Some thoughts on commercial risk management. How hard can it be?
WHAT ARE THE FACTORS?
I used to work with a very large bank, in Offshore Real Estate and they had excellent systems to guide assessment of commercial risk. By look-up of company, sector, location, you could find out all the risk factors for example of ABC Company Limited, Fitness Industry and London. Or XYZ Developments Ltd, Student Flats, Bristol. This was a hugely useful tool for credit risk assessment, and risk pricing. This provided an overall context prior to looking at any specific proposal.
Of course these weren’t the only factors: we also looked to the leadership, and management experience as well as what “skin in the game” they had. Track record and commitment are critical factors since all risk is about trust.
This was all before we looked at the investment risk of a specific proposal. Link 1 - The Four Risk Factors for Investment is a useful guide. Many of the factors considered in Offshore Real Estate lending are outlined in Link 2, however this is primarily focused on Real Estate and not necessarily relevant to other industries. Link 3 is a little more generic and may be valuable for other types of investment.
From the above we can see that risk assessment is hugely complex, looking at the context (industry and location), looking at the company and people (will they do this successfully) and the proposal (is this a good deal)
WHAT APPROACH TO TAKE?
From the above, and supporting link it is apparent that you might look at many, many factors. The risk therefore is analysis paralysis and being so deep in detail that you fail to take a balanced approach proportionate to the risk and reward.
My instinct would be to table a list of headings for a stakeholders meeting and get the people at the sharp end of the deal to prioritise which merit discussion and evaluation. The challenge therefore becomes to identify the key stakeholders for the entire deal life-cycle through concept, delivery and operation to exit.
DEAL LIFE-CYCLE AND STAKEHOLDER INTERESTS
As a project manager I know that great ideas can fail at the drawing board, in the implementation or in their operation. Sometimes failure at the end is due to an error at the beginning. For this reason I would commend careful consideration of all the stakeholders at all the stages.
Consideration of all stages is particularly important it you are in something of a Dragon’s Den scenario. External investment can take many forms from friends, family, banks and businesses to equity partners. Each will have an entry and exit point, and demand different rewards for different types of participation.
Some may take satisfaction that they helped you start-up, others may demand their “pound of flesh” whilst those with a longer term or participative role could have very different interests in the short, medium or long term.
CONCLUSION
In conclusion there is no right way to manage project and/or commercial risks. It really depends on what you are trying to achieve (the outcome) and how you are trying to achieve it (the process).
Good governance and methodologies can help the process, but they are no guarantee and a project perfectly executed will be a success: Perfect delivery of a sailing boat will still be a failure if the objective was to transport cars. I often cite the case of Euro-Tunnel which is without doubt a fantastic engineering achievement, but in terms of financial return to its investors it was a disaster!
So as it so after the case, the answer is “It depends…….”
If any reader has a recommended check-list or guidance I would welcome feedback.
LINKS
http://www.cpexecutive.com/newsletters/capitalmarkets-newsletter/netleasecolumn/the-four-risk-factors-for-investments-2/1004034275.html
http://www.principalcef.com/risk-factors.php
http://www.investopedia.com/exam-guide/finra-series-6/evaluation-customers/types-investment-risks.asp
THE AUTHOR
Tim Rogers is an experienced Project and Change Leader. He is founder of www.ciChange.org and curator for www.TEDxStHelier.Com . Past roles have included Programme Manager for the commercialization of Ports of Jersey, Operations Change & Sales Support for RBSI/NatWest, and Project Manager for the Incorporation of Jersey Post. He is also Commonwealth Triathlete and World Championships Rower with a passion for teaching and learning and is a Tutor/Mentor on the Chartered Management Institute courses. He is a Chartered Member of the British Computer Society, has an MBA (Management Consultancy) and is both a PRINCE2 and Change Management Practitioner.
Tim HJ Rogers
PRINCE2 - MBA (Consultancy) - APMG Change Practitioner
www.timhjrogers.com | Twitter @timhjrogers | Skype @timhjrogers | Mobile: 07797762051
Curator TEDxStHelier www.TEDxStHelier.com
Founder ciChange www.ciChange.org
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