Dynamic Ethic Risk In Business Process Outsourcing Contract: Prevention Mechanism & Simulation Analysis

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1 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis Yeua Cen Yansan Univesity QinuangdaoHebei Cina Baoua Qin Yansan Univesity QinuangdaoHebei Cina Univesity of Toedo Toedo Oio USA Guoing Zang Univesity of Windso Windso Ontaio Canada Bo Li Univesity of Toedo Toedo Oio USA In te ocess of ong tem Business Pocess Outsoucing (BPO cooeation outsouce as to event outsoucee s dynamic etic isk. Tis ae did systematic anaysis on BPO etic isk evention mecanism. Based on te basic situations incuding etic isk fee and static etic isk a evention mecanism of dynamic etic isk is emasized. We find out tat in te evention mecanism ic integates outsoucee s individua ationa constaint (IR aso named aticiation constaint and incentive comatibiity constaint (IC discount facto is te key facto ic affects te efficiency of te evention mecanism. By numeica simuation te basic ogic of te evention mecanism is exained. I. INTRODUCTION Coesonding Auto. Emai Addess: [email protected] As moe and moe etics-eated suy cain eutions aen ecenty some eseaces ay tei attention to etics isk in suy cain management (Svensson 28; Etantay Fox and Giunieo 29; Gibet 2. Some suy cain isks ae addessed fom etica esectives (Mobeg 23 Geaint 23; Kidd 23. Svensson (28 deveoed a concetua fameok of SCM-etics in uaitative metod ie Etantay et a (29 studied suy management etics in emiica metod. Hoeve e ave not found muc eseac exicity study SCM-etics in uantitative metod. Tis ae attemts to investigate tis toic in BPO scenaio it uantitative modes and simuation veification. Pevious iteatue didn t sove te obem about o outsouces can avoid contact isks (Aon 25; tis ae esents a dynamic etic isk evention mecanism and its simuation mode ic tes o outsouces can effectivey event outsoucee s dynamic etic isk itin ong-tem business ocess outsoucing eationsi. BPO efes to outsoucing one o moe business ocesses to te extena sevice ovides (Rouse and Cobitt 26; Wüenebe et a. 28; Mani Baua and Winston 2. In ode to incease cometitive advantages in uaity cost and fexibiity comanies integate tei business esouces and focus on te coe advantages by stategic anning (Stassmann 995 Matinsons 996; Jennings996; Sen and Sie 26; Meo Nicke and Sadana 26; Gunasekaan and Edin Ceng 28; Peido 29. Business ocesses invove te Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23

2 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis maniuation of bot ysica and infomationa objects (Davenot and Sot 99; Weske 27. Outsoucing of te ysica objects constitutes contacting manufactuing ic is distinct fom BPO. Tee ae many kinds of BPO e.g. uman esouce outsoucing ogistics outsoucing and infomation tecnoogy outsoucing. In ote ods BPO focuses on te infomation and management outsoucing. BPO invoves significant divesity in outsoucing objectives anging fom eduction in oeating costs to innovation and business tansfomation (Linde et a. 22. Te essence of BPO is tat outsouce comanies outsouce tei non-coe business to te ofessiona outsoucee comanies. Accoding to incie agent teoy outsouce comanies ave to face te obems of infomation asymmety (Can and Cung 997; Eisenadt 989; Pot and Seck 29 duing te ocess of BPO. Te obems incude: ( en outsouces ae seacing fo suitabe outsoucee comanies (2 te advese seection and (3 infomation sceening obems (Lindsay Dons and Lunn 23. Duing te ocess of eaing te BPO contact te teaten to incease te ice and ote imefect contact obems esuts fom te infomation asymmety and futue uncetainty. In addition duing te execution of te contact because te outsouce cannot obseve te beavio of outsoucee comany effectivey te outsoucing comany as to face contact isks caused by outscoucee comanies (Aon Cemons and Reddi 25; Weeakkody and Iani 2. Duing te ocess of coosing te cooeation atne and eaing te BPO contacts since te BPO contact asn t been caied into execution outsouce as igt to give u BPO decision. Hoeve once te BPO contact as been executed te outsouce i be in eativey assive situation. Outsouce can neite obseve te ootunistic actions of outsoucees no itda fom BPO cooeation eations feey. In addition duing te ocess of caying out te execution since outsouce as aeady sent a ot of tansaction costs on seacing and sceening infomation te atnes of BPO oe to kee ong-tem cooeation eations. Hence te sot-tem BPO contacts ave to be adjusted and eneed o made ongtem BPO contact by bot atnes. Tis i ut moe isk on outsouce fo imicit contact azad. Hence it is vey imotant fo outsouce to effectivey event te contact isk beavios of outsoucees in ong-tem BPO cooeation eationsis. In ong-tem cooeation eationsis te outsouce as to event te dynamic etic isk by outsoucees ic means duing te ong-tem BPO cooeation ocess at te end of eac tem bot atnes ave to do tansactions of sevice and ocess ayments; meanie tey ave to decide ete tey i continue cooeation next tem. Eac tem te outsouce i ave to conside te benefit of te tem and exect te benefit of futue BPO cooeation and foecast te subseuent contact isk beavios i.e. dynamic etic isk to assue te ovea exected benefit. Duing te ong-tem cooeation ocess based on maintaining outsoucees individua ationa constaint and incentive constaint outsouce soud estabis te mecanism to event dynamic etic isk to maximize te exected ovea utiities of te ong-tem cooeation. Hence te dynamic etic isk obems in ong-tem BPO cooeation eationsis ae actuay ong-tem Reeated Game obems. Tis ae fist anayzes diffeent situations in BPO cooeation incuding contact isk fee static etic isk and dynamic etic isk. Te matematic modes of evention mecanisms aiming at eac situation ae deveoed. By cacuation a seies of eated utiity functions fo eventing dynamic etic isk ae estabised. Te imementation efficiencies of tee evention mecanism ae anayzed and comaed. Te key infuencing facto is found. At ast te eated concusions ae tested by numeica exame anaysis and te basic ideas of te evention mecanism ae exained. Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 2

3 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis II. MATHEMATIC MODEL Geneay game aying ocess of BPO dynamic etic isk evention is: Fist ste te outsouce ovides BPO contact to outsoucee ic aticuates te ayment eve coesonding ig uaity and o uaity singe-tem outsoucing sevice. Second ste if outsoucee efuses te contact te benefit of outsoucing fo outsouce comany is zeo te outsoucee may coose to cooeate it ote ousouce and get eseved utiity ; if outsoucee accets te contact outsoucee i begin to cay out te contact and decide ig effot o o effot tey need to make and ovide ig uaity o o uaity outsoucing sevice it coesonding obabiity. Tid ste at te end of eac tem bot sides i do tansaction based on te uaity eve of outsoucing sevice and decide if tey i continue foo-u BPO cooeation in te futue. Reeat te second ste. Te mecanism tat outsouce adoted to event te contact isk by outsoucee is tat: outsouce soud ovide cetain ayment so tat te outsoucee s individua ationa constaint and incentive comatibiity constaint can bot be satisfied; in tis ay outsouce i get exected BPO benefit. Assume te o eve effot made by te outsoucee is te obabiity of oviding o uaity eve outsoucing sevice is and e U te ayment tat outsoucee get en oviding o uaity outsousing sevice is ten te benefit tat outsouce get is. Again Assume te ig eve effot made by te outsoucee is e te obabiity of oviding ig uaity eve outsoucing sevice is and te ayment tat outsoucee get en oviding ig uaity outsoucing sevice is ten te benefit tat outsouce get is. No assume te obabiity of te uaity eve of outsoucing sevice ovided by outsouce i j i denotes te eve of te effot made by te outsoucee denotes te uaity eve of te outsoucing sevice ovided by outsoucee at ast. Suose ic means te Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 3 j obabiity of ig uaity sevice ovided by outsoucee en making ig-eve effot is ige tan en making o-eve effot. Suose te outsouce is isk neuta is te etun tat outsouce invest into te outsoucing business is te ayment tat outsouce ays to outsoucee and te utiity function of outsouce euas to benefit function i.e.. Suose outsoucee is isk-avesive and te ovea utiity function is accumuative te ositive utiity function of BPO ayment is ee is discounting ate. v v u n Suose te negative utiity function of effot tat outsoucee made is ee e is te effot eve. Te invese function of ositive utiity function is denoted as u( ( u (ex( u (e ayment tat outsoucee gets. ic is te cuent-tem 2. Pevention Mecanism fo Contact Risk Fee Situation Te situation of contact isk fee means tee is no infomation asymmety in te ong-tem BPO cooeation. Eac tem outsouce can effectivey estimate te effot eve of outsoucee. Wen te outsoucee makes o eve effot te exected benefit of outsouce is ; en outsoucee B ( makes ig eve effot te exected benefit of outsouce is. Aso B ( e assume B B ic means te exected benefit of outsouce is ige en te outsoucee uts ig eve effot in caying out te BPO contact. V B denotes te maximum exected benefit of outsouce fo te cuent tem en tee is no contact isk. In tis situation in ode to motivate outsoucee to make ig eve effot outsouce need to ovide

4 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis cetain ayment to satisfy te individua ationa constaint of outsoucee i.e. ten u ( U ( e ( U u( ( e U ( e and is te otima ayment by outsouce. Te ong-tem cooeation evention mecanism fo contact isk fee situation is: As ong as te individua ationa constaint of outsouce is satisfied if ote conditions do not cange te atnes i maintain dateess BPO cooeation eationsi. Te subseuent BPO cooeation is ony sime eetition of te evious scenaio. Te exected benefit of outsouce fo eac tem is V ( 2.2 Static Etic Risk Pevention Mecanism Unde te situation of static etic isk infomation asymmety exists beteen outsouce and outsoucee. Outsouce cannot effectivey estimate te effot eve of outsoucee and tey ony ave one tem BPO cooeation eationsi. In ode to maximize exected utiity outsouce as to ovide cetain ayment to outsoucee so tat bot outsoucee s Individua Rationa constaint (IR and Incentive Comatibiity constaint (IC can be satisfied. Tis can be descibed by matematic mode (I beo:. 2.3 Dynamic Etic Risk Pevention Mecanism Unde te dynamic etic isk situation due to te infomation asymmety outsouce cannot effectivey estimate te effot eve of outsoucee. At te end of eac tem it is ossibe tat te cooeation contact i eite be eneed o teminated. But neite side i be abe to foesee en te subseuent BPO cooeation eationsi i teminate. Teoeticay it can be consideed as dateess BPO contact o BPO contact i be eneed unimited times. In tis ay dynamic etic isk obem is euivaent to unimited BPO eeated games. To maximize exected BPO ovea benefit outsouce needs to ovide cetain ayment to outsoucee and satisfy outsouce s cuent and futue Individua Rationa constaint (IR and Incentive Comatibiity constaint (IC ic can satisfy futue exected ovea utiity. Suose tat outsouce as caabiity to fuy omise tat it i be abe to do te ayment fo a te subseuent tems in te futue outsouce i face simia azad evention mecanism design eac tem. In tis ay te dateess incentive mecanism mode can be soved by ecusive metod to get otima condition. Te matematic mode of dynamic etic isk evention mecanism Mode (Ⅱ is: max ( ( max ( ( u ( ( ( u ( V ( U ( V ( U u u U U ( s. t. ( u( u( u( ( e U u( ( e ( u( (IR u( ( e (IC s. t. ( u U ( ( u U ( ( u U ( e ( u U ( e U ( u U ( ( u U ( e (IC (IR Te otima exected benefit of outsouce is V ( 2 ( ee and eesent te outsouce s otima ayment fo o eve effot and ig eve effot seaatey by evention mecanism unde te static etic azad situation. We use: V ( U max ( ( u ( ( ( u ( V ( U ( Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 4 V ( U u u U U Wee V ( U denotes otima exected ovea utiity duing te ong-tem BPO cooeation. Fom outsouce s exected ovea utiity e can see: outsouce not ony caes about te utiity (benefit of cuent tem but aso subseuent utiities in te futue. Given te

5 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis exected subseuent utiity outsoucee s ig uaity eve V ( U U and U fo and o eve uaity te coesonding exected subseuent utiity fo outsouce i be V ( U and. In te mode is discounting facto and te ige te discounting facto te moe te comany caes about futue; te oe te discounting facto te moe te comany caes about cuent tem. To standadize anaysis suose en o eve effot coesonding. We use ecusive metod to sove matematica mode (I and (II. Ten by cacuation e get matematica exession ( - (. Te outsouces exected utiity function aametes and ae: ( ( e ( n ex( ( ( ex ( Hee ( e ( e e (2 In ode to ovide ig uaity and o uaity outsoucing sevice outsoucee s exected subseuent utiities ae: U U ( n ( U U n ( ex ( ( ex ( ( ex ( (3 ex ( (4 In ode to ovide ig uaity and o uaity outsoucing sevice te ositive utiity function of outsouce ayment fo te cuent tem ae: u u ( U ( (5 ( U (6 Integating aametes and and e get outsouce s exected utiity aamete : Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 5 function is: u u ( U U (7 Outsouce s exected ovea utiity V ( U ( ex( ( U ( (8 Bot ends of te euation above ae mutiied it e get outsouce s aveage exected utiity (benefit: V ( U ( V ( U ( (ex( ( U III. THE EXECUTION EFFICIENCY (9 Outsouce uses contact isk evention mecanism to eae contact ayment. It as to satisfy te outsoucee s individua ationa constaint and incentive comatibiity constaint to maximize outsouce s exected BPO cooeation benefit. Unde te contact isk fee situation te exected singe tem benefit of outsouce is: V ( ( Unde te static etic isk situation te exected singe tem benefit of outsouce is: V max( ( 2 ( Unde te dynamic etic isk situation te exected singe tem benefit of outsouce is V ( U. Te otima exected singe tem benefits unde te tee situations eesent te execution efficiencies of contact azad evention mecanism seaatey. Comae te execution efficiency of tee evention mecanisms e get te oosition: Poosition : Wen V ( U V Poof: Wen We get:

6 V ( U Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis ( V ( U ( ( (ex( ( U ( (ex( Hee: (ex( ( U n ex ( ( ( ex ( Ten e get: V ( U ( (ex( And because: ( u (ex( u So ( (ex( V ( U V ( i.e. ( End of oof. Poosition means en discounting facto vaue aoaces maximum in te ongtem BPO cooeation eationsi te outsouce s aveage exected benefit i.e. singe-tem exected benefit i aoac te eve it no contact isk ic euas singetem BPO contact Paeto Otimaity eve. Poosition 2: Wen V ( U V Poof: Wen Dynamic etic isk obem i be degaded into static etic isk obem. Tat is en otima mecanism design aoaces te ogamming obem beo: V U max ( ( u ( ( ( u 2 ( u u U U s. t. ( u ( u ( ( ( u ( e ( u ( e U ( u ( ( u ( e So e ave V( U V ( U ( ( ( V 2 Hee ( u Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 6 End of oof. ( u Poosition 2 means en discounting facto aoaces minimum in te ong-tem BPO cooeation eationsi outsouce s aveage exected benefit i aoac te eve of static etic isk ic is euivaent to subotima eve of singe-tem BPO contact. Poosition and oosition 2 sos tat discounting facto is te key facto ic affects dynamic etic isk evention mecanism. Wen discounting facto vaue inceases outsouce s singe tem exected benefit i imove fom subotima to Paeto Otimaity eve. Discounting facto efects te attitudes tat BPO atnes ave fo futue business. Te moe te discounting facto te moe BPO atnes i emasize futue. So in ode to imove te execution efficiency of dynamic etic isk evention mecanism outsouce i take action to incease te emasis eve of bot atnes on futue business. Te main measues to imove discounting facto eve ave eationsi it comanies industies and a ote eves in te society. Tey ae summaized as beo: ( Te BPO atnes i do secific investment on te eationsi about mateia caita and uman caita duing te cooeation to motivate ongetem cooeation of atnes. (2 BPO atnes i sae te knoedge about outsoucing via cooeation. Tey i get to kno eac ote bette. Te tansaction cost i decease and te cooeation benefit of BPO atnes i incease. Te sef-fufi mecanism of BPO contact i be acieved. (3 Estabis acific BPO industy association in ode to effectivey manage outsoucee comanies in te industy. Te association i examine te uaification of te outsoucee comany and ubis te eated istoica infomation of te outsoucee comanies to imove tei eutation consciousness. (4 Te govenment i enance examination mecanism and imose unisment.

7 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis eve on te ootunism beavios to imove te comanies integity eve. IV. SIMULATION ANALYSIS Based on (-( assume eac individua basic aamete is: e 8. e.2 U Te Situations of Contact Risk Fee and Static Etic Risk Unde te situation of contact isk fee in ode to motivate te outsoucee to incease effot eve to incease te obabiity of acieving ig uaity outsoucing sevice accoding to fomua ( ( e can get te otima ayment tat outsouce ovides to.579 outsoucee is te singe tem exected benefit of outsouce is. V ( Unde static etic isk toug BPO contact isk evention mecanism based on te outsoucing sevice uaity tat outsoucee ovides outsouce s otima ayment soud be fo o uaity sevice and k fo ig uaity sevice ence te outsouce s singe-tem exected benefit is V 2 ( ( 4.2 Te Situation of Dynamic Etic Risk In BPO dynamic etic isk evention mecanism te outsouce s exected otima singe-tem benefit V ( U i cange en discounting facto canges. Tabe gives te cacuated exected otima singe-tem benefit te ayments by outsouce coesonding outsoucee s ig uaity and o uaity outsoucing sevice: and te outsouce s V ( U k cuent utiity u u and subseuent exected utiity. Te cacuated data of Tabe as veified te coection of oosition and oosition 2. Tey ae: Wen te outsouce s exected singe tem BPO benefit U U V ( U V i be Wen te outsouce s exected singe tem BPO benefit is V ( U V Outsouce s Exected Singe Tem Benefit Anaysis Based on te data in Tabe as discounting facto incease gaduay fom zeo te tend of outsouce s exected singe tem benefit incease of is as Fig. : In Fig. te vetica axis eesents exected benefit and oizonta axis eesents te seia numbe of discounting facto s cange as in Tabe. Te uose of daing te figue tis ay is to cea te tend of cange of objective function. (Same it te figues beo Assume tat duing BPO ong-tem cooeation eationsi tee is an efom metod it cetain isk. If te efom metod succeeds te eationsi beteen te atnes i be cose and te ossibiity of cooeation in te futue i be geate ic means te discounting facto is inceased. If te efom metod fais te eationsi beteen te atnes i deteioate and te ossibiity of cooeation in te futue i be oe ic means te discounting facto is deceased. Fig. tes us en discounting facto eve is in beteen -.4(coesonding seia numbe is - te outsouce s exected benefit cuve aeas convex ic imies tat outsouce is isk-seeking ic means outsouce efe to efom to imove cuent BPO eationsi; en discounting facto eve is in beteen.5- (coesonding seia numbe Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 7

8 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis TABLE. SIMULATION DATA FOR DYNAMIC ETHIC RISK PREVENTION MECHANISM FIGURE. THE TREND OF OUTSOURCER S EXPECTED SINGLE TERM BENEFIT CHANGE Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 8

9 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis FIGURE 2 TREND OF CHANGE OF PAYMENT FIGURE 3 TREND OF CHANGE OF OUTSOURCEE S CURRENT UTILITY is -2outsouce s exected benefit cuve aeas concave ic imies tat outsouce is isk-avesive ic means outsouce efes not to efom and oe to maintain cuent BPO eationsi Tend Anaysis of Paametes Reated to Outsouce Fom Fig. 2 e can see en discounting facto inceases gaduay te cuent ayment tat outsouce ays to outsoucee deceases coesondingy. Hence te cuent utiity of outsoucee deceases gaduay (see Fig. 3. But because of te incease of discounting facto it inceases te cedibiity of outsouce s fuy omise. Te ong-tem stabiity of BPO cooeation eationsi makes te subseuent utiity of outsoucee incease gaduay. (See Fig. 4 and Fig. 5 Unde otima situations te outsoucee s individua ationa constaint (IR in dynamic etic isk evention mecanism must be stict ic means as discounting facto inceases gaduay te outsoucee s ovea exected utiity eve is eseved utiity U. So te outsoucee s exected ovea utiity aeas isk-neuta ic means outsoucee as no efeence about ete make isky efom o not. No matte at te discounting facto i be te outsouce s exected ovea benefit does not cange ic means in dynamic etic isk evention mecanism te outsoucee can aotion isk acoss te tems so tat it aeas isk-neuta caacte and ootunism atitude i decease. Fom Fig. -5 as te discounting facto inceases te incease of outsouce s exect benefit decease of outsoucee s cuent utiity and incease of subseuent utiity visuay so Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23 9

10 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis te basic ogic of te mecanism tat outsouce FIGURE 4. OUTSOURCEE S SUBSEQUENT UTILITY CHANGE WHEN PROVIDING HIGH QUALITY OUTSOURCING SERVICE FIGURE 5. OUTSOURCEE S SUBSEQUENT UTILITY CHANGE WHEN PROVIDING LOW QUALITY OUTSOURCING SERVICE events outsoucee s dynamic etic isk duing ong-tem BPO cooeation eationsi. Toug tis mecanism outsouce can adjust acoss te tems outsoucee s benefit and eated utiity so tat ie meeting te outsoucee s individua ationa constaint and incentive cometitive constaint te outsouce s exected BPO benefit i incease. Wen te discounting facto is ig enoug te BPO eationsi of te atnes i be moe stabe and sustainabe. By coss-tems adjustment outsouce can aotion outsoucee s singe tem isk to ote tems to event contact isk beavio and ence outsouce s exected benefit i aoac Paeto otima eve. V. CONCLUSION Tis ae esented te matematic modes of evention mecanisms in tee situations i.e. contact isk fee static etic isk and dynamic etic isk. Te execution efficiencies of te evention mecanisms ee anayzed. We found out tat in te evention mecanism ic integates outsoucee s individua ationa constaint and incentive comatibe constaint discounting facto is te key facto tat affects te execution efficiency of dynamic etic isk evention mecanism. As te discounting facto inceases outsoucee s exected benefit gaduay inceases fom subotimum to aoacing otima eve. Based on tis eated oicy suggestions ee given. By numeica simuation tis ae fute Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23

11 Cen Yeua Qin Baoua Zang Guoing and Li Bo Dynamic Etic Risk In Business Pocess Outsoucing Contact: Pevention Mecanism & Simuation Anaysis anayzed te BPO dynamic etic isk evention mecanism. Uon anayzing te tend of cange of ayment benefit and utiity tis ae ointed out tat te basic stategy of dynamic etic isk evention mecanism is te outsouce s cosstems adjustment on outsoucee s exected benefit and isk. ACKNOWLEDGEMENT: Tis ae is funded by Cina Nationa Natue Science Funds: No VI. REFERENCE Aon R.. Cemons E. and Reddi S. Just Rigt Outsoucing: Undestanding and Managing Risk Jouna of Management Infomation Systems 22( Can S. L. and Cung C. A concetua and anaytica fameok fo business ocess eengineeing Intenationa Jouna of Poduction Economics 5( Davenot T. and Sot J. (99. Te Ne Industia Engineeing: Infomation Tecnoogy and Business Pocess Re-Design Soan Management Revie 3( Deoitte Consuting LLP. Offsoing and Coss- Bode Outsoucing by Banks[J].esentation 243 (3 :3 Eisenadt K. M. Agency teoy: An assessment and evie Academy of Management Revie Etantay R. A. Fox G. L. and Giunieo L. Suy management etica esonsibiity: eutation and efomance imacts. Suy Cain Management: An Intenationa Jouna 4( Sen F. and Sie M. Fom business ocess outsoucing (BPO to knoedge ocess outsoucing (KPO: Some issues Human Systems Management 25( Gibet M. Lead P. and Magnets Etics and Suy Cain Management Etics and beavio 2( Gunasekaan A. Lai K. & Ceng E. T. Resonsive suy cain: A cometitive stategy in a netoked economy Omega 36( LaffontJ.J. and Matimot D. Te teoy of incentives: Te incie-agent mode Pinceton Univesity Pess N J 22. Jennings D. Outsoucing ootunities fo financia sevices Long Range Panning 29( Lindsay A. Dons D. and Lunn K. Business ocesses attemts to find a definition Infomation and Softae Tecnoogy 45( Weske M. Business Pocess Management: Concets Metods Tecnoogy Singe 27 Mani D. Baua A. and Winston A.. An Emiica Anaysis of te Imact of Infomation Caabiities Design on Business Pocess Outsoucing Pefomance MIS Quatey 34( Matinsons M G. Outsoucing infomation systems: a stategic atnesi it isks Long Range Panning 33 3( Meo M. Nicke S. and Sadana da Gama F. Dynamic muti-commodity caacitated faciity ocation: a matematica modeing fameok fo stategic suy cain anning Comutes and Oeations Reseac 33( Peido D. Fuzzy otimization fo suy cain anning unde suy demand and ocess uncetainties Fuzzy Sets and Systems 6( Pot S. and Seck J. Pincia Agent Teoy and Atificia Infomation Asymmety Poitics 29( Rouse A. C. and Cobitt B. J. Business Pocess Outsoucing: Te Hysteesis Effect and Ote Lessons in Infomation Systems Outsoucing: Enduing Temes Ne Pesectives and Goba Caenges R. Hisceim A. Heinz and J. Dibben (eds. Ne Yok: Singe Stassmann P.A. Outsoucing: A Game fo Loses [J]. Comute Wod Svensson Suy cain management etics: concetua fameok and iustation Suy Cain Management An Intenationa Jouna 3( Weeakkody V. and Iani Z. A vaue and isk anaysis of offsoe outsoucing business modes: an exoatoy study Intenationa Jouna of Poduction Reseac 48( Wüenebe K. Beimbon D. Weitze T. and Jouna of Suy Cain and Oeations Management Voume Numbe Febuay 23

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