While the majority of the changes made sense, others seemed to be over-kill (e.g., the window blinds had to be closed in a certain way to avoid any incidence of espionage by occupants of errant helicopters f lying near the 12th story of the building). The larger story, however, is that an enormous company manages to avoid any new risks through the blanket application of security protocols that had been designed over time and found to work. While not all of them made perfect sense in their specific application, it was easier
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to mandate them en masse and get back to work than sort through them individually. Thus, a large company with billions of dollars can still manage to control the day-to-day minutiae required for effective risk management.
Specific Actions to Reduce or Avoid Risks
There are a variety of specific actions that the professional services firm can take to avoid some of the risks outlined previously in the chapter. While by no means a comprehensive treatment, we have addressed a few.
INTERNAL RISK.
The best prevention for internal risks is good hiring.
Motivated and honest professionals provide mitigation against both expected and unexpected risks. Going beyond hiring practices, professional services firms should ensure that proper firm governance codes are established and followed, as well as codes of conduct and policies as outlined elsewhere in this chapter. Finally, appropriate finance and accounting checks and balances should be implemented. These common accounting practices are well-explored territory, with dozens of available books and guides available.
DELIVERY RISK.
The best prevention for delivery risk is clear communi-
cation with the client. Eventually a project will suffer from scope creep, a key staff member will leave, or some other issue will be encountered. Clear, rapid, and open communication with the client that drives to solutions for both parties is the best cure for unanticipated delivery problems.
Other delivery risk mitigation tools include contracts (also covered in Chapter 19, “Legal Considerations,” in this book) as well as errors and omissions (E&O) insurance (covered in Chapter 16, “Purchasing, procurement, vendor and asset management”). In short, the contract terms should limit the firm’s liability to a reasonable amount (fees received or no more than the limit of the firm’s insurance coverage). The contracts should also specify methods for managing disputes that fall short of litigation, such as arbitration.
CLIENT RISK. The best way to avoid the risks associated with clients is to avoid clients of questionable financial standing. Because services are generally impossible to repossess in the event of bad debt, a few bad receivables can erase firm profits. Firms can determine client viability through credit checks and other research inquiries (Dun & Bradstreet Small Business Solutions, smallbusiness.dnb.com, as well as other information on business research web sites such as Hoovers, www.hoovers.com).
While work is underway with a client, senior firm managers should ensure that they keep up with the clients financial health, as well as internal client politics, all of which can affect the firm contracts. Good managers will develop multiple sources of information inside a client and have more than one or two “sponsors” within a given client at different levels, providing
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additional insulation from personnel changes or client political battles.
Going on-site with clients is one of the best ways to accomplish this, and senior managers should visit with their major clients on-site not less than once every two weeks.
Firms providing services to specific industry segments should also keep up with overall industry trends to avoid any surprises and stay ahead of surges or cutbacks in spending, changes in legislation, merger activity, or other industry news.
The level of acceptable risk may also vary according to the current level of the business climate. Firms with large demands on their time may be able to take on fewer, less risky clients, whereas firms hungrier for business will take on larger risks.
EXTERNAL RISK.
External risks are the most difficult to estimate and
control. Most mitigation against these types of risk come from either avoidance or the purchase of insurance. Firms must work diligently to ensure the safety of their internal and professional staff. For companies engaged in work in at-risk areas, firms such as Kroll Worldwide (www.krollworldwide.com) provide related risk consulting services.
Finally, for hard-to-estimate external risks, professional services firms should work with their insurance provider to determine proper policy types and coverages.
Quality Assurance
Many of the key elements of quality control are the same as those for risk management: leadership and expertise, quality professional staff, client-tested methodology, process, standard operating procedures, and policies. A firm that is good at risk management is generally good at quality assurance.
In the late 1980s and early 1990s, the “quality movement” produced endless literature on quality in manufacturing. Many of the same concepts from quality manufacturing apply to the professional services firm as well. The resources section of this chapter contains references to some of these. A personal favorite of ours is Quality Is Personal by Harry Roberts and Bernard Sergesketter. This book takes the concepts from quality management and applies them to the individual in daily business activities. Training programs or reading from this book will provide benefits to professional staff within the firm.
Another important factor in ensuring quality delivery is culture. Firms that celebrate whistle-blowing and institute a culture of senior management ap-proachability will have a chance to solve problems before they become too difficult to handle. Unfortunately, the culture in many firms is one of “shoot the messenger.” Senior management must work to instead glorify the messenger
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who delivers the bad news of a struggling project or a dissatisfied client.
Client staff who work with a client on a daily basis are the best form of quality control. Aloof, unapproachable senior managers may not learn about problems until they have reached a true crisis point.
Finally, the senior managers in charge of the client relationship should establish the proper “early warning” mechanisms that will help identify delivery areas requiring adjustment or course corrections while underway. The focus of these reports should be on providing an overview of status, while directing the partners’ attention to critical areas. Typical reports of interest include:
• Weekly status reports for each project or client
• Project scorecards (red /yellow/green status)
• Periodic project reviews
• Budget-consumed versus project-progress information
Senior managers should also solicit new ideas from professional and internal staff to help create new status reports that are helpful to both groups, usable for clients as well as not too onerous to prepare on a regular basis.
Crisis Management: The Best Laid Plans . . .
What actions should the professional services firm take if, in spite of all planning and risk management, a crisis occurs? The crisis response will take form based on the nature of the crisis. A good text on this topic is Crisis Management: Planning for the Inevitable; see the resources section of this chapter for details. For major events, the firm should consider retaining a crisis management and /or public relations firm. Naturally, the right time to establish a good relationship with firms of this type is prior to the crisis.
However, the day-to-day “crises” that professional service firms encounter are related to the delivery of services and client satisfaction. Because client delivery problems are inevitable for any firm, the best way that firm leadership can distinguish itself is through excellence in remediation. How well firms recognize, control and resolve their mistakes can make an enormous difference in client satisfaction.
Each salvage operation will be different and, therefore, requires the involvement and judgment of firm senior management. For example, our own company had a client for whom we had completed a very successful engagement. An unrelated, follow-on project had gone astray, with a brutal combination of scope creep, personnel problems, underbidding, and geography conspiring to create poor performance. By moving rapidly to remediate the situation and ultimately discounting the fees and recasting the project, we
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were able to get our services back on track and find a way to please the client. Over the long haul, we were able to continue working with the client, thus keeping an important relationship and a good reference for our services.
Litigation
Firms should avoid lawsuits related to the delivery of their services whenever possible. The distraction, expense, reputation damage, and opportunity costs emanating from even a successful lawsuit are immense. A failed lawsuit can be devastating. Firms that achieve a reputation for suing their clients will find their sales process an uphill battle.
“I learned long ago never to wrestle with a pig. You get dirty, and besides, the pig likes it,” an unknown author wrote. Occasionally, a client will take an unreasonable position on an issue and will be intractable during remediation efforts. Even when the end client is on the wrong side of the issue, the firm can wind up a loser from the energy, effort, and attention required to resolve the issue. Internally, we often call this “pig wrestling” and attempt to avoid it if possible. There are a variety of other ways to resolve disputes with clients, from appeasement to arbitration. A good cost-benefit analysis will usually point the way to the most appropriate approach for resolution.