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Assessing the Risk of IT Outsourcing

  • Benoit A. Aubert
  • Michel Patry
  • Suzanne Rivard
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    Outsourcing decisions, and contractual arrangements of the type required by an IT outsourcing deal, entail risks. This is not to say that outsourcing is bad in itself. It only means that, as in other risky business ventures such as new product development, capital investments, and IS projects, risk assessment and risk management are important contributors to the success of an IT outsourcing venture. This paper focuses on risk assessment. After providing a brief conceptual definition of risk, the paper reviews the empirical literature in order to identify the0501n undesirable outcomes that may result from an IT outsourcing deal. It then uses transaction cost and agency theory as a primary theoretical basis, and proposes a framework for categorizing risk factors which have been identified in the literature. Finally, the paper discusses the dynamics of risk, by examining how the various risk factors are linked to the undesirable outcomes Ce texte porte sur l'évaluation du risque d'impartition des services informatiques. Le risque est défini ici comme étant fonction d'événements indésirables pouvant résulter d'une décision d'impartir, et des facteurs pouvant mener à ces événements indésirables. La théorie des coûts de transaction et la théorie de l'agence servent de base théorique à l'identification des principaux facteurs de risque. Les événements indésirables sont identifiés à partir d'une recension des écrits sur l'impartition des services informatiques.

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    Paper provided by CIRANO in its series CIRANO Working Papers with number 98s-16.

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    Length: 18 pages
    Date of creation: 01 May 1998
    Date of revision:
    Handle: RePEc:cir:cirwor:98s-16
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    1. Fine, Charles H. & Whitney, Daniel E., 1996. "Is the make-buy decision process a core competence?," Working papers #140-96. Working paper (S, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
    3. Barzel, Yoram, 1982. "Measurement Cost and the Organization of Markets," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 27-48, April.
    4. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Teece, David J. & Rumelt, Richard & Dosi, Giovanni & Winter, Sidney, 1994. "Understanding corporate coherence : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 1-30, January.
    6. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    7. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    8. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
    9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    10. Langlois, Richard N. & Robertson, Paul L., 1992. "Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries," Research Policy, Elsevier, vol. 21(4), pages 297-313, August.
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