Glossary term
Exit Strategy (Outsourcing)
Subject: Risk Management, Third-Party Risk
Also known as: Exit plan, Termination and transition plan
An outsourcing exit strategy is a documented plan for ending a supplier arrangement in an orderly way, by moving the service to another provider or back in house, with little or no disruption.
Explanation
Exits are needed for many reasons: poor performance, a supplier failure or takeover, a regulatory breach, price rises or a simple change in strategy. The plan sets out what triggers an exit, who decides, how long it takes, and what must be moved, including data, software, staff knowledge and records. It also names the alternative provider or the in-house team, and the contract terms that make it possible, such as notice periods, help with transition and return or deletion of data. Plans cover both a planned exit and a stressed exit, where the supplier fails suddenly and there is no time. Regulators of banks and insurers often expect them for important outsourcing, and some expect them to be tested. Without a workable exit, a firm is tied to a supplier it cannot challenge on price or performance.
Example
A lender outsources loan servicing. Its exit plan states that a missed service level for three months starts a review, and that the supplier must hand over all records within 60 days of notice. When the supplier is sold to a competitor, the lender uses the plan to start moving the portfolio to a second provider without missing a payment run.
Not to be confused with
- Business continuity plan
- A continuity plan keeps services running through disruption. An exit strategy covers the deliberate or forced end of a supplier relationship.