CONTRACT RISK RECOGNITION AND RESPONSE (б)

operationally efficient contracts.[1] In earlier chapters we proposed a shift in the way contracts are viewed from legal rules to business management tools. This shift opens an array of new opportunities. Contracts are no longer separated from business and entrusted to the experts in an attempt to shift all risk to the other party. instead, they become an integral part of business, used as tools that help the parties work together to reach clarity and make better decisions faster, with better results. As illustrated in Figure 6.8, the end result, ideally, is to enable the parties to achieve success through an ease of doing business that allows them to recognize, respond to, and manage risks together.

Bridging the gap

Figure 6.8 Bridging the gap: a new mindset

THE LEAN AND VISUAL (IKEA) APPROACH TO CONTRACT RISK MANAGEMENT

In Chapter 2, we viewed contracts as visible scripts—blueprints, roadmaps or sets of instructions—for collaboration. Contracts are similar to user instructions. Some instructions that accompany a piece of ready-to-assemble furniture, for example, can be difficult for users to follow. If only text is used, how many of the users would, for instance, know how to correctly select the different screw head types that are needed?

Compare the instructions of iKEA, which include images and diagrams of screws and how they connect with the furniture panels, along with showing the steps of assembly.[2] iKEA instructions use many images, and as few words as possible, to illustrate the required actions. This is supported by an intuitive design that tries to make it obvious how the pieces should be put together. the goal is to make the task of selfassembly foolproof, so that anyone can construct the furniture correctly just by following simple instructions and using a few basic tools. How different this is from most contracts, contract briefs, or process descriptions, including those that explain how to implement contracts or manage risk. these tend to use words only, with few or no images. Because their underlying design is seldom intuitive, the user must refer to the documents to find out what to do and not to do. The tools are not easy to use and often require special expertise. Since the process is not foolproof, people make simple mistakes that could be easily avoided.[3]

A professional mechanic or carpenter might cope with word- only instructions, likely written by professionals for use by other professionals—as most contracts are written by lawyers essentially for use by other lawyers. This raises the question of whether the authors of words-only instructions want average users to be able to use them, or instead want to force users to hire trained members of an assemblers' guild. there are often too many rules and too much bureaucracy in contracting processes and documents for any busy business person to master. these rules can present a barrier to generating new business and cause weaknesses in implementation, easily leading to lost revenue, missed opportunities, and dissatisfied customers. While their goal is to mitigate risk, traditional instructions may in fact become sources of risk.

David Hillson, known as the Risk Doctor, has suggested a fresh, simplified approach to risk, calling it the IKEA approach. According to him, managing risk would be much easier if we adopted the IKEA approach to documenting the risk process. this means that we should:[4]

• Provide a checklist of what is needed at the start, and clearly describe the intended outcome

  • • Use a minimum number of words, with diagrams illustrating the most important parts of the process
  • • Ensure that all instructions can be understood by a normal person, with no specialist jargon or technical language
  • • Design the process logically so that it is obvious what to do next
  • • Provide all the required tools and make sure they do exactly what is needed
  • • use high-quality components that have been well tested and proven to work
  • • Check that nothing essential has been left out before we release the process.

Managing contracts and contract risks could be much easier and more effective if we adopted a lean and visual (IKEA) approach to documenting them and the management process, using fewer words, more visualizations, and simpler tools. Well-designed, user-friendly contracts and processes can make it much easier for the parties to succeed together. The goal should be a list of simple steps in a logical order, with less words and more images, supported by tools that work and are easy to use.

  • [1] Argyres, N. and Mayer, K.J. (2007) Contract design as a firm capability: anintegration of learning and transaction cost perspectives. Academy of Management Review,32(4), October, 1060-77.
  • [2] See, for example, assembly instructions for an iKEA chair, available at http://www.ikea.com/ms/en_uS/customer_service/assembly/B/B30093154.pdf, and for aniKEA shelf, available at http://www.ikea.com/ms/en_uS/customer_service/assembly/F/F90086985.pdf.
  • [3] the IKEA examples here are adapted from hillson, D. (2011) the IKEAapproach to risk. Project Manager Today, June, 15, available at http://www.risk-doctor.com/docs/RiskDoctor0811-15.pdf, and Barton, T.D., Berger-Walliser, G. and Haapio H.(2011) Visualization: seeing contracts for what they are, and what they could become.in R.F. Henschel (Ed.), Proceedings of the 2011 IACCM Academic Symposium for Contractand Commercial Management, Tempe (AZ), USA, 26 October 2011. Ridgefield, CT: TheInternational Association for Contract and Commercial Management, pp. 3-15.
  • [4] Hillson 2011.
 
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