The Art of a Commercial Contract Manager – Balancing Risks with Opportunity
Risks are increasing. And meanwhile, opportunities are getting scarce.
Risk averse
Mature companies became risk averse. They sure know why: they have been hit hard.
Take the Banking industry: they hired compliance teams, implemented processes, bought IT tools to control, etc. They spend over 22% of their revenue to manage risks. But look at the result: few industries are more smashed, billions are lost or paid as regulator fines.
They try to avoid risks, push it on providers, or even on their clients. But this does not work out that well.
Mitigating Risk
A better line is to face risk:
- Identify risks (best handled by an outsider)
- Qualify, by listing by importance, pondering ‘impact’ and ‘probability’
- Mitigate, such steps as eliminate, transfer, optimise, accept
- Ensure, that steps are really implemented/handled
(Check this one for more this subject: https://en.wikipedia.org/wiki/Risk_management)
Mitigation is great and necessary, but let me suggest a yet even nobler tactic:
Balancing risks with opportunities
Most risks bear hidden opportunities. Marrying is a risk, but what an opportunity! Having children is no different. What about building a house, a company, a good job, etc.?
A Commercial Contract Manager’s focus is not only on mitigating risks, but also on finding opportunities in risks. Here some examples:
- The famous ‘Harvard Negotiation Project’ was based on such an occurrence. At Camp David while at war (both wanted the Sinai), Israelis and Egyptians shared the same table. Positions seemed irreconcilable. But negotiators found an opportunity: they found out that Israel had no interest in the land, but in security, while Egypt caring about owning the land, agreed to keep it weapon-free. They found common ground and peace was signed.
- In a 50Mio/year on 3 years’ deal, the buyer wanted termination rights without fees after 24 months. But accounting rules prohibited this for the seller. Positions were far off, jeopardizing the deal. The negotiator found a way out: while extending the contract duration from 3 to 5 years, higher termination fees would apply initially and disappear over time. This allowed the seller to recognise accounting revenue with a potential 2 years of additional revenue, and buyer could terminate without financial risks starting on 25thmonth.
A Commercial Contract Manager is providing true and sometimes amazing value add to business.