Executives know that transferring business or IT processes to low-cost locations can save a bundle. Yet such moves frequently fail to create the expected value,¹ often because managers underestimate or misunderstand the risks involved. Our analysis indicates that by systematically identifying, assessing, and tracking risks throughout the life of an offshoring effort, a company can lower its costs as well as increase the odds that the effort will succeed.

Before beginning an offshoring project, a successful company examines, among other factors, the risks associated with its business case for the move, its assets (including intellectual property), and the knowledge and skill levels of those involved. Such a comprehensive approach can yield surprises. One company, after cataloging the risks of a particular offshoring effort and then using a simple visualization tool (exhibit), found that the most likely—and most severe—risks came from the organization's own employees: a high rate of turnover threatened the transfer of knowledge to the new location. By addressing these and other risks early, the company completed the offshoring effort three months ahead of schedule and, by our estimates, saved €5 million to €7 million in costs.