Saturday, 25 April 2015

Communicating Risks: You may not have been duped



Very often you overhear people talking about this particular contractor who gave them a quote for a project only to start adding all sorts of bits and pieces to the original price once the commitment has been made and the project has commenced. The immediate conclusion is that the said contractor must be a crook ripping them off their hard earned cash. While there are definitely a few "cowboys" out there who would not hesitate to have a go at na├»ve and unsuspecting clients, my experience as a professional is that there are so many reasons why the agreed price of a project, be it building a new house, a flat renovation, or an outdoor festival, cannot be set in stone.  The reason is uncertainty.
Uncertainty, just like scepticism, is a very difficult concept for many people to grasp.
We often demand a set price for our projects, and the contractor being under the pressure of competition often give a quote stripped of obvious uncertainties just to win contracts. Some others go to the other extreme of factoring in all the possible uncertainties in the prices to avoid having to request increases. Uncertainty is often the only explanation for the disparity between low end and high end quotes, and in both cases, the providers have a point. You look bad if you start demanding additional payments after a project has resumed. On the other hand, a risk-factored quote can be so high to put off potential clients.

The truth however is that there is nothing wrong with either approach. The problem is communication. People need to understand what they are signing up to.  Project professionals know how to do this using various risk management frameworks.  What remains is for those managing or executing projects for clients not familiar with this to learn how to communicate uncertainties. There is nothing to suggest that a risk register would not work for a house refurbishment project or an anniversary party. The list of uncertainties with appropriate explanation of the cause and consequences would be a good place to start. The usual brainstorming of what might go wrong can also be fun exercise with a client. By participating in this elicitation of what-ifs, the client would be less inclined to think that they are being ripped off. Of course, in many cases, a client might not be interested or may not have the required technical knowledge to understand what might go wrong. This reminds me of taking a car to the car mechanic and asking for an estimate. You come back to get a bill comprising of all other repairs you never anticipated. The mechanic then uses his jargon to drive you bland. Obviously, trust has a part to play in all of this but being able to communicate these uncertainties is vital. Communication does not always have to be  just a written list. Using picture, diagrams and simulations could help create a better picture for everyone involved. 

There are many good reasons why people want to have complete certainty before committing to a project. Apart from the fear of being duped, they want to make sure they can afford it. People set aside budgets and there may be other competing priorities to deal with. In addition, cash flow could also be a problem even when the money is potentially available. This is why, for long projects, the timing of the uncertainties is crucial. Again being able to mutually talk through this using a suitable medium is something to aspire. Contractors who provide the same services should have devised a method of making uncertainty an important part of contract. A good compromise would be to use the so called 3-points estimate. This would be stating an optimistic, pessimistic and most likely estimate. This should enable the client to know what the range is.

It is also important to note that uncertainties do not only affect the price of projects. The duration and key milestones may also be impacted. For some people, the timing may be more of an issue than costs. This is something that needs to be clarified from the very beginning. It can even be a bigger source of frustration than cost. Imagine renovation works in a flat you live in extending much longer than you anticipated. Your lifestyle and comfort completely disrupted by delays especially when you have no idea how long that will take. 

It is important that clients start demanding how much risks have been factored into quotes they get. It is important that they start questioning the confidence level in set prices and dates. This does not need to be as complicated as graphs and percentages used in mote Carlo analysis. The demand and supply for communicating uncertainties need to come from both sides. Communication, after all, involves both asking questions as well as providing answers.

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