Under the 52 Risks® framework Partner Risk is defined as the risk that the firm or organization is impacted or suffers loss due the financial position, credit worthiness or capability of a partner in a business venture or project that impacts on the ability of that entity to carry out its responsibilities.
The selection of a business partner is an important task for many businesses that will often involve extensive discussions, negotiations and due diligence. Care is taken to ensure that the right partner is selected. Many factors are assessed including, but not limited to, reputation and integrity, cultural fit, technical capability, customer relationships and distribution capabilities, strategic alignment, financial position and partnering skills and capabilities.
There is, however, an ongoing risk to disruption arising from a wide variety of factors and changes in circumstances that can impact the business partnership. This is often ignored after commencement of a business partnership.
Key issues to consider in the ongoing management of a business partnership are:
- Is the firm or organization overly reliant on a specific business or joint venture partner for ongoing operational, financial or other support ?
- Are the firm or organization’s business partners in a sound financial position ?
- Are any regular reviews conducted, or due diligence undertaken on the ability of a specific business or joint venture partner to meet any obligations or future requirements ?
- Are there any other early warning mechanisms or triggers in place to identify deterioration in the business profile, or financial position of a business partner ?
Should risks to the future success or continuation of the business partnership arise or be identified, it will be important to consider the following:
- Can changes be made to the operational or financial arrangements to reduce the risk exposure to a specific business or joint venture partner ?
- Is it necessary to develop alternative plans (back up arrangements) if there is a significant change in circumstances or the business partnership ceases ?
- If the issues are financial in nature, can future financial commitments be brought forward (or secured in another way – such as bank guarantees or cash deposits) ?
For a firm or organization that is dependant on a large number of key strategic business partners, it may be worthwhile establishing a business partnership management framework. This framework can document internal ownership of the business partnership, business partner engagement rhythm, roles and responsibilities, regular management review and reporting processes (more frequently than contract renewal or extensions) and contingency planning – such as development of a playbook for termination of the arrangement.