Outsourcing refers to contracting business processes, functions, or expertise to an external service provider.
Companies use outsourcing to reduce costs, access specialized skills, and improve efficiency.
Why Option B (Contracting Functions or Knowledge-Related Work with an External Provider) Is Correct?
Outsourcing involves delegating specific business functions (e.g., IT support, payroll, customer service) to external specialists.
IIA Standard 2110 – Governance supports evaluating outsourcing risks and effectiveness.
ISO 37500 – Outsourcing Management Framework emphasizes knowledge-based work outsourcing for expertise gains.
Why Other Options Are Incorrect?
Option A (Foreign service providers for cost savings):
While some outsourcing involves foreign providers, outsourcing is not limited to offshoring.
Option C (Internal service provider):
Internal service providers do not involve outsourcing, as the work remains within the company.
Option D (External + internal provider collaboration):
This describes co-sourcing, not pure outsourcing.
Outsourcing involves contracting business functions to an external provider, making option B correct.
IIA Standard 2110 supports governance over outsourcing decisions and risk management.
Final Justification:IIA References:
IPPF Standard 2110 – Governance (Outsourcing & Vendor Risk Management)
ISO 37500 – Outsourcing Management Framework
COSO ERM – Third-Party Risk Management in Outsourcing
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