Home News Carillion collapse should act as “wake-up call” for effective risk management approaches

Carillion collapse should act as “wake-up call” for effective risk management approaches

by Brian Sims

Public sector officials and the heads of major corporations must use the collapse of Carillion as a wake-up call and recognise the value of an effective risk management approach. Speaking at the launch event for the 2018 EURisk Convention, Dr Calie Pistorious (CEO of technological consultancy firm DeltaHedron) and international negotiation trainer Bob Spence implored senior management figures to recognise the importance of effective risk management.

Carillion plc is a British multinational FM and construction services company headquartered in Wolverhampton. The business experienced financial difficulties in 2017, and went into compulsory liquidation on 15 January this year, which is the most drastic procedure in UK insolvency law. Before its liquidation, Carillion was the second largest construction company in the UK, listed on the London Stock Exchange and employed some 43,000 members of staff (around 20,000 of them here in the UK).

On home shores, the insolvency has caused project shutdowns, job losses (in Carillion – 1,536 UK redundancies up to 12 March 2018 – and its suppliers), losses to joint venture partners and lenders and potential financial losses to Carillion’s 30,000 suppliers and 28,500 pensioners. It has also led to questions and Parliamentary enquiries about the conduct of the firm’s directors and auditors, and about the UK Government’s relationships with major suppliers working on PFI schemes and other privatised provisions of public services. PFI projects in Ireland have also been suspended, while four of Carillion’s Canadian businesses have moved to seek legal bankruptcy protection.

“A lot of companies look at risk as a box-ticking exercise, but that’s a waste of time,” said Dr Pistorious. “It’s a change of mindset that’s needed in order to understand the business value of having an effective risk approach. The struggles of companies like Carillion are to do with risk multiplied by company culture. If those two things work together it can be an extremely powerful force for good. If they’re out of sync, then it’s a nightmare.”

Spence added: “Risk is everything. You have the risk of making the wrong deal, which may not be the wrong price. It could be the wrong Service Level Agreement or the wrong strategy for fulfilling contracts.”

Inquiry is ongoing

Left to Right: Simon Hudson (OSL), Dr Elvis Hernandez-Perdomo, Judith Moore (OSL), Bob Spence, Alastair Robertson (chair, OSL Risk Management), Sarah Weldon (OSL) and Dr Calie Pistorius pictured at the EURisk Convention launch event

Left to Right: Simon Hudson (OSL), Dr Elvis Hernandez-Perdomo, Judith Moore (OSL), Bob Spence, Alastair Robertson (chair, OSL Risk Management), Sarah Weldon (OSL) and Dr Calie Pistorius pictured at the EURisk Convention launch event

The Public Administration and Constitutional Affairs Committee’s inquiry into how the Government and public sector manages the risk of outsourcing the delivery of public services is ongoing, investigating how a company that was signed off as a going concern in the Spring of 2017 could crash into liquidation with a reported £5 billion of liabilities and just £29 million in cash less than a year later.

Carillion has been accused by Labour MP Frank Field, chair of the Work and Pensions Committee in Parliament, of having an upper management “stocked with fantasists”. Field has also stated: “The likes of non-executive directors and auditors are there to guide the company – and its books – back down to earth. In the case of Carillion it was, unfortunately, a crash landing.”

Bob Spence continued: “My philosophy is that you don’t know what you don’t know. Carillion was full of accountants and bean counters, but it still went bang. It’s fairly straightforward. If you continue fulfilling contracts on the lowest margin you can then stuff happens. It seemingly comes down to poor negotiation skills and the culture within Carillion. It didn’t seem to matter what the risk was.”

EURisk Convention 2018

This is the kind of attitude that Spence and a range of other expert speakers are trying to change at the EURisk Convention. The event, which takes place in Hull from 4-8 June, has attracted the presence of Dr Johnathan Mun, a world-renowned expert in developing risk management tools who has conducted analyses for a range of Fortune 500 firms, and Dr Paolo Sironi, a specialist in using Artificial Intelligence and digitisation to manage institutional risks and personal wealth.

The EURisk Convention will allow business professionals, researchers, directors and students to share knowledge and learn about new trends in risk management, discovering how they can be applied to business processes to improve performance and boost profits.

Dr Johnathan Mun

Dr Johnathan Mun

“Risk management is critical for every company in every situation within every country in the world,” said Dr Mun. “Life and business are fraught with the uncertainties of future events and outcomes, whether involving revenues, costs, schedules and timing, profits or value. These elements of uncertainty are driven by all sorts of externalities. I hope attendees will walk away from the event with a sense of the critical nature of risk in their organisations and begin conversations around the issues of risk and how it can be identified and mitigated.”

Dr Calie Pistorious stated: “Risk is something that’s a strategic issue for all businesses. People think risk is about the probability that something bad will happen. However, it’s also about the possibility that you may miss a great opportunity.”

Bob Spence went on to comment: “In business, risk is everything. If you understand the risks your business faces, you’ll manage them better and increase profits. The emphasis of the EURisk Convention is on risk, but if you look at the event’s speakers, what they’ll be doing is delivering ways in which today’s companies can be more profitable.”

Certified in Quantitative Risk Management

The convention will also offer the opportunity for risk professionals and students to become Certified in Quantitative Risk Management (CQRM). As part of an intensive four-day training programme under the tutelage of Dr Mun, delegates will acquire updated and practical skills in risk management, using a quantitative approach to measure, analyse and make decisions.

“CQRM participants can gain a consistent, coherent and standardised lexicon of risk, while being provided with the analytical tool set and knowledge to better quantify and mitigate business risks,” stated Dr Mun.

Provided by the International Institute of Professional Education and Research (IIPER), the CQRM certification is accredited by the National Certification Commission and recognised around the world. The IIPER is a member of the Association for the Advancement of Collegiate Schools of Business, while the CQRM has the Project Management Institute’s approval (there are 30 Continuing Professional Development points available upon completion).

*To find out more about the EURisk Convention 2018 and for details of signing up as either a delegate or to take the CQRM, visit www.euriskconvention.com, e-mail info@oslriskmanagement.com or call +44 (0)1482 626400

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