Red tape strangling progress: from procureaucrats to agents of change #2

Almost 2 years ago, I wrote an article on “Red tape strangling progress: from procureaucrats to agents of change”[1] highlighting the need for commercial managers to be ‘appropriate risk-takers’, rather than risk avoiders, and to lead necessary procurement reform. For example in New Zealand, the Government Procurement Rules are explicitly seeking to increase New Zealand businesses’ access to government procurement; improve employment standards and health and safety conditions; and reduce emissions and waste. Lofty goals to encourage participation and, perhaps, risky to invest in small local and indigenous businesses? How do we decide what is an appropriate level of risk?

In Australia, I listed various reviews including the Independent Review of the Australian Public Service (APS) 2019; NSW Auditor General’s Report on Local Government 2017; and the South Australian Productivity Commission (SAPC) inquiry into the efficiency and effectiveness of State Government goods and services procurement. I could mention other reform projects, such as Australian Government Procurement Contract Reporting Update[2] from the Australian National Audit Office, which reported that, despite seeing competition as a key element of the Commonwealth Procurement Rules, more than half of all contracts have been reported as resulting from a limited tender rather than an open tender. Again, how do we decide what is an appropriate level of risk in our tendering processes, especially in a time of Covid19-disrupted supply chains?

In a recent WorldCC Ask-the-Expert webinar with Enterprise Risk Management expert, Bryan Whitefield[3], I asked about an organisation’s risk appetite. This picked up on the comments by Woodside and QANTAS chairman, Richard Goyder[4], who lamented that the regulatory burden has sparked a fear of risk-taking in the boardroom and that, ‘In Australia we seem to fear failure and look for answers straight away. Often the answer is more regulation and I think that this is the worst thing we can do…We’ve got to encourage appropriate risk-taking and drive that fear out of the boardroom.” Bryan agreed that regulation is not the answer and that it comes down to risk appetite. While a regulator’s requirements or a desire for best practice have been drivers for clarifying an organisation’s risk appetite, Bryan sees the main ask is from middle management who are unclear of the risk appetite at the board or departmental secretary level. They ask, how do we make appropriate risk decisions on good procurement and commercial management practices or raise concerns if we don’t know what their appetite for risk is?

One way to consider this question is to reference the ISO31000 standard for Risk Management which defines risk as the effect of uncertainty on business objectives. Starting with the latter part of this definition, it suggests that ‘appropriate’ is determined by whether the circumstances will advance the goals of the organisation or not. Surely, raising a negative effect to the operations, finances, or reputational goals of the organisation will be helpful? Hold that thought. What about the first part of the definition, that is the effect of uncertainty? Our WorldCC Post-Award research introduced the Value Compliance Uncertainty (VCA) Framework as a way of further breaking down uncertainty into two components: The Deliverable (what we are buying or selling or the outcomes we are producing) and The Delivery (how we or the market will provide this good or service). This suggests that ‘appropriate’ is determined by whether we can identify and minimise the uncertainty associated with the deliverable and the delivery method or partner. If we can’t minimise or mitigate the level of uncertainty, using our specific expertise or through collaboration with partners, then it is probably not an appropriate risk to take singly. However, if your information allows you to assess the effect of uncertainty on business objectives, and it is low, then this is not a risk to take collectively. Surely the best person to manage the risk is the person who has the best information and opportunity to do so? Again, hold that thought. ???

We then asked Bryan, “is raising risks a career-limiting move?” Unfortunately, it can be, Bryan says, acknowledging that bad news travels much slower than good news in some organisations and that whistleblowing is still not commonly accepted. Where there is an unclear organisational risk appetite and the organisational culture lacks psychological safety to challenge or to highlight risks, it often comes down to the individual – ignoring issues of business ethics and regulated mandatory reporting, it is their risk appetite, their confidence to ‘challenge’, their trust that the organisation will back them. Surely, raising a negative effect to the business objectives of the organisation will be helpful? Surely the best person to manage the risk is the person closest to it? Fortunately, it can be, Bryan says, in organisations which have this strong risk culture and strong psychological safety. In these organisations, the risk appetite is set by the board, executed by middle management, and lived by staff. Indeed, it can act to strengthen the culture by making clear the tolerances or boundaries in which people can make appropriate risk decisions. On the contrary, a culture, as Richard Goyder describes it, which fears failure and looks for answers straight away, or abrogates responsibility for good practice to regulators, is not empowering individuals to make appropriate risk decisions. Indeed, to use the other definition of the word ‘appropriate’, it actually takes something away, typically without the owner's permission, in this case the freedom to ask the simple question: “Is this right?”

As we transform procurement and contract management - effectively to change the engine of the plane while in flight - we need to make appropriate risk decisions. As we work on removing red tape bureaucracy, we need to seek clarity on the risk appetite of our boards and departmental executives, as well as empowerment from to act on risks directly. As Bryan Whitefield’s book, Risky Business says, we need to learn to embrace uncertainty rather than fear it. We are no longer procureaucrats but change agents, and that requires us to be appropriate risk-takers. Find out more at https://www.worldcc.com/

Please note that these are my own personal views and not necessarily those of WorldCC.

[1] https://www.dhirubhai.net/pulse/red-tape-strangling-progress-stifling-risk-taking-bruce-everett/

[2] https://www.anao.gov.au/work/information/australian-government-procurement-contract-reporting-update-2019

[3] Bryan Whitefield Risky Business: How Successful Organisations Embrace Uncertainty p125

[4] The Australian 14 Nov 2019 p.20