Top 10 Practices for Mitigating Risk and Improving Performance for 2011 

 

Introduction

It was a challenging year for the design and building communities with many most likely not very sad to see 2010 come to an end. Looking towards a more prosperous new year, there are slight signs of improvement in certain sectors along with an architectural billing index (ABI) above 50 (>50 indicates growth) for three months in a row, a first in over two years.

As we move into 2011 and beyond, there are practices firms should focus on for improved performance and reduced risk. One key point A/E's should be aware of that industry reports and surveys have shown:

"During slow economic conditions, parties are more willing to litigate, file claims sooner and for smaller amounts."

However, even in difficult economic times, there are firms in a better prepared position today along with primed pumps when economic conditions improve. What are these firms doing differently? They have implemented effective strategies for mitigating risk as well as improving performance.

The programs of these higher performers go well beyond the basics of contracts and insurance; they address risks that impact operational and project performance. The approach has many advantages including; improved quality, higher client satisfaction ratings, fewer claims, lower insurance costs and higher profit margins. All elements enhancing the firms bottom-line and increasing business opportunities as well as reducing risk.


Top 10 Risk Mitigating Practices For 2011 

1. Improve Risk Knowledge Within Your Firm
Every employee should learn how everyday decisions can impact a projects success along with increase, or decrease the firm’s exposure to risk. Conduct regular training sessions on the topics of risk, claim trends, relationship of risk to business practices and examples of industry claims. Ensure employees are aware of the specific risk management practices the firm has implemented and how they play a role in mitigating exposures.

 

2. Project/Client Selection Process
Assessing project opportunities and evaluating potential risks go hand-and-hand and should be done early in the selection process of a project and client. Certain projects and clients are higher risk. Go through a "check-list" or "Go/No-Go" process before accepting any assignment evaluating, 1) work within your area of expertise, 2) assess clients experience, 3) claims history and 4) ensuring adequate project finances is available along with several other critical assessment items.


In a tight economy, clients are asking design professionals to do more with less. Clients that do not allow an adequate scope of service and allocation of proper fees along with unrealistic project expectations are BIG Red-Flags and signs of trouble ahead.

Projects to watch for in 2011 and the next few years include:

• Under funded public projects
• Green/sustainable projects
• Restart of suspended and abandoned projects

These projects will bring increased risk and upfront due diligence assessing exposures and implementing effective strategies will be needed to be successful.   

 

3. Managing Project Problems
Every project has its own unique risks and problems that do not go away on their own. Communicate with the owner, or prime and the contractor identifying problems at the earliest opportunity and work together in developing solutions is the best remedy. Document all meetings, discussions, decisions made along with action-items moving forward. As projects progress, memories fade along with the decisions that were made during critical points of a project. Documenting these decisions is a key risk management practice.  

 

4. Quality Job 1
Productivity and performance increases as quality improves. Why? Less rework, fewer RFI’s and change orders along with increasing client satisfaction reducing the potential for project delays, disputes and claims. Ensure a consistent, systematic approach is implemented in the development of design documents along with peer review of plans, specifications and calculations by senior representatives of the firm. Peer reviews should be conducted by someone not involved in the project deliverable ensuring accuracy and clarity of design criteria.

 

5. Staffing
Experienced and proper staffing levels are critical for the success of any firm and project. The key; balance of knowledgeable and experienced employees in services and project segments, developing design documents, providing oversight along with mentoring junior staff on the proper methods and practices used. Principals, take care of your “stars” and show them a path towards advancement and possible ownership. They are your future as well as critical for current success.

 

6. Client Management
You have the work now its time to build the clients confidence in you by using your expertise, skills and project knowledge. Communicate with clients on a regular basis ensuring expectations are understood and being fulfilled. Obtain feedback on their level of satisfaction during the projects progress and perform a formal evaluation at the completion of a project. All strategies will build upon and broaden the relationship with the client. This strategy has two advantages; 1) keeps clients happy creating future opportunities and 2) mitigates risk for completed projects.

 

7. Balanced Contract
Negotiate a fair and balanced contract stating the responsibilities and intent of all parties involved. A well-written agreement is the projects play-sheet outlining provisions helping to prevent misunderstandings, identifying duties and responsibilities; all methods for helping to resolve problems and mitigating potential claims.

In a challenging economic climate watch for; 1) client favored indemnity provisions, 2) inadequate scope of services and fees and 3) removal of construction phase services. A balanced and fair contract allows you the best opportunity for completing a quality, reduced-risk project.

 

8. When Problems Occur
Include in contracts that all parties agree conflicts will be resolved fairly, quickly and as effectively as possible through direct meetings and discussions followed by mediation if needed. Refuse to accept unlimited liability for your services with a limitation of liability (LoL) clause in your contracts that makes the amount of liability you assume proportionate to your services and your ability to control the risk.

 

9. Know Your Market
In this challenging economy, market opportunities continue to change. Do your homework, identify opportunities by geographic location, client type and practice area early on. Watch for trends with a good indication of opportunities being the largest projects for your state/area for the past 12 months. Know your competition and identify ways separating your firm from competitors based on your knowledge and expertise. Focus on what you do well and stay within your area of expertise.     

 

10. Complete Menu of Services
Have the ability to offer a complete menu of services throughout the project cycle has many market advantages along with risk mitigating factors. Design firms offering clients services in the planning stages are in a better position with knowledge of funding sources along with having a front row seat into the design and construction phase. Upon project completion, firms that assist clients with asset management services can continue a revenue stream along with building upon the business relationship.

This strategy has several advantages including creating additional business opportunities and direct knowledge when problems do occur on completed project so remedies can be made before becoming problematic and potentially a claim.


Conclusion
Every decision has potential risk, big and small. With better information we can make more informed decisions that improves our changes of success. In slow economic conditions, firms that focus on risk mitigating strategies within their organization and throughout the project cycle will continue to have more satisfied clients, fewer claims, higher quality and a greater number of successful projects for their efforts.


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SmartRisk specializes in assessing and implementing tailored risk and performance management programs for firms. Please contact us if you have any questions or would like more information.

Thank you.