Many design firms attend risk management training sessions and implement certain practices based on an industry trend or project claim. Other firms may only concentrate on contracts and insurance coverage’s as a risk management strategy, which only addresses a portion of an effective risk management program. As they say – “you cannot manage something that is not measured.” With that said, the first question should be:

How effective is your risk management program?

An excellent method in answering that question is determining a design firms risk profile. Similar to how an insurance carrier underwrites and creates a premium for every design firm, each firm also has a different risk profile based on their unique characteristics:

• Background
• Staffing
• Experience
• Services
• Claim activity
• Project types
• Clients
• Geographic region
• Risk Management
• Business Practices
• Other features

Another way of thinking of a risk profile is similar to a physical examination performed by a doctor. The doctor will examine each individual in similar areas such as – blood pressure, blood work and physical evaluations in determining someone’s overall health. A risk profile does the same thing in assessing key categories of risk for a design firm. When I have evaluated “higher performing design firms” the first step they apply is an assessment. With this information, higher performers make decisions for improved performance and risk reduction to ensure effective practices are applied for meeting the business needs of the firm, clients, and projects.

Industry Risk and Relevance to Your Firm

One important point for managing risk is assessing the softer side of a design firms practice – business and practice management efforts. These areas routinely drive a majority of claims and litigation against design firms, approximately 60 – 75%. Do all design firms apply the same business and practice management efforts? Obviously the answer is no. Design firms apply various methods, techniques, practices, etc., with some more effective than others. With that said, a one-size fits all risk management approach is not very effective in addressing the specific needs of any design firm.

The majority of industry risk management guidance addresses a current trend, topic, or claim in the industry. All very helpful information, however may, or may not be relevant to every firm. For example, client created indemnity provisions in contracts continues to be problematic for many design firms. However, based on the methods your firm has incorporated for the review and approval of contracts – this may not a concern. Another practice is if a design firm has had a claim, they hopefully will identify lessons learned and methods to help prevent a recurrence of a particular claim. A very helpful process – however usually only applies a limited approach addressing certain causes, and usually does not address the many interrelated, upstream sources of a claim creating the possibility of reoccurrence. One important point – if a firm waits until having a claim to make changes to their risk management efforts, it causes more problems. Recovering after having a claim is always more costly and time consuming for a firm. Taking a more proactive approach, evaluating the effectiveness of risk management efforts is always a more effective approach.

Design Firm Risk Analysis

Same as a doctor evaluates each patient and prescribes a remedy based on a their individual circumstances, the same approach should be applied in evaluating risk for a design firm creating an individual risk profile. Based on the results, specific recommendations are made in mitigating current, and future risk and liability exposures.

About the Author

Tim Corbett is Founder and President of SmartRisk, a Pasadena, CA based consultancy with over 25 years of experience providing risk management and performance management solutions to Design and Building Professionals. Mr. Corbett holds a BS Degree in Security & Risk Management, MS Degree in Management; a degree in Environmental studies as well as concentrated studies in Architecture Design and is LEED accredited. For more information on this or other topics, visit the SmartRisk website or email Tim at tcorbett@smartrisk.biz.

Used with permission from aePronet.org 

About PDI

PDI is an Indianapolis-based wholesale brokerage firm with a national network that includes thousands of insurance agents, brokers, architects, engineers and contractors in all 50 states. Since PDI’s beginning in 1980, we’ve handled a single line of coverage: errors & omissions (E&O) for design professionals.

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