This document discusses managing contractual risks during the coronavirus pandemic. It recommends making compliance efforts focus on the most critical counterparties and contracts. Decisions should be based on risk data, not emotions, to avoid long-term negative consequences. A risk framework can segment contracts by homogeneity and coordinate actions. Highly impacted industries include travel, transport, finance, resources and retail. Attention should be paid to contracts in the US, Canada, Brazil, Mexico, Turkey and other countries. A roadmap identifies rights/liabilities, assesses risks, and monitors performance and actions over the long term. Risk calculation templates and Monte Carlo simulations can evaluate economic alternatives based on risk and reward.

1. Prof. Hernan Huwyler, MBA CPA
Director of the Upper Program in
Compliance
IE Law School
Assessing contractual
risks to respond to
the coronavirus
pandemic

2. Decisions related to
contracts affected by
coronavirus should be
done fast and driven by
risk data to avoid
emotional responses

3. What do you want to
achieve in managing
contractual risks
during the
coronavirus crisis?

4. #1 Making sure that you focus
the compliance efforts to the
most critical requirements of the
most critical counterparts

5. Companies will be
remembered for
decades by the
decisions that they
are making during the
coronavirus crisis

6. Once again!
Green, …
yellow and …
red ...
… are not facts for
decision-making

7. Overwhelming scientific evidence against
heat maps
What is wrong about risk matrices, Tony Cox,
2008 > worse than useless
Back to basics: risk matrices and ALARP, Glen
Wilkinson, 2009 > misinformed decisions
Further thoughts on the utility of risk matrices,
David Ball, 2013 > untrustworthy picture
The risk of using risk matrices, Philip Thomas,
2013 > arbitrary decisions
Summarizing risk using risk measures and risk indices, Cameron MacKenzie, 2014
Cognitive and motivational biases in decision and risk analysis, Gilberto Montibeller, 2015
The interdiscursive appeal of risk matrices, Silvia Jordan, 2016

8. contract
scontractual provisions
project plan and budget
assumptions
common law in jurisdiction

9. contract
srisk data
counterpart
performance
contractual reviews
due diligence outcomes

10. contract
s
custome
rs
supplier

11. contract
s
custome
rs
supplier
critical for
strategy
continuity
compliance

12. contract
sthird-party
risk
framework
critical for
strategy
continuity
compliance

13. third-party
risk
framework
segment
contracts
by
homogeneo
us

14. third-party
risk
framework
Renegociate
terms
Assess
concentration
and market
risks
Coordinate
actions

15. Highly impacted
contractsAir travel, hotels and events
Transport and logistics
Financial services
Mining, oil and gas
Luxury and retail
Personal and professional services
Carmaking, manufacturing and construction
Real estate

16. Close attention for next
weeks United States
Canada
Brazil
Mexico
Turkey
Russia
United Kingdom

17. Roadmap
Identify rights and liabilities
in current contracts and
proposals
Number, value and type of contracts
with certain indemnity, damage and
termination provisions

18. Roadmap
Identify rights and liabilities
in current contracts and
proposals
Assess contractual
risks to plan
actions or invoke a
remediation

19. Roadmap
Assess the long-term
effect of actions on future
relationships
Monitor, communicate and
document performance and
actions
in response to coronavirus

20. Contract risk calculation template
Impact of several specific risks on
– a contract or
– group of homogeneous contracts
Validate the collected risk data with SMEs
Measure the full impact to decide economic
alternatives > risk and reward
Include the opportunity costs and possible future
commercial opportunities

21. Contract risk analysis

22. Monte Carlo simulation

23. Decision-making
Expected residual
profit of contract
500.000
Probability to be
underwater
68%
Renegotiate
1M price increase
89% coverage
or
Terminate
contract
document
impracticability of

24. Monte Carlo simulation
current reward target reward
target risk

25. Is your compliance risk tool looking
like this? How do you identify actions and
alternatives?
Has it the right level of granularity?
How do you manage contract
requirements with a risk registry?
How can you use a heat map during a
crisis?
How are biases minimized?
Are heat maps impacting the
business?
Do you want to learn how to
improve it?1 contractual risks

26. Upper program in compliance

27. Modules
Programa de inmersión a la cultura de compliance
Análisis de los riesgos del compliance
Operativa de un programa de compliance
Protección de datos + Data Protection Officer
Fraude y controles
Actividades extracurriculares
Career booster
US Corporate Law & Governance Program

28. “It is not the
strongest of the
species that
survives, nor the
most intelligent;
it is the one most
adaptable to

29. Download spreadsheet
https://tinyurl.com/vl74a2j

30. @hewyler
www.linkedin.com/in/hernanwyler
mydailyexecutive.blogspot.com