WHEELING, Ill. — Companies can realize great value from outsourcing various business functions, but as they move toward doing so they must consider the risks involved, a panel of experts said.

Speaking last month at the REBEX 2012 Regional Risk Management Conference and Exhibition presented by the Chicago and Wisconsin chapters of the Risk & Insurance Management Society Inc., Patricia LeBon, manager of the private client advisory department at Tave Risk Management in Northbrook, Ill., said, “When people consider outsourcing, they relish the thought of washing their hands of one of their business functions.”

Unfortunately, while focusing on the upside benefits, many companies tend to overlook the potential downsides of those outsourcing activities, Ms. LeBon said.

Panelist Daniel Steiner, manager in the risk services group of Baker Tilly Virchow Krause L.L.P. in Appleton, Wis., said that as companies consider outsourcing, “You have to think about specifically why you want to outsource.”

It's also important to engage internal and external stakeholders early in the process, Mr. Steiner said, and to recognize the various compliance implications that might be involved in outsourcing different business activities.

“You can't outsource responsibility,” he said.

Another panelist, Aaron Howes, vice president of Expeditors Cargo Insurance Brokers Inc. in Seattle, said it's important to consider what risks might increase from outsourcing various activities and what can be done to mitigate those exposures.

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While acknowledging that “relationships are important,” Mr. Steiner advised companies to avoid “selection bias” toward those with whom they have an existing relationship as they seek outsourcing partners.

“You want to look at all your options,” he said.

He also advised companies to be as specific as possible in spelling out expectations in requests for proposals. In outsourcing internationally, “there can be a culture gap,” Mr. Steiner said, so companies should make sure there is someone with the outsourcing partner who understands the difference in the cultures and can help bridge those gaps.

Mr. Steiner said doing appropriate due diligence of outsourcing partners before contracts are signed can prevent problems later.

“Making sure you have a strong partner to begin with mitigates the risk of something happening,” he said.

Mr. Howes agreed. “I can't focus enough on kicking the tires,” he said.

It's important to make sure contract language is clear and that contracts contain all the terms agreed to with the outsourcing partner, Mr. Steiner said. And, he said, while you want to negotiate those terms aggressively, “You want to make sure it's a win-win. You don't want to poison the relationship.”

Once outsourcing agreements are in place, “You want to make sure you have someone who has ultimate oversight so you don't have miscommunication among the different groups,” Mr. Steiner said.

Regular risk reviews have been an important part of making sure his company receives consistent quality of service in its outsourcing relationships, Expeditors' Mr. Howes said.

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Looking at an emerging outsourcing exposure — the risks associated with third-party social media outsourcing — Ruth Wagner, vice president at CMP.LY Inc. in Chicago, said companies that engage third parties such as celebrities, bloggers, agencies or third-party vendors in their media marketing efforts face inherent “borrowed reputation” risk.

To avoid running afoul of regulators such as the Federal Trade Commission, it's essential that companies outsourcing social media marketing activities make clear and conspicuous disclosure, create a culture of compliance, document processes and procedures, and monitor those marketing activities to make sure policies are adhered to, Ms. Wagner said.

The risks of not complying with those requirements include reputational damage, regulatory action, or legal exposure or liability, she said.

Ms. Wagner said many companies that are outsourcing social media activities rely on their agencies or other third parties to make sure they're meeting necessary requirements.

But “I wouldn't recommend it,” she said. “It's your reputation that's at risk.”

Best practices for outsourcing social media activities include ensuring third parties engaged to discuss the brand make necessary disclosures and that they're truthful; having a documented process for informing third-party advocates of those disclosure requirements; and selecting advocates who value compliance and transparency, Ms. Wagner said.

In outsourcing social media activities to agencies and third-party vendors, companies should make sure those partners have social media policies in alignment with their own, and that those partners aren't engaging additional vendors on the marketing program who lack appropriate compliance policies and procedures.