Friday, 31 May 2013

A risky business

I have already shared some reflections of this year's Chelsea Flower Show but the purchase of tickets is also worth thinking about.

Tickets for the Chelsea Flower Show are freely available to purchase on the RHS website some time during the preceding Autumn. There's limited availability, so, once they're gone, they're gone. If you want to visit Chelsea  therefore you are likely to buy your tickets near enough six months in advance. Therefore, at the time you buy you have no idea what the weather will be like and you also take a gamble whether you personally will be able to attend.

However, since the tickets are in short supply and sold out months in advance you can minimise your risk by buying the tickets in advance and then, should you decide not to go, try to sell your tickets on eBay. That way, you could make a profit on your initial purchase, or possibly be left with dated tickets of no value at all - it's a risk you take.

I'm sure you realise that the only sure winner in this is the RHS Chelsea Flower Show (the supplier). While they do not choose to auction tickets (yet) they have money in the bank long before the event whether or not the ticket purchasers actually use the ticket.

Now the week before Chelsea there's a flower show quite local to me, in Hillsborough. While a ticket to Chelsea costs £55, an online ticket to Hillsborough costs £9. Perhaps at some stage we can discuss the comparative value of the tickets, but that's not the issue here.

My wife and I planned to go to the Hillsborough Flower Show where we could pay at the gate on the day (cash only). However, it was a terrible day and it was clear there was no sense in attending. We had no need to make an advance purchase and the only penalty for delaying the decision to attend was an additional £1, but had we bought our tickets in advance, and chosen not to attend we would have sacrificed £9 per advance purchase ticket.

I had already bought tickets for the Chelsea Flower Show and hotel accommodation and flights. Our tickets were for the Friday, and, yes, it was a washout. So after only consuming less than three hours from each of the two 12 hour tickets we were walking through the exit without so much as a pass to return. Now do I consider the money wasted? Let me provide that answer in a few minutes.

Anyway, all that may seem a bit domestic for the seasoned procurement professional, but isn't that exactly the situation which faces business, namely, buying a 'bottleneck' product as part of risk management approach and then sometimes being criticised for spending too much or possibly not even using the item. Think about the Highways Agency purchase of gritting salt. Last November they were criticised for having 100,000 tonnes in stock when the price plummeted. Now there were other dimensions to that story, for example, inappropriate storage provision. But had there been a severe and lasting cold spell, with roads unusable and access to food in shops reduced the Highways Agency may well have been viewed the hero as opposed to the villain.

Let's remember that a risk is something which may happen and procurement risk management is about trying to minimise impact if a risk moves to an event which actually happens. But is procurement risk management not also about helping stakeholders understand the risk and getting their buy-in for the risk mitigation strategy. To me that is a weakness of the profession. We need to be significantly better at identifying, profiling and communicating procurement risks, while at the same time explaining the available options and gaining appropriate ownership. Isn't that, in a nutshell, communications.

So let me return to my Chelsea Flower Show wash-out, which to me was a success. Why? Well I bought all the tickets in November, but communicated the purchase to the key stakeholder, my wife, on the 25th December. My wife had five complete months of value derived from the present before we got on the tube to Chelsea. We knew we wouldn't be taking the lottery of paying a premium price through eBay or buying late flights.  Of course we both knew there was potentially a risk of a wash-out on 25 May but sometimes it's better to spend the money in advance and communicate well to key stakeholders - just in case.

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