A successful risk management plan requires consideration of exposure, capability, responsibility, and power. Regardless of how a firm positions itself and selects its clients, a carefully crafted risk management program is the basic foundation for a firm’s ultimate survival and a major contributor to a firm’s success and profitability.
Well-designed and effectively implemented risk management efforts:
- strengthen staff understanding of the project and client expectations;
- enable the firm to have greater leeway in accomplishing its goals;
- foster client satisfaction; and
- protect the firm’s reputation.
The costs of poor risk management include legal fees to defend the firm against claims from clients or third parties, indemnity payments to correct problems, and higher insurance premiums (or perhaps no insurance coverage at any cost.) Most costs, however, are more insidious: increased firm time spent on recreating the past rather than living in the present or planning the future; tarnished reputations; and depleted goodwill within the community or even within the firm itself.
In addition to avoiding losses, strong risk management programs increase profitability, confidence, and predictability in the quality of architectural services rendered and the success of putting a capital asset in place. Over time, this confidence should be evident to the firm and its clients; it will bring its own rewards. To help clients manage their risks and to avoid inadvertently taking on uncontrollable risks, architects must be able to identify risks and determine who is in the best position to handle those risks. To do this, architects must therefore understand four important concepts: exposure, capability, responsibility, and power.
Exposure: While risk relates to the possibility of loss or injury, exposure relates to the probability of a loss or injury. Exposure is one of the facts of a project to which a reasonable architect must become keenly attuned. The higher the exposure of an activity, the greater the risk management the exposure will require. For example, the use of a previously untried design, product specification, or construction idea will require more attention from the architect—and from the client—than one that has been routinely employed and survived the test of time.
Capability: Despite perceptions, sentiments, and desires to the contrary, architects cannot be skilled in every aspect of the complex effort of putting a capital asset in place. For example, most architects do not execute the detailed engineering design of a mechanical system in a high-rise, mixed-use project. Architects may be the leader of team of professionals as the prime design professional or just another contributor to a project’s design and construction in a design-build delivery system. A strong risk management program recognizes the skills, capabilities, and limitations of each project participant.
Responsibility: In the same manner—and again despite competing perceptions, sentiments, and desires—architects are not responsible for every aspect of the building project. Certain responsibilities are imposed upon them by virtue of their licenses, regardless of the project scope or client need. Architects have an overriding responsibility to protect public health and safety. Even without the focusing of responsibility by the licensing laws, by declaring themselves professionals, architects by implication promise to act in the same manner as other reasonably prudent architects would act when facing the same or similar circumstances at the same time and locale. This is the professional standard of care applicable to the actions of every architect providing services to the public.
Beyond the licensing requirements and constraints, however, architects are like every other participant on a project and are responsible for what they agree to be responsible for, either by contract or by conduct. For example, architects routinely do not guarantee construction outcomes because they are not capable of making those guarantees come true. An architect can, however, make those guarantees, by choice or by inadvertence, by contract or conduct. Failure to meet whatever responsibility the architect assumes leads to contractual and, at times, professional liability. This happens regardless of whether the architect initially could or should have taken the responsibility.
Power: Power is the authority to supervise or control the activity of another party. Power should not be confused with capability or responsibility. Clients, for example, may want their architects to be responsible for the municipal approval of design documents. Architects may have the capability (time, experience, and skills set) to marshal the approval process; they may even want the responsibility as that would please their clients. Architects, however, have no power to control the actions of the municipality, and it therefore would be unfair to both parties for architects to assume this responsibility. Similarly, some architects will agree to achieve a sustainability rating for a project even though they have no control over the process or independent determination of a certification organization.
With these four concepts in mind, the procedures for a risk management program can be established. First, each duty necessary for a built project’s success should be evaluated as follows:
- What is the exposure inherent in this duty?
- Who is most capable of handling that exposure?
- Who has responsibility for that exposure?
- Who has the power to make sure that the responsibility is carried out?
Second, based on this analysis, the duties should be assigned. Whenever possible, duties should be defined so that the capability, responsibility, and power for each duty are lodged in one participant. Otherwise, the architect likely will have to attempt to manage an increased risk and jeopardize the architect’s ability to fulfill the client’s expectations, to comply with the requirements of the registration laws, and to match its exposure to its normal legal liability—the professional standard of care. For more information on planning your firm’s risk management program, visit the Victor website.
Victor and CNA work with the AIA Trust to offer AIA members quality risk management coverage through the AIA Trust Professional Liability Insurance Program and Business Owners Program to address the challenges that architects face today and in the future.