The Different Faces of Risk Aversion in Public Sector Procurement

By Peter Smith posted 06-09-2017 13:24

  

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At a recent meeting of the European Public Procurement Leaders Exchange we discussed the fact that in public procurement and government contracting, many staff appear to hold a risk-averse attitude.It is a generalization of course and we would never suggest that everyone in public procurement is risk averse by nature, but it is worth thinking about why this may be the case. What is it that makes many public procurement staff behave in this manner? We suspect there are three reasons or three types of people who demonstrate this risk aversion.

The naturally risk averse

There are some individuals, perhaps many, who are naturally inclined to risk averse behaviour. That may be a personality trait; some people like rules and don’t like risks. But we have to face the fact that in some cases it is laziness. It is easier to use rules as an excuse or a crutch to avoid having to think, or to do original work, or simply to exercise the brain.

I remember once leading a consulting assignment in a public sector body. The aim was the mythical beast that is “procurement transformation”. We wanted to make the procurement team more strategic, more commercial, more creative and move them away from basic transactional processing of purchase orders (and following “the rules”). The aim was to move towards more strategic work and a category management model.

We got the whole team of around 50 people together, and I stood up and gave my motivational speech about how good this was going to be for staff, how exciting these new roles would be. And after a few minutes, I looked at the faces in front of me and realised that well over half of the team really did not want to be moved, changed or made “more strategic.” They were very happy carrying out routine processes, working (in real terms) for maybe 4 or 5 hours a day, and generally having a quiet life.

Now that organisation had particular characteristics that made it very conservative, and we’d like to hope that not too many procurement staff fall into that category. But it is an issue.

Risk aversion from the top

The second cause for risk aversion is driven by issues of leadership. If direction comes down from the top, from the Procurement Director or even more senior sources, then more junior staff will respond to that. So individuals who might be inclined to be less risk averse are sucked into that type of behaviour and approach. If leaders reward staff for following the rules, for staying out of trouble, rather than for creative and commercial problem solving, then a certain type of behaviour will follow.

In extreme cases, there may be a culture of fear where keeping your head down, and avoiding anything that “rocks the boat” is advisable. Of course that can work both ways. It can encourage risk averse behaviour, but it can also lead to some of the public procurement disasters we have seen where rules were obviously broken, and you have to assume that procurement people knew that but were afraid to speak up against top management or other leaders. This can be a cultural and endemic issue in some organisations unfortunately.

Risk aversion through lack of capability

The third group of risk averse people are those who simply do not have the knowledge, experience or skills to understand what that means or how to move to an alternative approach.  They may not know the procurement regulations well enough to identify opportunities, so they revert to caution as the default setting. Or they may not have the toolkit of innovative and commercial approaches that can be used legitimately.

There has been limited training in the public sector procurement community that we are aware of focusing specifically on this issue. And going back to our Exchange meeting, it was agreed by everyone there that the public sector is not good at communicating or sharing success and exchanging good practice. That includes examples and insight into how to get the balance right when considering attitudes to risk in procurement.

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