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Process Risk
“Process risk” refers to the possibility that the processes used to deliver a service might need to change dramatically during the term of a sourcing arrangement. This can be favorable, as in the case of “Moore’s Law” (on the predictability of rapid doubling of semiconductor processing capacity), or unfavorable, as in the case of patent infringement, licensing termination, bankruptcies of process suppliers and other adverse events.
Since processes will likely change, the parties need to identify the significant processes that form the basis of the bargain and that, if impacted by a change, could justify a renegotiation, termination, repricing or expansion or contraction of the scope of service.
Process risk denotes the risk that the processes adopted by the service provider will not fit the needs of the enterprise customer. This risk is somewhat complex.
Process risk can be managed by appropriate due diligence, contract planning, negotiation, transitioning, integration management and relationship governance. Legal planning techniques can also be used, particularly those relating to termination for convenience and termination for failure to manage the processes in an agreed fashion.
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