement plan has been suggested for providing guidelines for the managers to successfully manage the risk in the context of ITO exercise.