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Ted’s Blog: Discussing critical industry issuesThe Garrison Report #2008-2
High-performing Contractors Take
Greater Risk!
Listen to the audio version of this report here
While the title is accurate, it's also misleading because it goes in the face of conventional wisdom. Increasing the amount of risk that you are accountable for doesn't mean that you increase your actual risk. In reality, the greatest risk on any project is unmanaged risk. Therefore, the best way to reduce risk is to assign each project risk to the organization or individual best capable of managing that particular risk. In this way the risks to the project will be minimized.
Unfortunately, too many companies attempt to reduce their risk by simply shedding the risk or forcing it on someone else. This doesn't work unless the entity assigned the risk is able to manage it, and in fact, it may produce a worse result than if the risk hadn't been shed in the first place.
Therefore, when owners are dealing with high-performing contractors, they would be best served to offer no advice. Instead, owners should define only the final product's performance standards and avoid all description and information on how to achieve that goal. In essence, owners should assign high-performing contractors full responsibility for the means and methods of delivering the performance, thus making them fully accountable for the end result. In this environment the design team's role is to help the owner articulate the final performance including aesthetics, layout, function, etc. It should not be the architect's role to tell the contractor how to perform its work. This means specifications should be minimized.
Every time the architect or the owner tells the contractor what to do, the contractor is no longer accountable for the outcome of that activity. If it doesn't work, the contractor merely claims that it did what that other entity told it to, so that entity is responsible. In contrast, with a performance specification, the owner merely says it's not performing as agreed upon and directs the contractor to make whatever changes it decides are needed to bring the performance into compliance.
If you have doubts that this is a viable approach, consider the situation when you have to have surgery. Do you attempt to tell the doctor how to perform the surgery? Or do you find a high-performing doctor, discuss the desired outcome and let the doctor do his or her job? Of course, the answer is obvious. But why is the answer any less obvious in the construction industry? After all, isn't the contractor merely the building's doctor!
The key element of making this process work is the development of a risk-assessment plan by the high-performing contractor. The assessment should focus on the three critical areas of a project: budget, schedule and performance. Therefore, anything that could derail one of those three areas should be identified. The potential risks fall into two categories. The first are risks the high-performing contractor can't manage, and second are those it can manage.
For any risk the high-performing contractor can't manage, it should immediately notify the owner of that risk and explain what it will do to minimize the risk. There are issues the contractor can't control, such as underground obstructions and weather. However, the contractor can take precautions to minimize their impact and/or develop contingency plans to deal with various situations if they should occur.
However, the real benefit of the high-performing contractor is in the area of managing risk that it can control. From its experience, the high-performing contractor is very perceptive and is able to anticipate potential problems and take the appropriate action to avoid those problems. The track record for the high-performing contractors in this environment is very good because it takes action based on information and minimizes guesswork. In other words, its choices are based on facts, not opinion; therefore, the end result is high performance.
In conclusion, high performers don't seek risk for the sake of a thrill; it's that when they apply their skills and experience to potential challenges, they minimize the risk, which is what they are paid for. It's no different than the star athlete who wants the ball at the critical time. Of course, that person could fail, but chances of success increase when the star has the ball. However, because the high-performing contractor is accountable for the final results, it is in the best interests of not only the contractor, but also the owner, for the contractor to do whatever is necessary to ensure the desired results are achieved.
In the end, the high performer reduces risk by accepting responsibility for its performance and taking the appropriate actions.
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