Why is Risk Management important?

In this video, we share how a robust Risk Management process can benefit your organization, especially when to comes to contracts or disputes.

Meet Paul, a contract manager with ORK, a supplier of engineering products and services to the construction marketplace. Paul is on his way to meet his company’s legal counsel ahead of a mediation session with a client. Three years ago, Paul had a similar meeting for the previous firm he worked for at the time. That time they ended up paying out $550,000 in fines to a client. However, this time Paul is calm about what lies in store. Here is his story:

Today, ORK is being sued by a client because of sustained delays in a project. The project was hit with delays for several reasons:

• First, bad weather delayed the project, but that was covered in the “Force Majeure” clause in their contract, so that was not a worry. 
• Second, some OKR staff had resigned in the middle of the project. They were head-hunted by a competitor engineering firm in a targeted fashion. 
• Third, the client introduced many scope changes outside the original scope of work that introduced several delays to the original dates promised.

Three years ago, having to deal with similar roadblocks, Paul would have been in a pickle, as he had no risk management processes or systems in place. Now, however, he’s armed with his Cora platform. As well as providing him with simple but effective project governance, Cora comes with a dynamic risk management module. 

As a result, when Paul estimated the project before signing contracts with the client, he also did a risk analysis of the project in Cora. He identified 15 different risks for the project. Three of those risks addressed the three legal issues he currently has to face. 

From the “Lessons Learned” log on a previous project, he noticed the strategy of ORK’s major competitor was to poach staff. Paul mitigated against that risk by kickstarting a replacement process before resignations even occurred. The preemptive measure resulted in a net-zero impact on the project.

Paul also made sure the Force Majeure clause was flagged in the legal contract, by raising a “risk” and assigning it to the Legal Counsel for his firm before the contract was signed. This ensured that bad weather would not incur penalties for the project. 

By tracking bad weather onsite every day in the Weather Register on his Cora cell phone app, Paul had a full audit trail of bad weather occurrences. This was a key legal requirement to avoid penalties. Paul could pull a list up of these occurrences at the click of a button.

Finally, when looking at the Gantt chart Paul realized that the client seemed to not have included a number of features in the scope of the project. He immediately put them into the project risk log and made sure the client was assigned access to them. This was done prior to the client signing off on any plan. 

Having proof that the client had seen risks and ignored their consequences ensured that ORK was ahead of the game: it meant Paul’s engineering firm didn’t have to pay out a $550K bill like his previous employer in similar circumstances. 

When Paul went to the meeting with his legal counsel, he showed him the Project Dashboard on his Cora application for the project. It clearly showed all 3 risks on the heatmap and when he drilled into the “dashlet”, it was clear that the issues were raised with the client prior to them signing off the plan. In addition, the audit trail in the project showed the creation dates and the mitigation of risk throughout the project.

It also showed where the client had signed off on the Change Request for additional scope changes. This strong data-driven audit trail resulted in ORK’s Legal Counsel being able to do a skillful piece of negotiation that resulted in no multi-million dollar penalties for ORK – and hero-status for Paul with his Director of Engineering. Now that’s how to manage risk in a business!