Shifting Risk

19 February 2010

Managing the risk of others in at the core of successful outsourced FM service delivery, but it does not come without inherent risks of its own. Neil Marley explains how managing client risk is shifting into new and core business areas

TRADITIONALLY IN THE FACILITIES management profession, we have put risk into the box marked ‘health and safety’. It was all about electrical, mechanical, water and asbestos and fire safety practices. This risk is very tangible and the contract normally defines the level of risk. However, in the current climate organisations are shifting more risk related to the hard FM service provision to outsource providers like Shepherd FM. Water management and F-GAS regulations are typical examples.
The control of water hygiene and water quality is essential for building owners and managers. Maintaining the quality of water storage and distribution in line with the L8 guidelines is the first stage in ensuring that the systems remain free from problems such as legionella. But the L8 guidelines are onerous for some infrequently used environments such as sports’ stadia. There is a cost of managing that risk whether this is undertaken by an outsource provider or as part of the internal team’s responsibilities.
Additionally, the introduction of F-GAS regulations which established controls on certain Fluorinated Gases used in refrigeration systems, has focused attention away from a routine maintenance regime for equipment containing the refrigerant, R22, to a project management and consultancy role ensuring the safe removal of R22, and the transfer to a substitute refrigerant.
But this is by no means the complete picture of what risk means for facilities managers. Over the last few years risk has evolved significantly to include a people component. This is partly due to the changing nature of work in a white collar environment, and the diversity of soft services FM is now responsible for, but equally because of our increasingly litigious society.
Reputation
In health and safety terms this may be considered a big shift in terms of risk profile, but risk, in my opinion, is a much bigger fish. Occupational, compliance-based, financial, reputational, business continuity, intellectual property and, of course, our old friend health and safety, are all in the melting pot. They no longer relate to the traditional role of FM but impact right on the core business.
Take reputational risk. Many don’t like to admit it but whether it is a new service or the client is developing the business in a new market, the point is that it is a new situation; the risk profile is not something you pull off the shelf. It is bespoke and should focus on core output protection. Even if you have delivered the service elsewhere it takes time to understand what you are dealing with in that particular environment. This can be a time of vulnerability both for the provider and the client themselves. The facilities organisation has to step up its knowledge and make sure that the risk is managed accurately and effectively. This is where organisations like Shepherd FM should know where to go to for the right advice or adapt their experience with other client organisations to good effect.
Risk has, of course, become part of our day to day language with the danger that it becomes background noise for general business managers. It is therefore very important that FMs are heard when it comes to their role as a kind of ‘risk monitor’ for the built environment. After all, risk is about the business, not just health and safety. We really have to start with a basic question; What is risk?
Defining the risk is at the heart of any successful risk mitigation plan. This is where the mindset has to be about the client and the context of the organisation. We have to understand the client, the organisation, and most importantly the business. Every risk profile is different because of the fact that every situation is different. Certainly at Shepherd FM we emphasise the need for a tailored and flexible approach.
Creating clarity and mitigating risk are our number one priorities, particularly if, as is the case for our business, as an outsource provider. That is because of the multiple layers of risk that relate not only to safeguarding the client organisation, and in the case of public spaces, the community, but also to protecting our own business from risk. It might sound simple but even asking just that first question gives you a complex answer that you need to be able to manage.
In our world, the whole process of understanding has to start even before the implementation and transition phases of a new contract. Why? Because the contract is where the risks are in black and white; those that will be transferred and those that the client is choosing to accept (Between those inherent and acquired risks will be residual risks – more of which later). This does raise another issue; that of the experience and competence of the team responding to specifications and tenders. After all if you do not fully understand the risks you could be in for a nasty shock once the contract is up and running.
Understanding risk however isn’t the end game. Risk management can be articulated as a three stage process:
● understanding where the risk is and making sure the business understands the implications of those risks
● prioritising the risk
● reviewing the risk register.
There is no better example of where understanding the customer is more important, than at the prioritising stage.
For those with an engineering background, think about Critical Engineering and Risk Management (CERM). As an FM provider we’re likely to put that at the top - or very near the top - of our priority list. Yet from the client point of view, fire safety may be of greater importance because of the legal ramifications of The Fire Safety Order, or maybe the protection of intellectual property gets a higher rating. Although you need to build a plan with the client organisation’s core priorities in mind, as an expert adviser you can never turn a blind eye to an issue just because of budgetary or operational pressures. It is our job to make sure we raise the flag.
Not only is the nature of risk becoming more challenging, but client expectations are changing. There are many tactical examples of where clients expect a higher level of service and for us to take the initiative in acquiring their risks. However, our experience at Shepherd FM is that what clients really expect is for us to be Professional, with a capital P. They need us to be clear, accurate and consistent in how we report risks from the outset of the relationship. That is true whether you are an outsourced provider or an internal team.
Residual risk
Residual risks are an area that has often been a bone of contention between the client organisation and the outsource provider. If clients are presented with a scenario which requires them to spend money to address a risk that has appeared as if by magic, it is human nature to feel suspicious, particularly if there seems to be no other option. The overriding sense is that the FM team is in some way positioning a new fee or project cost for its own ends. There are no surprises though if that risk is identified as a ‘residual risk’ at the start of the contract. The client would be then expecting to be presented with options as to how to manage that risk. It comes down to two words, often overused but important nonetheless - trust and credibility.
What of the future? For some organisations looming on the compliance horizon is the Carbon Reduction Energy Efficiency Commitment (CREEC). This scheme wraps up a number of the risks - reputational, environmental andcompliance - as organisations are bound to reduce energy consumption and to demonstrate that reduction. The participating organisations will feature in a published league table of performance. It is ‘name and shame’ tool designed to focus the compliance mind. This begs the question as to whether energy use will be a risk rising up the priority list to be considered from April 2010 when the scheme is introduced.
Risk is a big ball to keep in the air. Against a backdrop of forthcoming legislation relating to the built environment and the ubiquitous cost cutting measures linked to an uncertain economy, being able to evaluate and manage out true risk will help you stand out from the crowd