Managing contractual risk is critical to your business growth strategy

Three steps to effectively manage your risk exposure

With over 20 years working for multinational engineering companies and 16 years as the Group Commercial & Legal Director of an international recruiter, I have honed my skills in managing risk in contractual negotiations with clients and suppliers. These negotiations required me to have an in-depth understanding of the obligations, liabilities and indemnities that clients set out in their contracts. I have served a total of 8 years on the UK APSCo Representative Committee and twice as the Chair. Now as an APSCo AdvisorLink Trusted Advisor and Director of Strategic Risk & Compliance Consultancy Limited (SRC), I seek to share my passion for managing risk to help businesses in the professional recruitment sector mitigate their risks and achieve compliance, so they can enhance shareholder value through the adoption of best practice.

My previous Blog published in February 2023 examined the four good reasons why Recruiters need to worry about Contractual Risk - you can read the Blog here. This Blog examines how to effectively manage your contractual risk exposure as a critical part of your business growth strategy.

As a recap, in the previous Blog I defined ‘contractual risk’ as ‘issues or problems that inherently arise during the performance of a contract’. Such risks have the potential to harm your operations. I also identified five key categories of risks that need to be considered in contract negotiations:

• Operational risks

• Financial risks

• Legal risks

• Data risks

• Brand risks

The four reasons why Recruiters need to worry about Contractual Risk were identified as:

1. Negative impact on the profitability of your business

2. Not all losses are covered by insurance

3. Missed opportunities for lower insurance premiums or enhanced coverage

4. Lower valuation of your business

In today's complex and competitive business environment, effective contractual risk management is essential for business success. By proactively identifying and mitigating risks, Recruiters can protect themselves from costly financial losses, reputational damage, and other negative consequences.

There are a number of steps that businesses can take to effectively manage contractual risk exposure, the three most important to enhance your business growth strategy are:

Identifying and assessing risks: The first step is to identify and assess the potential risks associated with each contract, using an appropriate risk management framework . This involves understanding the terms of the contract including obligations, liabilities and indemnities, as well as the external factors that could impact the contract. All stakeholders should be involved in this risk assessment process.

Mitigating risks: Once the risks have been identified and assessed, Recruiters can take steps to mitigate them. This could involve negotiating changes to the contract, implementing risk management procedures, or obtaining insurance.

Monitoring risks: It is important to regularly monitor risks on an ongoing basis. This ensures that the risks are still being managed effectively and that any new risks are identified, addressed and action taken to mitigate them.

In conclusion, from my own personal experience, effective contractual risk management is an essential part of any successful business and their risk management strategy. By taking steps to identify, assess, and mitigate potential risks, Recruiters can protect themselves from costly financial losses, reputational damage, and other negative consequences. This can help businesses to grow and prosper in today's competitive market.