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risk broker

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In dealings between multiple organizations, the traditional way of guarding against moral hazard is through contractual obligations. However this leads to distortion, inefficiency, inappropriate game-playing and/or excessive contingency. 

veryard projects is working with other partners to develop systemic and institutional alternatives, to support new demands for openness and transparency, as well as new modes of cooperation and joint venture. 

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veryard projects > risk broker > concepts

Moral Hazard

Taking unfair advantage of one-sided access to information.

Risk Escrow

This is a mechanism for reducing the total risk across one or more commercial relationships. It works as follows. Companies deposit something with a risk banker, as a guarantee of their good faith. This might be confidential information, or contingency plans, or simply some form of risk catalogue. This would be checked for reasonableness and kept secure, and only released if negotiations or processes or relationships or contracts broke down (in some predefined manner).

veryard projects - innovation for demanding change

Procurement examples

veryard projects > risk broker > procurement examples

Training Company

You are invited to bid for the supply of a given product or service. For example, a new training course.

The customer indicates that there is an immediate requirement for a small volume, with a possibility of larger orders later.

There is a significant set-up cost. For a training course, this includes the development and production of the training material.

You have three choices:

Clearly option (a) is the most profitable option - but only if you get the work.

Option (c) loads the uncertainty onto the customer. If the customer is any good at negotiating, he will demand a reduced rate in return for shouldering this risk. So this could turn out to be less profitable than (b).

Option (b) ought to be the best option for the supplier - but only if he isn't being tricked or seduced by the customer. How can the supplier get a fair estimate of the likely volume of repeat business?

Option (c) could be the best option for the customer, provided he gets something in return for shouldering the risk. In other words, the likely total expenditure will be lower. And as long as he isn't paying for trivial changes to existing material.

Key question for the customer: is the development genuine, or am I being asked to pay for work that has already been done for another customer?

Large procurement or IS contracts

This scenario scales up to the largest defence or IS contracts. What is a fair contractual basis for building the next generation of tank? What is a fair contractual basis for building a computer system for a government department?

It gets more difficult where there is an element of research in the project - in other words, something with greater uncertainty of outcome. "We will reuse software components - but only if we can find any suitable ones, otherwise we will build them ourselves." What is the incentive for the software supplier to reuse existing software components, when the customer will pay for new ones to be built? Who should bear the risk - or how should the risk be apportioned?

With IS contracts, there are several key sources of uncertainty:

With traditional contracts, the risk is allocated explicitly or implicitly to one party. This promotes adversarial relationships between the parties. One party may have a covert interest in provoking requirements change, in order to escape from otherwise impossible commitments (deadlines or budgets). Indeed, some suppliers covertly make this assumption at the time of bidding.

A party to a contract may be required to make best endeavours to achieve some outcome, or to mitigate some risk. There are always going to be questions about the degree of conscientiousness or sincerity with which the other party's interests are represented. This is known as moral hazard - it may not be in your own best interest to always act in the interest of your customer, or to tell the customer the whole truth.

On the other hand, there may be perfectly good reasons (including commercial sensitivity or intellectual property) for witholding some information from your customer. You cannot let the customer just crawl all over your information systems, even if you could stand the transaction costs of this.

One of the functions of the risk broker is to act as proxy risk owner within company A's risk management system, for a risk that is primarily of interest to company B. In theoretical terms, it changes the topology of risk (in terms of power, proximity and interest) across the organization boundaries. In practical terms, it's a way of guarding against moral hazard, while respecting the commercial privacy and intellectual property of both parties.
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Risk Management

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Risk Management Services

veryard projects > risk broker > services

We specialize in the planning and analysis of strategic / commercial risk. Our services are positioned at every stage of the lifecycle of a commercial relationship: Planning - Negotiation - Operation - Termination


Given a particular business strategy, and the risks associated with that business strategy, we can help derive the required commercial relationships, do a risk analysis on each relationship, and thus derive the desired characteristics of each relationship partner.

This enables an organization to select a business partner based on the required risk profile, as well as on the available services and the usual quality and cost parameters.

It also supports the building of coalitions or consortia that are "risk-optimal" - whatever that means.

This creates a framework for risk-taking commercial activity. This framework provides a basis for the identification and negotiation of new commercial relationships, and for the assessment and perhaps renegotiation of existing relationships.


Given a particular service supplied by one company to another, we can analyse the risks to both sides. In particular, we can analyse the risks consequent upon the fact that one side is unwilling to provide total information / visibility to the other side.

We then design and implement mechanisms (including risk escrow and information escrow) to mitigate these risks, allowing for a more "risk-optimal" contract.

Whereas lawyers traditionally support this process by thinking about all the ways that the other side could screw things up, and writing complicated clauses to protect their client.


During the operation of an existing commercial relationship, whether or not governed by contract


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