Firms are always being confronted with unexpected problems out of the blue. They are completely unprepared for setbacks, what seems to be running smoothly suddenly goes off the rails. It can be threats to value creation chains, complications in production, faults or simply difficult behaviour on the part of important suppliers or customers. These things often involve a lot of money. Many firms find it difficult to respond appropriately, effectively and quickly when called upon to do so. Rash decisions, defiant responses and impulsive actions are usually unhelpful or even counterproductive.
Of course, those on the outside always know better in retrospect. At the same time – at least from an external perspective – many problems and events are easy to foresee. And it is relatively easy to avoid major problems to a large extent.
So what should you do to prepare yourself as effectively as possible?
Two elements are helpful when confronting challenges like those described above:
- Preparing yourself proactively for potential problems through approaches such as risk management and claims management
- A proactive corporate culture that attaches importance to keeping promises
A proactive corporate culture …
… that attaches importance to keeping promises.
Situations in which claims and counterclaims are made, each side is convinced that their opinion is right – everyone has probably come across them, including in business.
Vague agreements, failure to deliver what is expected or has been promised on that basis, or simply unprofessional behaviour are frequent causes of difficulties and triggers for internal or external conflicts. Verbal claims are made, many of which are difficult to fathom.
A few basic mechanisms and approaches can take the sting out of many problems of this sort before they even occur: simple things like preparing well, drawing up an agenda, keeping clear minutes of meetings and agreements and recording key events and activities make a significant contribution to clarity and transparency.
In the event of a dispute, precisely this kind of transparency – documentation of decisions and the developments that have led to them – ensures that the position is clear. Documentation of this sort makes it easier to evaluate content and agreements even after a lengthy period or for those who are not directly involved in the issues, such as mediators or judges. Transparency regarding developments over time also helps with retrospective assessments – how events involving risk or damage are dealt with, for example – and identification of potential improvements.
One of the core elements of this professional approach is raising the awareness of employees about dealing with commitments and their consequences and following key practices.
A corporate culture in which values such as keeping to agreements and maintaining transparency are important, in which a proactive approach to problems is actually put into practice and in which not fulfilling undertakings also entails consequences goes a long way to averting risks and asserting the company’s own interests.
Preparation for potential difficulties …
… by – often very simple – precautions, use of the correct methods, approaches and tools.
Two basic mechanisms have proven extremely effective in dealing with difficult situations, facilitating the best possible response to unusual events and remaining on track even with difficult business partners: establishment and ongoing development of systematic, regular
- risk management
- claims management
helps companies to act quickly and effectively even in problem cases on the basis of certain fundamental considerations.
Well-established risk management and claims management are an integral part of day-to-day operational activities and make a valuable contribution to safeguarding business success.
A range of norms and standards exist for risk management. Essentially, they always involve ongoing, early detection of potential risks and problems and the best possible preparation for and defence against their occurrence. The associated control loop is straightforward:
- the basis for the introduction of risk management is a clear analysis of the operational assets (both tangible and intangible) that require protection and identification of the potential (internal and external) threats that impinge on them.
- The relevant risks identified in this way are then assessed in terms of likelihood of occurrence and extent of damage. Many risks that are initially regarded as extremely significant turn out in the end to be relatively unimportant, others, by contrast, can be highly explosive when you scratch the surface. A wide range of risks (e.g. resources, market development, IT security) have similar significance for many companies.
- Mitigation measures are then defined for each risk. A mitigation measure either contributes to minimising the likelihood of occurrence or brings about a reduction in the extent of the damage – ideally, it hits the mark for both. The measures are assessed in terms of their cost/benefit ratios: at some point, spending to mitigate risk ceases to be good value and it is better to accept certain residual risks. The mitigation measures define clear procedures, responsibilities, communication steps to be taken, etc. in case of an incident. Action plans are therefore prepared for every relevant risk; any residual risks are accepted. If the need arises – i.e. the risk occurs – “all” that then has to be done is to execute the relevant package of measures, slightly adapted to the exact situation as necessary.
- Ongoing, cyclical analysis of risk comprises the inclusion of new risks, monitoring of existing risks and updating their assessment, through to identifying that they are no longer relevant and removing them.
The basis for effective risk management is a risk policy defined for the company, a risk strategy derived from this and the definition of corresponding areas of application. Risk management can be implemented for the company as a whole, for individual parts of it, or specifically for certain issues or projects.
In this context, the role of risk managers and their instincts play a crucial part: on the one hand, risk managers can “comfortably” address unpleasant matters in their role, including issues that are difficult to address for other role holders (managers, project leaders) or would trigger conflicts of interest, etc. On the other hand, they can establish firm ground for escalation: management decisions for dealing with identified risks on the basis of clear, factual escalation minimise any loss of face for those involved and facilitate acceptance of further measures.
A key component of the management of agreements and contracts is the process for dealing with subsequent claims arising from deviations from or changes to what was originally agreed. Conflicts of interest are often at play here.
Claims management essentially refers both to the assertion of one’s own legitimate claims and interests and defence against unfounded claims by customers and suppliers. Claims usually relate to factors of content/quality and monetary issues.
Claims management mechanisms are set up in a similar way to risk management, but they have a much more precise focus:
- they are based on agreements that are as “watertight” as possible, precise descriptions of services and documentation of contractual obligations, agreements and undertakings.
On this foundation, it is possible to define what type of deviations can be tolerated within which limits, including the resulting consequences. If the circumstances arise, it is clear who has to do what and when, which claims are to be pursued and in what form, etc.
- Systematic recording and clear representation of claims is important – from the outset: in the course of day-to-day business, precise documentation is kept of any inadequacies in the provision of services, of deviations from (and compliance with!) what has been promised and of the causes of problems and faults, while descriptions and justifications of claims are recorded and relevant evidence, including correspondence and other communications, is secured. If the need arises, arguments that support escalation can be justified and can even be used in court, if necessary.
- Assertion of these claims, successful pursuit of compensation claims if services are not provided in accordance with agreements and the way in which they are dealt with depend on their likelihood of success.
Like risk management, claims management requires good instincts, but also a degree of assertiveness. The “defensive perspective” is important and requires a corresponding corporate culture: claims management must not just be directed outwards, but must also clearly highlight and document a company’s own deficiencies, misconduct and breaches of contract, etc. The findings and potential for improvement derived from this are part of the ongoing change and optimisation processes.
The two mechanisms – risk management and claims management – are not static processes, but must continually be adapted to the circumstances at the time. For them to function well, they need the support and appropriate understanding of employees and management and they must not degenerate into an end in themselves, simply to justify expectations of these roles. Early, proactive intervention is required!
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