Cost effective commercial assurance: what price confidence?

Commercial assurance involves a programme of independent, objective and expert reviews to answer two questions about the commercial management of a contract or project:

1. Is it broken?
2. If it is broken, what needs to be done to fix it?

The benefits of commercial assurance are the confidence and peace of mind that you are doing everything you reasonably can to deliver a smooth running project with no unpleasant commercial surprises.

How do you know that you are receiving value for money when you buy in commercial assurance?

Measuring the value which assurance provides?

Like any other activity, commercial assurance must be seen to be adding value. The amount companies spend on assurance activities therefore should vary in line with the value it creates.

“Value” can be expressed at three different levels:

1. The value of assurance: This is the basic audit work required to provide assurance, regardless of what is found ie. it puts management’s mind at rest.

2. The recovery of amounts overcharged or the prevention of overcharges: This can be easily measured in £s.

3. The additional value added by assurance activity: The identification of efficiency savings or potentially sharper contract arrangements (resulting in a stronger client side commercial position). Again this can easily be measured in £s.

The amount of work needed at level 1 (basic audit work) will depend on the underlying risk of overcharging or poor value for money. A well-established JV/supplier with no history of commercial problems, mid programme, will need less audit work than a newly established and unproven JV/supplier at the start of a programme.

The majority of companies do not, however, measure the value that commercial assurance provides. Neither do most understand how much they are spending on cost assurance activities.

How do I know if I am receiving value for my commercial assurance spend?

Good value:
• Simple and easy to understand language
• Concise reporting setting out the issues and actions being taken to address them
• Clear demonstrable benefit
• Professional and commercially experienced staff
• Light touch, risk based audit
• Robust reliable assurance
• A tailored and cost effective approach

Poor value:
• The use of jargon and complex PowerPoint slides
• Report setting out what work is being done rather than what is being achieved
• Little demonstrable benefit
• “Auditors” and “experts” with no appropriate professional qualification
• Gathering large amounts of data
• Uncertainty
• A “best practice”, one size fits all approach