Risk 1 - Managing Risk in an Architectural Firm

Reviewed Feb 2017This is the first of six articles giving an overview as follows:

1. The Basics of Risk Management
2. Identifying Risk within the firm
3. Identifying Risk external to the firm
4. Assessing and quantifying Risk
5. Allocating, Transferring and Mitigating Risk
6. Risk Management Checklist (interactive tool)

The Basics of Risk Management

Some claim notifications the Society has received indicate that the member firm would have been wiser not to take on a particular client or project because the risks were:

• too great to justify involvement in the project and/or
• beyond the capacity of the firm to manage and/or
• not identified, assessed, and managed and/or
• of a type for which the available PI cover was not available

By its nature, life cannot be free of risk. However, it does make good sense to anticipate and attempt to control it. Risk management is a proactive process focussed on identifying, minimising, and dealing with risk. In business, risk and profit are intertwined, and therefore successful risk management will usually have a direct and positive effect on profit.The first step in managing risk is the identification of it. Just as the design professional identifies design parameters in a programming process, an architect must identify the risk parameters of a specific project.The sources of risk may lie:

• within the firm: skills, workloads, resources, internal processes, management
• within the project: client, consultants, contractors, complexity, timeframes, budgets
• external to the project: regulations, politics, community attitudes, the economy

Having identified potential risks, there is then a need to assess their significance:

• Avoidability
• Probability
• Repeatability
• Consequences

It may or may not be possible to define all or any of these parameters. However, assessing the significance of identified risks may indicate general areas of risks that can be disposed of, and others which can be accepted or managed to reduce their impact.Risk can be managed in five ways:

• Avoided

Some risks may be able to be avoided by applying additional skills or resources, by modifying project requirements, or by abandoning involvement in the project.

• Abated or mitigated

It may be possible to reduce the risks to a tolerable level by specifically addressing the issues you can control.

• Retained

This means accepting responsibility for the projects potential liabilities and benefits. It is appropriate once difficulties are identified, understood and planned for.

• Allocated

The risk may be able to be spread to others through allocation of specific project responsibilities to those best able to control them. This is likely to involve consideration of contract terms applicable to the architect, other consultants, contractors and subcontractors.

• Transferred

If the risk is not able to be managed to within a tolerable level for the firm, then others may have to take on the risk as a commercial venture. Prudent architectural firms take out Professional Indemnity Insurance as a “backstop” for such risk.Risk Management is a vital part of effectively managing a practice. One of the key roles of NZACS is to manage risk for its members by offering advice, support, and access to architect-specific professional indemnity (PI) insurance.