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The Next Business Shift

Realigning risks and rewards

Wednesday, June 2, 2021

 

A large part of what I do is having conversations with people. I enjoy learning about other people’s perspectives and insights. Last week, I had a conversation with someone who wants to see more resilient physical infrastructure developed and a renewal of rural economies. I’ll summarise the conversation and then expand on how it impacts businesses.

I’m thrilled whenever someone wants to talk economic or business development. This is the type of conversation I enjoy because I, too, want to help strengthen businesses and the economy, particularly in rural areas.

We talked about updating infrastructure and expanding on community buildings such as libraries and public pools. Public buildings cost a lot to build and maintain. Here’s a fellow whose vision aligns with mine, yet we ended expressing ourselves with conviction and rather loudly, on how such projects could never be integrated versus how a longer-term vision is required to integrate renewable energy, multiple sources of revenue, and a range of public services through one building.

He argued that neither politicians nor bureaucracies are rewarded for taking a holistic approach. Members of the public want to know how much it will cost to build a library and maintain it. There are many failed projects throughout the country in which a municipality tried to install solar panels on the rooves of its buildings to generate revenue. Yet, the project cost more than it generated. There are failed attempts at using excess public space, such as the sides of buildings, to lease to small urban farmers to grow vertical gardens.

From the point of view of the politician or the civil servants deciding to invest public funds, the risk of lowering the credit rating (and consequently have to raise the rates on taxpayers) is not worth the reward of longer-term or more integrated infrastructure.

I suggested to my colleague that a municipality need not go to Bay Street for money but to finance such projects through community bonds. Conditions of the bonds may include the requirement of living in a specific geographic area or not exceeding $X invested. The decibel level of the conversation noticeably decreased.

Suppose the community wants a project that politicians or civil servants deem too high-risk (too many moving parts, too many untried means, too much new technology, etc.). In that case, the community can raise funds and change the risk equation. Local people risk and local people gain, instead of a more traditional financing mechanism when those putting up the money aren’t part of the community and don’t risk other long-term impacts such as living next door to a long-time disused building.

The conversation with my colleague kickstarted my brain into how risk can be realigned with reward. Most of you would have worked in a setting where the person responsible for accomplishing a task isn’t the person with the authority to decide which solution to implement. The person facing the problem isn’t the person with the budgetary leeway to assign resources. There are countless examples in most workplaces where the risk-reward ratio is skewed to the detriment of individual employees and the organisation’s overall performance.

For the Next Business Shift, there needs to be a re-alignment of risk-reward. There are many types of risk, including financial, environmental, social, technological, goodwill, and time. You can raise more capital, rehabilitate an environment, work to rebuild trust, but you can’t make more time. There are situations in which a solution is time-sensitive, and the lack of action generates its host of risks.

It’s a question of creating appropriate feedback loops within teams, organisations, and communities.  People who are held responsible for a solution have the authority to implement the most reasonable solution.  

If you need help creating feedback loops or generating resources to implement solutions, please reach out for a chat.

 

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