Do you know the global outsourcing market will reach USD 525 billion by 2030? This is according to a new study done by Grand View Research. This is due to increased demand for outsourced human resources and IT services. This demand has led to the need for effective data governance in outsourced operations.
According to a Deloitte study, one of the critical drivers of global outsourcing is the need to focus on core business functions. The second reason why businesses decided to outsource some of their operations is to reduce costs.
In some instances, businesses outsourced their operations to have an advantage in the global market. The increasing trend of outsourcing will see businesses adopt technologies such as cloud computing to scale their “as-a-service” business models.
In outsourced operations, data governance helps mitigate risks in sharing sensitive data with external parties.
The primary purpose of this article is to discuss the critical role of data governance in outsourced operations. We will also discuss how data governance can ensure compliance, its benefits, best practices, and how to define expectations in contracts and agreements.
Key Takeaways
- Data governance is crucial in outsourcing because it reduces risk and ensures compliance.
- Vet outsourced operators to ensure that their data handling protocols meet the needs of your business.
- It is crucial to set up joint committees with staff from the outsourced operator to improve communication and reduce mistrust.
The Significance of Data Governance
Data governance is a framework consisting of policies, procedures, and practices used to ensure data security and integrity. The main aim of data governance is to create data accountability and a structured approach that businesses can use to share data.
Data governance includes several key components, one of them being data privacy. As a result, the governance framework must adhere to data privacy regulations like the California Consumer Privacy Act.
To ensure data privacy, you must protect consumers’ personal information by either ensuring data minimization or obtaining informed consent for data collection and usage. Another way that data privacy is included in the data governance framework is by ensuring that consumers have access to and control of their data.
Access means that the consumer has knowledge of the kind of data being processed, and they can demand it be deleted from the system.
Other key components of data governance are:
Data Quality
Data quality means that the information being processed is accurate. Data quality tries to answer the question, “Is the data reliable and consistent?”
Data quality is essential because it helps businesses make informed decisions and fosters organizational trust. For data to be of high quality, it must meet the following qualifications:
- The data must be accurate, truthful, and factual
- It must be consistent across systems and applications
- The information must be relevant to the organization
- It must reflect current affairs
- The data should be original data
Data Security
Data security is another crucial component of data governance. The primary purpose of data security is to protect sensitive information from authorized access, use, or modification.
Data security mainly entails dealing with cyber threats such as spoofing, code injection attacks, and Denial-of-service {DoS] attacks.
Implement security measures such as access controls and encryption to protect your business from cyber threats. Encryption is the process of transforming readable data into unreadable code. The unreadable code is then accessed using a decryption key.
Another strategy for enhancing data security is using Data Loss Prevention software. The software monitors the movement of data within the business to identify leaks that can cause non-compliance.
Data Catalog and Metadata Management
Another critical component of data governance is data catalog and metadata management. This component is vital because it creates a framework for classifying, documenting, and tagging data.
As a result, it becomes easy for the user to find and access the data they need in a reasonable time frame. In addition, data cataloging also helps to ensure data accuracy and consistency.
Lastly, it is essential to note that data governance is not a static set of rules. Data governance is a dynamic process that requires constant evaluation. Therefore, there must be a component of performance measurement and continuous improvement.
Impact of Effective Data Governance on Business Operations and Regulatory Compliance
Data governance has numerous advantages for businesses. One of the advantages of data governance is that it enhances the decision-making process, making decisions more reliable, trustworthy, and impactful.
Another benefit of data governance is that it ensures compliance with various data laws, protecting the business from hefty fines and reputational damage.
Lastly, data governance helps ensure regulatory compliance by aligning data practices with regulatory needs.
Data Governance Framework in Outsourced Operations
A data governance framework is essential when outsourcing business operations to third parties. It is crucial because it will allow you to protect sensitive information and ensure compliance.
The first thing that needs to be done when outsourcing operations is to have clear data ownership and accountability.
So, how do you get clear data ownership and accountability?
The first thing you need to do is set up roles and responsibilities. The second thing is to ensure that the roles and responsibilities align with your organization’s policies and regulatory requirements.
Establishing Data Ownership and Responsibility
The best way to establish data ownership and responsibility is to identify the owners, stewards, data users, and outsourced service providers.
The data owners are directly responsible for defining data usage rules and ensuring the security and integrity of the data.
Data users are consumers who use your information for private or business use. To avoid non-compliance, users must have limitations on how they use the data.
Outsourced service providers must be vetted and their responsibilities known. The outsourced provider must demonstrate how they will manage and protect the information from misuse.
It is also essential to ensure that the roles and responsibilities of all parties align with the business’s policies and regulations.
To do this, ensure that the outsourced service provider complies with relevant business policies related to data security, ethics, and privacy. The outsourced service provider must also understand your industry’s current regulatory landscape.
Also, establish compliance processes that the outsourced service provider must follow and continuously monitor to ensure the procedures are being followed. Lastly, encourage open communication and feedback from outsourced service providers.
Implementing Data Classification and Access Controls
Data classification is a process of categorizing data based on its sensitivity and importance. Data can be categorized in many forms, such as public, internal, confidential, and highly sensitive.
The information can also be categorized as restricted, meaning it has strict access controls and security measures. Data classification is essential because it minimizes the likelihood of data breaches and ensures compliance.
Once the information is categorized, store and use appropriate access controls. Some of the access controls that can be used are:
- Role-Based Access Controls: These controls use permissions based on user roles such as managers, administrators, and regular employees.
- Mandatory Access Control {MAC}: MAC is used on security labels that give data and user clearance. This mostly applies in strict environments such as the defense sector.
- Authentication and Authorization: These controls ensure that users authenticate themselves before accessing information.
Collaboration with Outsourced Partners
When collaborating with outsourced partners, it is essential to do this within the confines of a legal framework. This will help ensure your sensitive data’s security, compliance, and privacy.
For the collaboration to succeed, data governance clauses must be in the outsourcing contract. One crucial data ownership clause is on data ownership and responsibility. This clause mentions the party that owns the data and its obligations.
The ownership clause will also clarify whether the outsourced party can manipulate or transfer the data to a third party.
Another essential data governance clause to have is on the security measures and confidentiality of data. This clause should highlight the type of security protocol the outsourced partner has. These security protocols can be in the form of:
- Encryption standards
- Access controls
- Security protocols for stopping and reporting cyber attacks
Lastly, it is crucial to have a data breach response and notification clause. This clause should have a clear protocol for what will be done during and after a data breach. The clause should also include guidance on the investigation process and cooperation procedures.
Conduct due diligence before preparing a data governance contract for an outsourced partner.
The following steps should act as a guideline for due diligence:
- Prepare a criteria list of what you expect from your outsourced partner
- Request the potential partner to share their data governance policies and procedures
- Investigate the data security measures of the partner, such as their encryption standards and access controls
- Investigate the data handling protocols and procedures and ensure they are satisfactory
- Assess compliance with industry-related laws such as GDPR and HIPAA
- Conduct an audit on past performance
- Check their incident response capabilities
- Visit their facilities
Lastly, engage third-party experts to conduct an independent assessment.
Establishing Communication Channels for Data Governance
Establishing communication channels with the outsourced partner is important to maintain transparency and proactive collaboration. To do this, set a regular meeting schedule and share relevant informational materials.
It is also important to have a notification system that alerts stakeholders of any changes in data governance policies and regulations.
Apart from regular meetings, establish joint committees. The work of the committees will be to address data governance challenges and share expertise.
It is also crucial for both sides to engage in cross-training initiatives to help employees gain insights into each other’s data governance practices.
Best Practices for Data Governance in Outsourced Operations
Outsourced operations come with their fair share of challenges, particularly where data governance is involved. As a result, businesses need to implement best practices to deal with these challenges.
One best practice is to continually monitor and audit outsourced operations to ensure recommended data practices are being implemented. To do this, schedule periodic audits and assessments. The audits can either be quarterly or half-yearly.
When doing the audits, focus on critical areas like the accuracy of the data being shared and processed. It is also vital to focus on other areas, such as the incident response protocols being used and regulatory adherence. If you feel your team cannot make objective audits, hire third-party auditors.
For the monitoring process to be successful, modern tools such as Data Loss Prevention solutions should be used to detect and prevent unauthorized data transfers. Another tool that you can use for ongoing monitoring is a Security information and event management tool. This tool is used to analyze logs and identify potential security threats.
Businesses can also use automated reporting tools to receive regular updates on data security incidents, access logs, and compliance metrics.
Another best practice is to have regular training and awareness programs. The training should address best data security, privacy, and compliance practices. The training should also be tailored to meet specific objectives, such as building a culture of data responsibility.
Regulatory Compliance and Reporting
Businesses must adhere to several regulatory obligations when dealing with outsourced operations. These regulations ensure the entire process is secure, private, and legal.
One key regulatory obligation is to comply with data protection laws such as the Lei Geral de Protecao de Dados {LGPD}. This law applies to businesses operating in Brazil.
The process must also comply with industry-specific regulations such as the Health Insurance Portability and Accountability Act {HIPAA} and the Gramm-Leach-Billey Act {GLBA}. HIPAA applies to business operating in the healthcare industry, while GLBA applies to businesses operating in the financial sector.
The outsourced operation must comply with data security standards such as the ISO/IEC 27001 NIST framework.
If your outsourced provider is located in another country, then it means that this is a cross-border data transfer process. As a result, you must comply with cross-border data transfer regulations such as the EU-US Privacy Sheild {applies to Transatlantic data transfers}. These regulations require businesses to have safeguards such as Binding Corporate rules.
Reporting Requirements and Timelines for Data Governance Compliance
Besides dealing with various regulatory requirements, businesses must also adhere to reporting rules and regulations.
One reporting requirement is that businesses adhere to data breach notification and reporting rules. This rule will depend on specific laws. For example, the General Data Protection Regulation {GDPR} requires businesses to report data breaches within 72 hours.
If the business operates in California, data breaches must be reported to the California Attorney General’s Office within 30 days of discovery. The only exception to this rule is if the breach will cause serious harm to consumers.
Businesses are also required to report their compliance audit results. The audit reports should be regular, and the frequency should be based on the industry’s best practices, which can be bi-annual or annual.
Closing
Are you looking to outsource your operations to a third party but do not know where to start? Or do you need help in vetting an outsourced partner? If yes, then you have come to the right place.
Captain Compliance has a wealth of experience dealing with outsourced partners, and we can spot red flags from a mile away. We have the legal and technical expertise to vet outsourced partners and identify non-compliant parties who may compromise your data.
Reach out to us, and let us help you get the right partner for your business. Remember, compliance responsibility remains with the business even if the data is outsourced!
FAQS
1. What is Governance in Outsourcing?
Governance in outsourcing refers to a set of policies that are set up to manage third-party vendors. The policies are created to reduce compliance risks, enhance data security, reduce costs, and increase transparency.
2. What are the Main Benefits of Data Governance?
The main benefits of data governance are improved data quality, compliance, increased transparency, and risk mitigation. Good data governance also helps increase stakeholder trust and collaboration.
3. What is Outsourcing Data Management?
Outsourcing data management involves contracting a third-party vendor to store, process, analyze, or integrate its data.
4. What is the Biggest Challenge with Data Governance in Outsourcing?
The biggest challenge with data governance in outsourcing is maintaining data quality and consistency. This is because different businesses use different systems, which can result in inefficient integration and data discrepancies.
5. What are the Key Components of Data Governance?
Data governance’s key components are quality, security, compliance, and metadata management.
