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3. Curt Coffman and Gabriel Gonzalez-Molina, Follow This Path (New York:
Warner Bools, 2002), pp. 40“ 41.
4. Jason Averbook, telephone interview by the author, Thursday, January 22, 2004.
5. Michael P. Leiter, telephone interview by author where Leiter quoted excerpts
from the book he coauthored with Dr. Maslach, The Truth about Burnout: How
Organizations Cause Personal Stress and What to Do about It (San Francisco:
Jossey-Bass, 1997), Thursday, January 8, 2004.
6. See note 5.
7. Ronald A. Gunn, telephone interview, Tuesday, January 20, 2004.
8. See note 7.
9. See note 4.
10. See note 7.
11. See note 4.
12. See note 4.
13. Jon C. Piot and John Baschab, The Executive™s Guide to Information Technology
(New Jersey: John Wiley & Sons, 2003).
14. Gallup Organization, Gallup Management Journal (March 19, 2001), available
from http://gmj.gallup.com/content /default.asp?ci=466.
15. Towers Perrin, Towers Perrin Talent Report 2001 (New York:Tower Perrin,
2004), p. 16.
16. See note 5.
17. Roger Herman and Joyce Gioia, The Herman Trend Alert (Greensboro, NC:
Strategic Business Futurists, 2003), available from http://www.hermangroup
.com/alert /archive_12-31-2003.html.
18. See note 5.
19. W. Timothy Gallwey, Inner Game of Work (New York: Random House, 2000),
pp. 3“18.
20. Gallup Organization, Gallup Management Journal (March 19, 2001), available
from http://gmj.gallup.com/content /default.asp?ci=466.
21. See note 5.
22. Johann Von Goethe, Intrapreneurship Is the Corporate Solution (March 22,
2004), available from http://www.pfpweb.com/handouts.intrapreneurship.html.
14
Risk Management and
Quality Assurance
JOHN BASCHAB AND JON PIOT


When investors buy stocks, surgeons perform operations, engineers design bridges,
entrepreneurs launch new businesses, astronauts explore the heavens, and politicians run for
office, risk is their inescapable partner.Yet their actions reveal that risk . . . need not be feared:
managing risk has become synonymous with challenge and opportunity.
”Peter L. Bernstein, Against the Gods:The Remarkable Story of Risk1

You want a valve that doesn™t leak and you try everything possible to develop one.But the real
world provides you with a leaky valve.You have to determine how much leaking you can tolerate.
”Obituary of Arthur Rudolph, manager of the Marshall Space Flight
Center Saturn V program office2




For a senior executive operating a professional services firm, you might
think the work day consists of a parade of golf outings and client lunches.
But it does not. In fact, in many firms, time is spent running from one fire-
fight to the next. Your most important client just called to tell you that the
project you have been working on is being cancelled because the sponsor is
leaving to take another job. Human resources calls next”there is a sexual
harassment claim. Finance calling: The euro-to-dollar conversion rate has
changed, and the client wants to pay their invoice now, so our receivables
will be adjusted. The delivery manager for a key project called: The project
is over budget and behind schedule, and the client is demanding answers. IT
just called, and they have lost critical client data and billing records, and the
backups have failed. What to do?
316
317
Risk Management and Quality Assurance

What all these scenarios have in common is that they can either be
avoided or mitigated through a proper risk management and quality assur-
ance regimen. While it is impossible to entirely eliminate risk from any en-
deavor, even small efforts to identify, quantify, and manage risk and quality
can pay large dividends to the professional services firm. Woe and ruin can
rapidly strike the professional services firm that fails to address risk and
quality issues.


Why This Topic Is Important
The risk and quality issues encountered by a professional services firm are
generally “fixable” through enough scrambling and apologizing, but with a
good risk management and quality assurance program, the time, expense,
and effort required to fix a problem can be saved for more productive activ-
ities. Further, occasionally a professional services firm can receive a knock-
out punch in the form of a major disaster. In many of these cases, a good risk
management or quality assurance program can be the difference between
continuing as a going concern and failing.
Risk management is a topic that receives relatively little attention in pro-
fessional services firms, in part because firms most often focus their atten-
tion on sales and delivery activities. This is appropriate, given that those
activities are the ones that drive revenue and deliver value to clients. How-
ever, a little effort spent on thinking through the attendant risks and quality
requirements, and taking preemptive actions where possible to avoid them,
can pay large dividends later. During our interviews for this book, a senior
manager from a consulting firm observed, “ You can lose more business in one
bad transaction with a client than you can sell in a year.”
Quality assurance is an equally important topic. Switching costs for
clients of professional services firms are generally fairly low, and clients are
only as satisfied as the result of the most recent engagement. It is common
knowledge that selling business to existing clients is an order of magnitude
easier than acquiring new ones and that dissatisfied clients can quickly ruin
a service firm™s reputation. Good quality assurance measures can signifi-
cantly reduce the likelihood of service delivery problems, or in the worst
case, provide enough advance warning that the firm can quickly move to re-
mediate the issues at the client and fix the problems.
Risk management and quality assurance are clearly important, even crit-
ical areas that the professional services firm must master. Unfortunately,
effective execution requires a careful balancing act. Overmanagement of
risk is paralyzing to an organization. Overly risk-averse managers will
quickly be accused of being in the “sales prevention” department. On the
other hand, partners who constantly sell risky, hard-to-deliver, difficult-
to-scope business will quickly find themselves abandoned by terrified
318 Services Delivery: Taking Care of Business

professional staff and dubbed a “cowboy” by their peers. Clearly, this is a
topic of critical importance to professional services firms, as well as a skill
that is difficult to perfect.


Risk Management and Quality
Assurance Defined
Risk management is the process of identifying the various undesirable out-
comes for the firm, estimating their cost and likelihood, and determining an
approach for mitigating or eliminating the risks. It is focused on the full suite
of potential problems that a firm may encounter, regardless of whether the
firm controls them and regardless of their probability.
Quality assurance is a related, but different, discipline. Quality assurance
is focused on ensuring, through process, policy, and training, the proper de-
livery of the end service to the client. It also addresses, secondarily, firm
components related to delivery such as internal staff execution and sales. Be-
cause quality is delivery-oriented, and, therefore, easy to scope, estimate,
and understand, it is usually better defined within a professional services
firm and is embedded throughout the firm™s delivery process. Professional
services firms without a reasonable quality assurance program are generally
rapidly extinguished by the market, after creating a trail of bad work and un-
happy clients. In fact, it is firms of this type that create the bad reputation
that can, unfortunately, affect the reputation of firms of good standing. Fail-
ure to adhere to a reasonable set of quality controls is bad for the firm, the
staff, clients, and the industry.


Risk Management: A Balancing Act
Risk management is challenging because it requires judgment in the face of
uncertainty. A simplified model of risk management (see Exhibit 14.1) shows
the effect of too little or too much risk in a professional services firm.
Too little risk results in the cessation of all economic activity. In the world
of complete risk elimination, contracts and projects become too cumber-
some, and decision making and client pursuits take too long. Too much risk
can be equally debilitating; the firm is in constant firefighting mode and is
torn apart by bad reputation and even litigation that ensues post poorly sold
and executed work. Each firm must find the appropriate balance of risk and
return, which will vary from decision to decision and project to project. This
balancing act is challenging, and the decisions made ultimately depend on a
host of variables.
Because each firm situation and each individual decision is unique, it is
useful to develop the general skills needed to effectively balance risk and
319
Risk Management and Quality Assurance




Not enough risk Too much risk
• Limited new business • Dissatisfied clients
• Complicated contracts • Over-promised projects
• Slow delivery • Bad agreements
• Over-engineered services • Lawsuits
• No growth • Staff turnover




Good decision-making processes
balance risk and return.



Decision-making process revisions are based on
analysis of the process and not the outcomes.



Exhibit 14.1 The Role of Good Decision Making in Risk Management




return in each case. The principle skill needed is high-quality decision
making.

The Critical Role of Decision Making in
Risk Management
Good risk management ultimately depends on good decision making. Good
decision making, in turn, is based on the rapid acquisition of the proper
amount and kind of data, building a framework for deciding, moving forward,
and incorporating feedback from past decisions as the feedback becomes
available.
The field of decision science has been well researched, particularly in
the past two decades, and a considerable amount of information on how to
improve organizational decisions is available in the related academic and
popular literature. The University of Chicago and the Wharton School at
the University of Pennsylvania in particular have strong decision science
specialties.
Some of our recommended books and papers on the subject are referred to
throughout the chapter, as well as in the resources section at the end of the
chapter. One in particular is Winning Decisions, by J. Edward Russo and Paul
J. H. Schoemaker.
320 Services Delivery: Taking Care of Business

In Winning Decisions, Russo and Schoemaker outline the fundamentals to
a good decision-making process:

• Framing: Framing determines the viewpoint from which decision mak-
ers look at the issue and set parameters for which aspects of the situa-
tion they consider important and which they do not. It determines in a
preliminary way what criteria would cause them to prefer one option to
the other.
• Gathering intelligence: Intelligence gatherers must seek the knowable
facts and options and produce reasonable evaluations of “unknowables”
to enable decision making in the face of uncertainty. It™s important that
they avoid pitfalls such as overconfidence in what they currently believe
and the tendency to seek only information that confirms their beliefs.
• Coming to conclusions: Sound framing and good intelligence do not
guarantee a wise decision. People cannot consistently make good deci-
sions using seat-of-the-pants judgment alone, even with excellent data in
front of them. A systematic approach will lead to more accurate
choices”and it usually does far more efficiently than hours spent in un-
organized thinking, particularly in group settings.
• Learning from experience: Only by systematically learning from results
of past decisions can decision makers continually improve their skills.
Further, if learning begins when a decision is first implemented, early
refinements to the decision or implementation plan can be made that
could mean the difference between success and failure.3

Russo and Schoemaker point out that one of the biggest faults of the
decision-making process is that the quality of decisions is often judged on
outcome rather than the process that was used to generate the decision.
“Many people believe that good outcomes necessarily imply that a good pro-
cess was used. And they assume the converse to be true as well: that a poor
outcome necessarily signals a poor or incompetent process.”4 Clearly, this is
not true, particularly for decisions that are close (55 percent chance of a
good decision and 45 percent chance of a bad decision) or in situations in-
volving a significant amount of outside chance or luck. In fact, a good deci-
sion-making process often produces a failure but, on average, succeeds more
often than it fails. Russo and Schoemaker illustrate their point with the chart
shown in Exhibit 14.2.5
According to Russo and Schoemaker, the way decisions are evaluated will
affect the way decisions are made in the future. Thus, in addition to a good
decision-making process, the evaluation of decisions is a critical skill. This has
serious implications for improving decision making in organizations, particu-
larly for difficult-to-make decisions, such as those related to risk management.
A good conceptual model for the risk management-decision making bal-
ancing act is depicted in Exhibit 14.3.
321
Risk Management and Quality Assurance

Outcome
Good Bad




Process used to make the decision
Deserved Bad
Good
success break




Dumb Poetic

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