When our perception of risk is at its highest, the diligence we take to manage it is equally high. As time progresses and we succeed at managing the same risks over and over, the confidence we have in our ability to manage these risks increases (sometimes exponentially and often quite rapidly). This is the essence of complacency and it assumes that all risks are static in the way they manifest and impact your project. We know that’s not the case, but our confidence dilutes our initial paranoia thereby leaving us exposed to risk.
In the competitive construction marketplace the dilution of paranoia through an increase in confidence, often means the contractor will use their complacency to more aggressively price their projects. It is after all a low price game, and if the contractor believes they have “mastered” a risk then it will most often reduce the resources that were once used to manage that risk, thereby giving the company a better chance to win the project. In some cases, the contractor truly has “mastered” the risk and has gained a competitive advantage over its competition, thereby providing a greater chance of winning work. That said, in some cases, the contractor believes it has “mastered” the risk when it has not, and by not adequately resourcing the management of said risk, they are leaving the project, the company, and its client exposed (ie., win now and pay later).
In the past few years owners have adopted some new delivery models and the track record of on-time, on-budget, and even operational certainty, have improved. Even at my company, we’ve collected loss ratios from traditionally procured projects and compared them to those generated by some of these new delivery models, and there is a marked improvement. These new models were just that, NEW, and given they were new, the paranoia of the contractors bearing the risk associated with them was never greater. Often the paranoia was not only felt by the contractor, but in the case of Public Private Partnerships (P3s) the capital used to finance these assets was equally filled with paranoia. Given the above referenced complacency theory and it’s application to some of the new delivery models coming to market, is there a chance that complacency might be manifesting within these new models and as such performance results might deteriorate? I believe that may very well be the case.
Looking at P3s, the paranoia resulted in the implementation of two major risk controls:
1. Mandated Use of the A-Team – Those responsible for the risk, and those most paranoid, were driven to use their best people on these projects. The A-Team was brought to the table from all parties involved in the project. Often the best in a company are the most paranoid as they are always running scenario analysis’ in their heads imagining what could go wrong, but more importantly, using that imagination to take measures to ensure nothing does go wrong.
2. Third-Party Oversight – Those that are the best at what they do are not afraid of the scrutiny of others. Often if you ask the best in their field what makes them the best, the answer is the drive to always get better. Third-party scrutiny was welcomed by the best, even though it may have been a requirement of others less familiar with construction (ie., the project finance stakeholders). Just like the contractor brought their A-team to the table, the project finance stakeholders demanded the best teams of third-party scrutinizers.
So, back to complacency, the above risk controls played a primary role in making these projects successful. The track record of success grew over time as the best from all stakeholders imagined risks and treated risks successfully. This has gone on for several years now and it does appear that confidence in delivery is high, and competition is getting fierce. These two facts are combining to create a potential for higher failure rates. To be competitive, the A-teams are not being turned to as frequently (both within the contractor and from the third-party oversight community). Paranoia is being diluted through greater confidence, and what once was a strong track record of success could start showing signs of deterioration. If we want to maintain this strong track record, those involved successful delivery models should look to gauge paranoia levels and the application of A-teams on these projects.
David Bowcott is senior vice-president, national director of large/strategic accounts, AON Reed Stenhouse Inc. Send comments to editor@on-sitemag.com.
