Systems for managing Joint Venture (JV) risks can be considered at the JV partner or shareholder level (Partner JV Risk Systems) or at the level of the JV itself (JV Internal Risk Management Systems). As part of its comprehensive risk processes the JV should also have an effective Management of Change system. These will considered in more detail but first lets take a look at some of the basics of risk management systems.
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There are certain key components of any effective risk management system. These are:
- Scoping your Risk Process
- Risk Identification
- Risk Quantification
- Risk Prioritisation
- Risk Analysis and Management Action Plan
- Action Tracking and Monitoring
I have prepared a dedicated site explaining the basics of a good risk management system – Chris Duggleby’s RiskTuition.com site. On that site you will find a detailed explanation of all the above elements of risk management together with a blog of general risk related articles. If you would like to focus on just one of the areas mentioned in the above list simply click on the appropriate line in the list and you will be taken straight to that page.
JV Internal Risk Management Systems
A JV like any business entity should have a comprehensive risk management system which includes all the elements in the list above. On the RiskTuition.com website I use a simple system for helping to identify and classify different kinds of business risk – this is called the Value TRAI. Using the terminology of the RiskTuition.com site the JV is a ‘Risk Subject‘ and for that subject we need to determine:
- what are its business TARGETS (or objectives)?
- what RESOURCES would it need to achieve these objectives?
- what ACTIVITIES does the risk subject involve?
- what INTERACTIONS does the risk subject need to carry out it’s activities?
The RiskTuition.com site has typical lists of Targets, Resources, Activities and Interactions (use the link here). These will help you to make sure no risks are overlooked in your JV risk identification process (If you would like to read more about the Value TRAI approach to risk management my 2011 text book is still available in hard back from Amazon – the link is here)
A further aid to help you include all potential JV risks in your identification process is to use the headings and content of this JointVentureRisk.com site. After many years of managing and auditing JVs this is the list of risk areas that I consider to be most important.
The other components of a good risk management system (see the list above) will help you to analyse these risks and then prioritise them. This is to help you ensure that you apply your limited resources wisely to focus on managing the more important risks to your JV business. At the end of the process you will have a risk management action plan that needs to be regularly monitored and updated. Here it is important that senior management in the JV demonstrates commitment to the risk management process and holds people accountable for timely delivery of the actions they have been given in the action plan.
Partner JV Risk Systems
If you are a shareholder or ownership participant in a JV you will want to know that the JV has, and is using, an effective risk management system including all the components described above. You will also want to have assurance that all the risks which are important to the JV’s success are included in this system. The risk categories used as page headings for the JointVentureRisk.com site are a good starting point for your investigations as are the Value TRAI categories referred to above.
JV shareholders’ meetings or relevant JV management oversight committees are the most likely bodies for you to request and review information about the JV’s risk management systems. Your shareholder/ownership participant audits should also be used to obtain assurance that these processes are working effectively.
Within the partner’s own organisation there should also be a business risk management system which includes risks to the partner’s business success as a result of its participation in the JV. Each of the categories described in the JointVentureRisk.com site can be viewed from a partner perspective (as well as a JV internal perspective). They should therefore all be considered for inclusion in the partner’s own risk management system.
In some countries the corporate law regulations require company oversight bodies or statutory auditors to provide assurance that risk management systems in the corporations they oversee are effective. This will apply to JV’s incorporated under those jurisdictions.
Legal obligations of board directors/auditors/managers to provide assurance relating to JV risks are important. However ensuring that the risks to your investment are being effectively managed is quite simply good business practice. Understanding how well a JV’s risk management system is working will tell you a great deal about the management capabilities and the assets and processes of that JV. You will also derive a very good understanding about the business you have invested in: its strengths, weaknesses, opportunities and threats.
Management of Change systems
Very few JVs are static. Most will regularly undergo changes, some of which will be major like an expansion project or a business relocation. It is therefore essential that such JVs also have a change management system to address the potential risks arising from these transformation processes.
I have prepared a dedicated Change Management website which explains all the elements of a good Management of Change system – this site is called Bizchangers.com. The site has separate sections on change:
- Change Objectives
- Change Governance
- Change Planning/Tools
- Change Communication
- Business Continuity
- Change Risks
You can find out more about managing change risks using the following link:
JV Risk Articles
From time to time I will add articles to the blog of this site which I believe could be relevant to JV risk management. To read these articles use the link here.
The JointVentureRisk.com website and its author, Chris Duggleby, are not qualified to provide legal advice and therefore any questions in relation to the legal liability of a joint venture or its partners should be addressed to suitably qualified, competent legal advisers.
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