355 words. Updated 11 May 2024.

Enterprise Risk Management extends to the world of contract management. Risk assessment is eminently practical and can achieve in an ordered fashion what legal analysis and negotiation struggle to accomplish. 

Establish the Context – this is the first step in the High Quality Risk Assessment Process. The context, however, does not always consist of goals and objectives, arranged in hierarchical fashion. It can be any expression of goals or intended actions. Consider a legal contract as context, and in particular the Schedule A where deliverables are set out.

Note that a risk assessment is not at all the same as a legal analysis.

Legal analysis and boilerplate contract wording
The legal analysis of a contract, in my experience, consists in a consideration of the possibilities of breach and eventual outcomes of dispute. This flows from a review of case law, concluding with a picture painted of the darkest possible outcome. The recommendations flowing from such an analysis are usually risk-averse in the extreme. 

Without critical review, the wording of contract clauses defaults to "boilerplate" language, shifting the costs of unanalyzed risk to the counterparty. Risk has now become a profit centre, unwittingly paid for by the other side. The counterparty is at a loss to analyze the contract systematically and detect these asymmetries.

Risk assessment and creative contract solutions
By contrast, a risk assessment of a contractual agreement (here I am referring to the negotiation phase, when the document is being crafted) consists in a realistic estimate of the uncertainty attendant upon each deliverable. This allows participants to assess the criticality of the risk and determine associated mitigation measures, whether pre-event or post-event. In the words of my former Director, the risk register becomes the document used to "paper the deal".

Negotiated equitable solution
The process requires the two sides to deliberately work together towards common goals. They sensibly allocate responsibility for each risk mitigation action to the entity with the expertise and resources to handle it, keeping costs down. The result is a carefully balanced and complete picture where uncertainty is shared equitably, risks are mitigated, and project costs are minimized.