I first heard the term “throwing the problem over the fence” from a telco project manager a few years ago, it describes how modern organisations shift risk to others.
Throwing the problem over the fence usually involves contracting out a task, the philosophy is once the contract is signed delivery is no longer management’s problem, it’s now the responsibility of the contractor. Once the job is over the fence it’s out of sight and out of mind.
Governments, financial institutions and most corporations have become very good at throwing their problems over the fence.
Contracting away your worries
A core tenet of 1980s management thinking is contracting out; freeing executives from the tedious task of actually doing their jobs lets them focus on the important things in life, like securing performance bonuses.
Of course you can’t contract out risk – risk is like toothpaste, squeeze it in one place and it oozes out somewhere else.
Unlike toothpaste, risks have a habit of growing if they are ignored. Which becomes a problem for whoever is unwittingly on the other side of the fence.
Railways and risk
In “The Crash That Stopped Britain” author Ian Jack looked at the causes of the October 2000 Hatfield train accident which threw the nation’s railway network into chaos.
Jack correctly predicted that no-one would be found responsible as the tangle of rail operators, maintenance companies, financiers, labour hire firms and regulators made it almost impossible to determine exactly where responsibility for a fatal failure lay.
Diffusing responsibility is partly by design although originally the idea was to save costs, the theory being that tendering work previously done in house to the lowest cost provider would save money.
Instead its caused an escalation in costs as contracting out meant an increase in middlemen as financiers, lawyers, project managers, contract administrators – of which I was once one – and many others are drafted in to manage the outsourced contracts.
Throughout the Anglosphere – the US, UK, Canada, Australia and New Zealand – the results of embracing this mentality has meant skyrocketing costs and delays in public work projects, a good example being the Southern Sydney Freight Line which was three years late and 250% over budget.
Naturally no-one is held responsible for the delays, cost over-runs or lousy initial planning and estimating on that project, which is a happy result for everyone except the taxpayer who foots the bill.
The Global Financial Crisis
While the cost of building railways, schools and motorways is a chronic problem, a far more bigger issue is the role of “throwing problems over the fence” in the financial industry.
Securitisation was seen as a magic bullet for the banking industry in the 1990s, the Basel Accords allowed banks to bundle up their entire home loan portfolios and throw them over the fence to fund managers and their unwitting investors.
When the inevitable happened with the Global Financial Crisis in 2008, it was difficult to attribute exactly who held the mortgages, let alone who was responsible for the losses among the mass of brokers, ratings agencies, fund managers and bankers who’d profited so well from the boom.
The only thing we could be sure of was that it was the taxpayer – you, your children and grand-children – who ended up holding the problem when the GFC’s bills were hurled over the last fence.
On the other side of the fence
Risk isn’t something that can be thrown over a fence, eventually it comes back in a bigger and nastier way. The question is who ends up dealing with it.
The genius of political and business leaders in the last 30 years has been in how they’ve thrown their responsibilities over the fence while retaining the perks and privilege of holding responsible positions.
Generally it’s taxpayers and shareholders sitting on the other side of the fence who have to deal with the costs and they aren’t getting cheaper.