The hot news topic in the UK this week has been how Sir Richard Branson has been proved right regarding the flaws in the UK Government’s rail franchise selection process. His Virgin Trains’ bid to retain their franchise initially failed against the competition. But as Sir Richard threatened legal action, closer inspection by officials highlighted a problem in the process and their risk analysis. This problem will cost the UK tax payers at least £40m.
The UK Department for Transport said “These flaws stem from the way the level of risk was evaluated. Mistakes were made in the ways in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result.” Read the full statement here.
This brings up some interesting issues on the awareness of risk, and the risk management skills needed by those making large procurement decisions especially those in Government.
We are seeing increased usage of risk management in the bid process by commercial organizations, ie bidding companies looking at potential risks when they are pitching for business to decide if they want to participate at all. They are also using risk management information to improve the accuracy of pricing, scheduling and contingency. One good example is Leighton Contractors in Australia.
Risk management is also being used to provide competitive advantage, with bidders showing it’s a skill they can offer to make sure that the overall project has a better chance to come in on-budget, on-time. For example, Andrew Wolstenholme, CEO of Crossrail, has stated how risk management capability is an increasingly important criteria in vendor selection.
However what happens if the procuring team doesn’t have such a good appreciation of the importance of risk management or the awareness of how to manage their own risks? Commercial organisations seem to be increasingly ‘getting it’ – but others still think risk management is all about compliance and that risk assessment is a health and safety issue.
It’s time for an open debate on enterprise risk, and education on the information and systems needed to deliver true risk analysis.
Does your management team have the right information? What is your own organization’s Enterprise Risk Management readiness?
Leave your thoughts in the comments section or tweet us @ActiveRisk.