Complexity in Outsourcing Management – When Categories Become a Burden

In recent years, outsourcingand third-party risk management (TPRM) at many financial institutions havebecome increasingly complex. What once was a clearly structured process tomanage outsourced services has, in many organizations, turned into a confusingjungle of categories.
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Too Many Boxes, Too Little Value

Terms such as outsourcing,business process outsourcing, personnel outsourcing, IT outsourcing, ITservice, critical, material, important, cloud, with or without personal datanow fill entire Excel sheets and internal policies. Each category is intended to help manage risks more precisely and meet regulatory requirements —particularly those from DORA, MaRisk, or the EBA Guidelines on Outsourcing.

In practice, however, thislove of detail often produces the opposite of what’s intended: instead oftransparency, uncertainty grows; instead of efficiency, friction increases.Business units and control functions lose valuable time classifying and documenting instead of focusing on actual risk management.
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Complexity ≠ Better Control

More categories do notautomatically lead to better risk control. On the contrary: when definitionsare unclear or categories overlap, this creates room for interpretation andinconsistency. Compliance rarely benefits either — it becomes overloaded with administrativework, without achieving a higher level of actual control.

In larger institutions, themultitude of categories can result in inconsistent assessments of outsourcingarrangements depending on who handles them. This undermines comparability andmakes consistent regulatory implementation more difficult.
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Supervisory Regulations as a Driver of Complexity

Another driver of thisdevelopment is the growing number of regulatory requirements.
In addition to familiar concepts from MaRisk, DORA, and the EBA Outsourcing Guidelines, new ones continue to appear - for example, the EBAGuidelines on Sound Third-Party Risk Management, which extend the focusbeyond outsourcing to include Third-Party Arrangements (TPAs). These,too, can be classified as critical or non-critical.

Each of these regulations usesslightly different terms, definitions, and assessment criteria. This forcesinstitutions to repeatedly revise their internal categorization schemes andprocesses - often without adding real value to risk management.

The result: growing complexityin documentation, classification, and governance — often leading to frustrationand resource drain in practice.
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What Can Be Done?

The challenge lies in ensuring regulatory compliance without getting lost in structural details. A pragmaticapproach is needed:

- Consolidate categories: Reduce to a few, clearly defined risk classes that are both regulatory-compliant and operationally manageable.

- Harmonize requirements: Create an overarching framework that consistently maps requirements from MaRisk, DORA, MaGo, and the EBA guidelines.

- Leverage tools: Use digital solutions that simplify classification, risk assessment, and documentation - and automatically link to regulatory references.

- Focus on risk, not formality: Spend less effort on categorization and     more on actual risk control and monitoring activities.
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Conclusion

The increasing complexity inoutsourcing management is partly self-inflicted - but also strongly driven bythe growing number of regulatory demands.

Institutions that succeed intranslating these requirements into a lean, risk-oriented model gain twiceover: higher process efficiency and genuine effectiveness in control.

In the end, it’s not about howmany categories an institution has - but how well it understands and managesits risks.

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