The Chief Executive Officer (CEO) of a large prestigious enterprise has decided to reduce business costs by outsourcing to a third party company in another country. Functions to be outsourced include: business analysts, testing, software development and back office functions that deal with the processing of customer data. The Chief Risk Officer (CRO) is concerned about the outsourcing plans. Which of the following risks are MOST likely to occur if adequate controls are not implemented?

The Chief Executive Officer (CEO) of a large prestigious enterprise has decided to reduce business costs by outsourcing to a third party company in another country. Functions to be outsourced include: business analysts, testing, software development and back office functions that deal with the processing of customer data. The Chief Risk Officer (CRO) is concerned about the outsourcing plans. Which of the following risks are MOST likely to occur if adequate controls are not implemented?
A . Geographical regulation issues, loss of intellectual property and interoperability agreement issues
B . Improper handling of client data, interoperability agreement issues and regulatory issues
C . Cultural differences, increased cost of doing business and divestiture issues
D . Improper handling of customer data, loss of intellectual property and reputation damage

Answer: D

Explanation:

The risk of security violations or compromised intellectual property (IP) rights is inherently elevated when working internationally. A key concern with outsourcing arrangements is making sure that there is sufficient protection and security in place for personal information being transferred and/or accessed under an outsourcing agreement.

Incorrect Answers:

A: Interoperability agreement issues are not a major risk when outsourcing to a third party company in another country.

B: Interoperability agreement issues are not a major risk when outsourcing to a third party company in another country.

C: Divestiture is the disposition or sale of an asset that is not performing well, and which is not vital to the company’s core business, or which is worth more to a potential buyer or as a separate entity than as part of the company.

References:

http://www.lexology.com/library/detail.aspx?g=e698d613-af77-4e34-b84e-940e14e94ce4

http:/ /www.investorwords.com/1508/ divestiture. htm l#ixzz3knAH r58A

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