Risk Management Tip

Risk Management Tip of the Month: Go with your gut.

by Karen · Comments 0

Do you ever get that feeling that something just isn’t right? That feeling when even though there is no definite proof that the feeling is justified, you just know that something is just off. Recently I was faced with a situation where something just didn’t seem right. But, in the world I work in, there are no gray areas. Either something is, or something is not. I know I’m being a little vague. So, before I continue on that tip, let me give you an example.

Some of the services we offer our clients include collecting and verifying the certificates of insurance of our clients’ subcontractors, contractors and vendors. With that, it is very black and white. Does the business have a minimum of $1,000,000 of general liability insurance coverage? Yes. Does the business have general liability insurance coverage per project? No. See what I mean? Black and white, no gray area there.

However, when I got that feeling, I was reminded of the one thing that no black and white result on any of our screening reports will ever be able to do.

Risk Management Tip of the Month: Listen to your gut.

We all have it. That 6^th sense that is inside each of us, our intuition, our “gut” that should be listened to, no matter what statistics or other black and white data tell you. Even though you might be defying logic, sometimes you will get that feeling that something is off. Don’t make the mistake of ignoring it.

How does this mitigate risk? Well, ever thought of working with someone, or hiring someone to be a consultant or a personal trainer when you had that feeling that something wasn’t right and dismissed it. I’ll bet you were right, and if you haven’t by now, you will know soon that the decision you made and the consequences of not listening to yourself could have been avoided. I have had consequences that have cost time and money to undo what could have been avoided altogether.

Now, in certain business scenarios, you might not always be able to justify to your boss, or your employees, or your clients as to why you are or are not doing something. But chances are they have made some decisions based on that feeling as well. Trust me on this, and trust yourself.

Risk Management Tip of the Month: You can’t ask for too much information.

by Karen · Comments 0

I know what you are thinking, but when it comes to performing due diligence, the answer is truly the opposite. In today’s economy, general contractors and other organizations must ask for more rather than less information regarding the financial and moral stability of their subcontractors, vendors and suppliers. In the end, your firm’s reputation and bottom line are at stake. Before granting that subcontract or purchase order, make sure you know as much as you can about your subs. Before grating that subcontract, follow this tip: You can’t ask for too much information.

In the November/December 2011 issue of Construction – The Magazine of the Associated General Contractors of America, one of the cover stories is titled “Managing Sub, Supplier Risks”. The article itself, titled “Due Diligence” gives detailed insight from AGC council members, insurance service providers, and General Contractor representatives who all relay a very clear message: There are an increasing number of subcontractors and suppliers who are not in business today given the economic client, and that number doesn’t look like it will decrease anytime soon. This unfortunate trend has caused a need for General Contractors to perform stricter due diligence not only larger subcontractors, but all subcontractors and suppliers.

I have said it before, but knowing is half the battle. Choosing to not ask a subcontractor or supplier to provide your organization with their sensitive information such as financial statements, project backlog or a bank credit reference letter out of fear of how they will react is just not an acceptable reason to roll the dice and hope for the best. Not knowing fully what type of business you are contracting to could lead you to unknowingly contracting to a sub who you would definitely reconsider if you knew more of the facts. At Assurance, we find business owners who get in the habit of letting a business fail, only to start another one with a “clean slate”. We also see businesses that rack up tax liens or who have a history of late-paying their bills. These types of findings throw up those red flags you need to be aware of in order to make the proper decisions when it comes to who your grant your subcontracts to. Once you know everything, you can then work more effectively with a subcontractor who maybe had a stroke of bad luck themselves, but are on their way to recovery.

Click here to read the full article from Construction.

Risk Management Tip of the Month: Prevention, not reaction.

by Karen · Comments 0

I, like millions of other people, own an iPhone. I choose to always keep it password locked in case of accidental loss (which has happened, but that was an iPad – different and expensive story however). What I also have is a little different piece of protection that helps me prevent the risk of not only loss from my pocket or purse, or loss due to dropping it and shattering the screen. No, I’m not talking about the AppleCare+ plan where I can pay $49 additional dollars if I drop it. I’m talking about a little invention sparked from a similar event.

This invention is called the iPhoneChain. It is a chain that much like the chained wallets you will see from time to time on rock stars and bikers. This wonderful little item clicks into the iPhone, and hooks on to whatever you want it to: belt loop, purse strap, briefcase, etc. All the cases in the world won’t protect you if someone tries to snag your phone. This clever tool mitigates out the risk of a phone being taken from you by theft, or slippery fingers, and it costs much less that buying a care plan and paying the additional fee. It is pure simple genius.

I have this item because of this one premise: Prevention, not reaction.

There is always going to be costs in preventing something from happening. But the costs are always minimal compared to the costs associated with reacting to a negative event. In our world, does eating healthy cost more? Unfortunately yes. Does exercising take time away from something else we can be doing? Yes. How much does diabetes treatments or heart surgeries costs? Depends of course, but I can say for sure that it costs much more than what it would take to have prevented them. When our clients take a look at how much it costs to aid in the prevention of contracting to the wrong businesses, verses what happens if just one of their contractors or vendors fails or defaults, the words of Ben Franklin come to mind: “An ounce of prevention is worth a pound of cure”. And in our clients’ cases that pound can be tens of thousands of dollars, sometimes more.

Now, does focusing on prevention always guarantee the elimination of a negative outcome? Of course not, there are always going to be things outside of our control. However, when we keep the focus on prevention, the odds will always be in our favor. I can’t prevent myself from dropping my phone, but I reduce the risk of it actually hitting the cement from making sure I have my iPhoneChain clipped on it and attached to my purse or person. Some of our clients tell us they “just didn’t know a service like ours existed”. I hear that every time I show someone my iPhoneChain. So – here it is. I recommend you watch the videos.

This one’s for you John.

http://youtu.be/mgPC4fDtL10

http://www.iphonechain.com

Begin with the end in mind.

by Karen · Comments 0

When our team at Assurance Screening and I first decided to begin my blog, we thought of what we wanted it to become. We decided that in the beginning, we would use it as a good way to get out monthly risk management tips, and my weekly thoughts and observations regarding the types of services we provide our clients, the feedback we are getting regarding our client’s use of our services, and thoughts around risk management principles within a multitude of areas. In true Steven Covey form, we are beginning with the end in mind.

Risk Management Tip of the Month: Begin with the end in mind.

When we talk about this, what we are essentially doing is visualizing the end result of your organizational desires. When Jason Terry with the Dallas Mavericks tattooed himself with the NBA Championship trophy, his end, and the end goal of the Dallas Mavericks was to have that trophy. They as a team took the necessary steps every day, with every practice, and during every game to mentally and physically accomplish what they needed to do to achieve their goal. Believe it or not, this same principle can be employed for something as fun and exciting as vendor and subcontractor risk mitigation and compliance.

If your goal is to mitigate the risks you are taking with your current subcontractor and vendor pool to minimize the costs your organization faces with the current ineffectiveness of your current processes, then that is your end. The first step is to assess where you are at. Consider answering the following for your organization:

Do you have a standardized subcontractor or vendor qualification form? If yes, are you requiring each subcontractor or vendor to update their information at least annually?
Who is responsible, and what processes do you have in place to verify this data that is received to be factual?
Are you confident that all your subcontractors and vendors carry the required amount and types of insurance that your organization requires?
Where in your organization does “the buck stop”? If something is missed, who is ultimately held responsible for the added costs, and delayed projects?

Once you know the gaps, you can define what it looks like when your gaps are no longer in your way. Too many organizations focus on sales and additions to the bottom line, and then forget about those issues that can take away from profits, like vendor and subcontractor defaults until something happens. Being reactive versus proactive rarely gets any organization to where they want to be in the end. Focus on what you want, decide how it will happen, and be proactive on defining out the responsibilities regarding who will be responsible for what. If you do that, then you have a pretty good start.