Risk Management: A tool not a gamble

 

risk man

“Risk comes from not knowing what you’re doing”

Warren Buffett

Public sector contract management seems – at last – to be changing.  In my decade of experience there is a public acknowledgement at least that the very best of contract management practices will deliver increased value, as well as the outcome of a contract which might be read, and may even be useful.  The pitfalls of focussing of cost alone has been shown in media reports on many occasions.  Similarly there is little value to be had by investing in contract management or undertaking risk assessment if your proposals are based only upon minimising costs rather than focus on goals and outcomes.

I do not pretend for a moment that such practices do not also happen in the private sector – where there might also be Boardroom Gods who feel confidant to ignore “lessons learnt” and risks sufficiently to scope and award contracts through personal conviction – but project failures in the public sector are widely reported.  I sincerely hope that we are near to the end of seeing risk management as a necessary bureaucratic process (it will be described within the corporation’s strategic tools).  Effective managers “own” the contracting processes; it should drive their strategy, and documents will not be filled and filed each month but used pro-actively to reach their business goals and minimise risks.

Contracts are an integral part of the modern economy.  A successful company and an efficient public body will know this, they will develop both people and strategies to increase value for all stakeholders.  A good contracts – hopefully one which is read and directs activity rather than sits as a threat in the lawyers safe – will direct strategy, govern relationship structures and be concerned with the outcomes for all parties.  A good contract will encourage openness, engagement, seek to maximise common value, and account for risk.  From a commercial perspective I would suggest that the greatest risk is not taking any risks.  For the public sector it must always be about protecting services, especially where the service is critical to well-being or life (and of course you cannot discount the political interests which no doubt trump all others).  It is essential that risk is properly accounted for but it must not be the cause to lose opportunity or value either.  Only through innovation, and continued support and encouragement do all parties succeed.

Risk Management should be a founding process of any new venture.  Without careful consideration of all issues and crollercoaster4oncerns, the fundamental business case for the project or contract might be lost.  It should not be considered as “one of the project board papers” – a coloured RAG chart which too often will still only be considered subject to narrative of the officer delivering the report.  It is critical that the information sources are current, and in particular for new projects that there is widespread consultation with Stakeholders to ensure early identification of developing concerns.  The primary objective of  the exercise is not change the level of risk but to account for all risks.  I have witnessed the disregarding of genuine concerns on the basis that “it will be picked up operationally” or “that would be an issue for the contractor”.  That may be the outcomes but they should still be accounted for otherwise you are already diminishing value, and potentially damage relationships with both supplier and possibly Stakeholders.

Risk  allocation might feel akin to discussing a pre-nuptial agreement but it will also set the tone and expectations for a long and fruitful relationship.  Contracts as written will rarely deliver to expectation if that is the sole focus.  Rather most professionals would argue that whilst a good contract is a helpful too, it is relationships which deliver best results, it us people who solve problems, and salvage failure.  I written separately on the need for effective relationship management – here I want to focus on how the approach to managing risk can be of benefit in regard to setting an environment of trust and openness.

It is intuitive thinking that if we operate within a culture which seeks to apportion blame above learning, if penalties count for more than improving performance, we encourage closed answers dis-engagement.  Whereas joint reviews on recurring problems, workshop reviews and open feedback will encourage innovation and co-operation.  This does not disregard recompense for genuine losses (which would not be unreasonable) but if there are structural issues in process or perhaps a one-off significant event there should be discussion not just direction.  This requires senior managers to shift the focus of contracts from risk allocation to risk prevention; from contract-centred to performance focussed.  This will require management boards to accept a change from a culture of applying punitive measures as a means of first resort – rather let us invest in a good contract and competition process in the first place.

It is assuring to see Risk Management on meeting agendas, but it is the quality of the process that is being reported which really counts.  I am taken by the suggestion of supplier/customer undertaking this exercise as a joint venture.  Whilst I can see that both parties might disagree on the degree of risk and the resources required etc I believe the discussions alone would bear significant fruit.  No doubt each party might also have some risks or concerns which they may not wish (or be able) to share but whatever views, concerns and issues which can be put to paper should be.

f53958d897980fc3a0b2828620513f5cContract management is an essential framework for both managing risk and ensuring that project will deliver required outcomes.  It is now recognised that success is achieved through active participation and engagement.  The processes for success do not just drop, they have to be driven and responded to – they are not passive tasks.  My final thoughts, and I understand the pressures that are applied, but always be honest in your assessment and presentation of risk – it really is the only way to succeed.

 

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