How to do a good job of controlling process risk in e-commerce systems?

Abstract: Financial services outsourcing is developing rapidly in the context of globalization. By outsourcing non-core business to service providers, financial institutions can achieve the purpose of saving operating costs, concentrating advantageous resources to develop core business and enhancing core competitiveness. On the basis of exploring the connotation of outsourcing mode, the article analyzes various risks in financial service outsourcing and makes useful exploration on how to control the risks. Keywords: financial services; outsourcing; risk; control I. Connotation of Financial Services Outsourcing Model The meaning of financial services outsourcing is defined by the Basel Committee as "the use by a supervised person of a third party (either an affiliated subsidiary within the supervised person's group or a company outside the group) to complete a part of the business that should have been performed by the supervised person itself on a going concern basis. ." In this new business model, financial institutions use "external specialized resources" to reduce costs and improve efficiency in order to achieve a greater competitive advantage, with the core concept of "do what you do best and let others do the rest." Laabs believes that Service outsourcing is the strategic use of external resources (referring to professional or efficient service providers) to perform non-critical or non-core operations of an organization that were originally performed by internal personnel or resources, and is "the contractual transfer of certain non-critical functional parts of an organization's operations to external resource providers". Quinn and Hilmer (1994) suggest that outsourcing is a way to achieve greater competitive advantage. Hilmer (1994) suggest that outsourcing is the most appropriate and effective allocation of the enterprise's technology and resources to produce maximum benefits, the specific approach is to focus the enterprise's resources on the enterprise's core activities, non-strategic needs and non-special capabilities of the business to be provided by external. Yan Yong, Wang Kangyuan (1999) pointed out that: "Outsourcing is to leave some important but non-core business functions to senior outsourcing partners outside the company, and to focus the internal knowledge and resources of the enterprise on those core businesses that have a competitive advantage, to provide customers with maximum value and satisfaction". According to Xu Shu (2003), "Outsourcing is a strategic management method in which an enterprise, with limited internal resources, retains only its most competitive core resources and integrates other resources with the help of external specialized resources to optimize resource allocation and achieve its own sustainable development." It can be seen from the above viewpoints: outsourcing as a business model is the innovation and development of the theory of division of labor and the theory of comparative advantage in the value chain, and it is the manifestation of the increasing refinement, specialization and high efficiency of social production. Along with the great benefits brought by the business model of financial services outsourcing, it also means the arrival of new financial risks. With the Basel Committee on Banking Supervision as the leader of the "Joint Forum" issued by the "financial services outsourcing paper" is the financial services outsourcing of financial risks caused by the importance of proof. Second, the main risks of financial services outsourcing Outsourcing faces many risks, Lacity, Willcocks and Feeny (1995) that the biggest risk comes from hidden costs, they pointed out that outsourcing may have hidden transaction costs and management costs, transaction costs, including the cost of resource allocation costs, organizational restructuring costs, set-up costs, etc., and the management costs of the cost of having to invest in human resources, and so on. Nelson (1996) argues that there are also contract negotiation costs, partner selection and evaluation costs, dispute resolution costs, etc. Michale J. Earl, Slie P. Willcocks, and David F. Feeny (1996) discuss the costs of outsourcing in terms of weak management, inexperienced employees, business uncertainty, expired technology, inherent uncertainty, potential costs, loss of organizational learning ability, loss of ability to change, continuity "triangulation", indivisibility of technology, and ambiguity of outsourcing focus. Lv Liwei (2003) believes that there are many potential risks in terms of people, organization, decision-making, interrelationships, culture, etc. in the process of outsourcing mutual activities carried out by enterprises and partners. Summarizing the above studies and according to the risk classification in the Financial Services Outsourcing Paper, the main risks of financial services outsourcing can be summarized into the following ten types: (1) Strategic risk: the third party handles the business by itself, which may not be in line with the overall strategic objectives of the contracting organization; the contracting organization fails to carry out effective supervision of the contractor; and the contracting organization doesn't have enough technical ability to supervise the contractor. (2) Reputational risk: the quality of the third party's services is poor; it fails to provide the same standard of service to its clients as the contracting organization; and the third party's mode of operation is not in line with the traditional practices of the contracting organization. (3) Compliance risk: the third party does not comply with the relevant laws on privacy, does not comply well with the relevant laws on consumer protection and prudential regulation, and does not have a strict system to ensure compliance. (4) Operational risks: technical failures; insufficient financial resources to complete the contracted work and inability to take remedial measures; fraud or error; and risks arising from the difficulty or high cost of inspections carried out by the contracting organization on the outsourced project. (5) Exit risk: over-reliance on a single contractor; loss of the financial institution's own business processing capacity to take back the outsourced business when necessary; extremely high cost of quickly terminating the outsourcing contract. (6) Credit risk: improper credit assessment; deterioration in the quality of accounts receivable. (7) Country risk: Risks arising from political, social and legal environments. (8) Performance risk: ability to perform; choice of applicable law is important for multinational outsourcing. (9) Regulatory barriers risk: inability of the regulated organization to provide data and information to the regulatory authority in a timely manner; difficulty for the regulatory authority to understand the contractor's business activities. (10) Concentration and Systemic Risks; the risks posed by the contractor to the industry as a whole are considerable and are reflected in the lack of control over the contractor by individual financial institutions and the systemic risks faced by the industry as a whole. Third, the control of financial services outsourcing risk 1. Financial institutions risk preparation before service outsourcing. Before determining the service outsourcing, financial institutions should have a clear understanding of the strategic risk, country risk, system risk and so on brought about by service outsourcing. Financial institutions should formulate an overall outsourcing plan and assess whether the relevant business can be outsourced and the risk of outsourcing. Outsourcing of core management functions is generally considered to be contrary to the responsibility of corporate managers to manage the company. Therefore, management functions such as strategic oversight, risk management and strategic control cannot be outsourced. Outsourcing should not affect the full and unlimited liability of managers within the scope of relevant laws and regulations (e.g., banking laws). In deciding whether to outsource, the management of a financial institution should comprehensively analyze the costs and benefits of outsourcing, taking into account the institution's own core competencies, its strengths and weaknesses in management, and its future development objectives. At the same time, management should have a comprehensive understanding of the pros and cons of outsourcing, and should assess the organization's core competencies, strengths and weaknesses in management, and the organization's future goals. The outsourcer must take appropriate measures to ensure that it is able to comply with home and host country laws as well as regulatory statutes. The board of directors (or equivalent) of a financial institution is fully responsible for ensuring that all its outsourcing decisions and outsourcing activities undertaken by third parties are in line with its outsourcing policy, and internal audit should play an important role in this regard. Specific policies and criteria for outsourcing decisions should also be established, including an assessment of the suitability and extent to which the business in question is suitable for outsourcing. The risks associated with outsourcing multiple operations to the same service provider must be considered and limited. 2. Partner selection and risk control. Scientific evaluation of the outsourcing partner will be particularly important, which is actually an important part of risk control. Selection of outsourcing partners, can develop the following indicator system to measure: financial institutions can take the following measures to control the risk of outsourcing partners: (1) complete competition control. The outsourcing business of financial institutions is usually ordinary non-core business. For most financial institutions, risks can be avoided by means of complete competition. (2) Contractual control. Financial institutions can stipulate the rights and obligations of themselves and their outsourcing partners, the quality standards of services, the execution procedures of outsourcing, the payment of money, the provisions of intellectual property rights, the renewal of subsequent contracts, etc. by means of contracts. Adopt contract control, should be concerned about the issue of the more detailed provisions the better, to avoid ambiguity to the outsourcing of cooperation to create trouble. (3) Technical management output control. In order to avoid moral hazard, financial institutions can apply for patents to protect the relevant technology, for some outsourcing needs of the technology can be taken to the black box way to provide partners. At the same time, financial institutions can participate in the supervision and management of outsourcing business activities, through on-site management, can be timely and large amounts of accurate information about the outsourcing business, so as to take appropriate measures to prevent risks, to avoid losses due to time lag or information distortion. (4) Incentive mechanism control. Financial institutions can through price incentives, order incentives, goodwill incentives, information incentives, elimination incentives, organizational incentives, new products/new technologies *** with the development of partners to improve the level of quality control of services, reduce costs and improve the quality of services, etc., mobilize the enthusiasm of partners to eliminate the risks caused by information asymmetry or defeat behavior, to achieve a win-win situation. (5) Equity control. In order to avoid the loss of control of outsourcing partners, financial institutions can appropriately purchase the shares of partners, or mutual shareholding, information **** enjoy, strengthen communication, and increase the trust between the two sides. 3. Effective and standardized financial services outsourcing market regulation. In order to regulate the outsourcing behavior of financial institutions, avoid and control risks, effective supervision of the financial outsourcing market is also one of the main means of controlling risks. As the regulators of financial services outsourcing, such as CBRC, SEC and CIRC, they should refine the requirements for the regulated parties and do a good job in the external regulation of outsourcing. For example, it is required that the regulated institution should ensure that its outsourcing arrangement does not diminish its ability to fulfill its obligations to customers and regulators or impede the regulator's effective supervision; the outsourcing relationship should be governed by a written contract, which should clearly set out all the substantive aspects of the outsourcing arrangement, including the rights and obligations of the parties and their expectations; and the regulated institution and its service providers should establish and maintain a contingency plan, including a remediation plans for sudden disasters. Regulators should evaluate the regulated organization's outsourcing business as an integral part of its overall business. At the same time, both the regulator and the regulated organization should establish a comprehensive outsourcing risk monitoring program to document outsourcing activities and their relationships with service providers. In establishing an outsourcing risk management program, the following aspects are included: the scope and importance of the outsourced business; the regulated organization's management capabilities; the monitoring and control of outsourcing risks; and the service provider's ability to control potential operational risks. The importance of the outsourcing business and the establishment of a risk management program should take into account the potential financial, reputational, and operational impact on the financial institution in the event that the service provider fails to perform as contracted; the potential losses to the outsourcer's customers and peers that could result from a default by the service provider; and the impact of outsourcing services on the financial institution's compliance with regulatory compliance and its changes, among other things. In short, a comprehensive outsourcing risk management process should be to monitor all relevant aspects of outsourcing, these will create good internal and external regulatory conditions for financial institutions outsourcing services, so that financial institutions outsourcing services to achieve mutual benefit **** win. IV. Conclusion Economic globalization has made financial institutions inseparable from outsourcing, compared with developed countries, China's financial institutions service outsourcing is still in the exploration and start-up phase, to go a long way to go, especially on the control of risk there is still a lot of work to be done, it is worthwhile to do further in-depth research. References: 1. Zhu Yan Yan. Project outsourcing Chinese enterprises to share the geometry. China Business Times, 2003-07-11. 2. Xu Shu. Review of Western Business Outsourcing Research Results. Foreign Economy and Management, 2003, 12(25):13-17. 3. Lv Liwei. Risk Management in Business Outsourcing. Modern Management Science, 2003, (2): 69-70.