Evaluating the effect of sourcing decisions on e-commerce process operations risk

One strategic decision to be made in e-commerce is how each of the business processes that comprise an e-commerce system should be sourced. A configuration is a system description that indicates which processes are to be insourced and which outsourced; even a fairly modest e-business can involve many different possible configurations. To decide which configuration to adopt a systematic process is required to measure how risk varies between configurations. This paper develops a modelling method based around five possible defective outputs of a business process. Four types of risk and four approaches to model parameter estimation are considered within the model. The model is applied to a simple example of a company selling physical goods over the Internet. It is shown how the model outputs can provide useful pointers to process redesign and issues to be considered during outsourcing contract negotiations.