IT Outsourcing & Security Issues

the recent news on Word Bank and leading Indian outsourcing firm – Satyam made the news headlines a few days ago.

it was reported in media that Satyam had been banned from all offshoring work following a so called “security breach” in the World Bank IT systems which were being managed by Satyam under a total outsourcing contract between the two.

when i read the news articles and the media hype over security risks involved in outsourcing, there were couple of points that stood out and probably need a serious thought. i admit tho that i am looking at this topic purely from a services provider point of view.

broadly, there are two type of security risks when it comes to outsourcing.

1. state of security and associated risks in the service provider IT environment – usually these are are discussed in detail and evaluated during the rfp stage. a good number of articles have also been written been assessing service providers security policies and controls before and during the term of the contract. a service provider is usually asked to provide proof of the state of information security, answer certain specific questions in the rfp and in some cases provide sas 70 type I & type II reports.

2. state of security and associated risks in the enterprise IT environment now being outsourced to the service provider – this is a relatively overlooked topic by many of the enterprises who have entered or are entering an outsourcing agreement with an IT services provider. in the context of discreet and total outsourcing, this requires an in-depth understanding and a joint strategy development with the service provider.

in many cases, the enterprise, by entering into an agreement for discreet or total outsourcing engagement with the service provider tend to forgo their responsibility of maintaining, tracking the risk in their IT environment (even though it is now oursourced) and are not invited or participate in assessing the risk, formulating and implementing a suitable risk treatment plan.

with reference to point (2) above, i would like to highlight few point which, in my opinion, require attention during contract and legal discussion stages:-

  1. In almost all of the outsourcing contracts, the service provider usually take over the customer IT environment on as-is basis and hence the risk due to any security (technology / process) shortcoming also gets transferred to the service provider. in most contract the ownership and accountability of this risk is not clearly mentioned in the contract.
  2. there is not many engagements where a risk profiling of the enterprise by the service provider is carried out prior to begining of the outsourcing enggement as a result there is usually no coherent strategy to address the risk that is inherited by the service provider in an outsourcing engagement.
  3. many a times an enterprise may not have invested in adequate set of controls (both technical and procedural) which may result in an high risk exposure for the enterprise. depending upon the level of maturity of the enterprise security organization and practices, the management may or may not be aware of this exposure.
  4. even though the risk of not having necessary controls might be acceptable by the customer when the operations were in-house, they suddenly appear as un-acceptable if there is an incident post off-shoring. Again, in my opinion, this needs to have a clear mention in the contract/legal document.
  5. even when additional controls to reduce the risk, usually the recommendations are side-lined either by the customer or sales teams due to due to cost implications. However, the ownership of accepting the residual risk is not clearly and is a vague area. This should, in my opinion be also addressed in the contract document.

the most important fact remains that:-

There is no guarantee that security breach will not take place either due to technology failure or personnel mis-adventure. even without outsourcing, we have seen breaches being reported.

hence a clause, which indemnifies the service provider due to technology failure or absence of a control not stated in the RFP as a mandatory requirement, needs to be incorporated in the contract/legal documents.


there needs to be a stage in the outsourcing project plan where the service provider assesses the information security related risks in the customer’s IT environment for which the service provider is going to manage and then jointly develop a risk treatment plan with the customer to ensure the risk is kept at a level acceptable to both the organizations.


2 Responses

  1. Just wanted to say HI. I found your blog a few days ago on Technorati and have been reading it over the past few days.

  2. Thank you for your comments.

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