Ineffective Risk Management

and the collapse of Carillion



By Robert J Chapman, PhD

Director, Dr Chapman and Associates Limited

United Kingdom


Risk management failings

As reported in the press, on 15 January 2018 Carillion plc, the British multi-national company declared insolvency and the Official Receiver started to liquidate its assets and contracts. The examination of company insolvencies provides valuable insights into failed corporate processes. These lessons are important not only for executives but also for construction managers, project managers, risk managers and advisers. At the heart of the collapse was an acute lack of understanding and management of risk by both the UK government[1] and Carillion itself [2]. The Carillion failure occurred against the backdrop of a growing interest in describing and defining measures of risk capacity and risk appetite. As described by Richard Barfield of PWC[3] “defined well, risk appetite translates risk metrics and methods into business decisions, reporting and day-to-day business discussions. It sets the boundaries which form a dynamic link between strategy, target setting and risk management”. When considered together, the Carillion behaviours described below portray a clear absence of operating boundaries based on a risk appetite statement and associated risk metrics. Despite the early warning signs that the company was running into significant difficulties, the company either had a poor perception of the risk it was facing or consciously ignored it. It would appear that it was not until the preparation of Carillion’s January 2018 transformation Group Business Plan that there was recognition that the group had “weak operational risk management” [4].


The company predominantly operated in low-margin industries[5] within highly competitive markets with inherent risks[6]. A large element of Carillion’s contracts were government construction and facilities management contracts. The collapse was the most spectacular corporate failure in recent memory. The company was described by the House of Commons as “an unsustainable corporate time bomb, characterised by the increasingly reckless pursuit of growth with scant regard for long-term sustainability or the impact on employees, pensioners and suppliers”[7]. The collapse attracted intense media coverage and triggered several Parliamentary investigations and inquiries. Once the background to the collapse became apparent a Parliamentary report commented “The mystery is not that it collapsed, but that it lasted so long”[8]. The accumulation of debt and an inability to reduce it caused concerns among Carillion’s investors, who had begun to divest themselves of shares towards the end of 2015.  For investors generally, perhaps the most striking observation of all was that “Carillion could happen again, and soon” [9]. At the time of its collapse, Carillion was the UK’s second largest construction company and second largest supplier of maintenance services to Network Rail. The insolvency left in its wake (i) a pension deficit of approximately £2.6 billion[10] (ii) 30,000 unpaid suppliers with the risk of getting little or nothing back[11] – on 30 June 2017 Carillion owed £2 billion to its suppliers, sub-contractors and other short-term creditors[12], and (iii) uncertainty with regard to approximately 420 contracts with the public sector[13] although other estimates placed the number at closer to 450. Carillion held contracts with the Ministry of Defence, the Ministry of Justice, Network Rail, HS2 Ltd and various hospitals. At the time of liquidation Carillion employed around 45,000 people of which 18,200 were located in the UK.

Carillion behaviours

The House of Commons report[14] was damming in its summary of the behaviour of Carillion’s board of directors. These behaviours all contained an element of risk that had a compounding effect.

Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers. It presented accounts that misrepresented the reality of the business, and increased its dividend every year, come what may.

The use of the word ‘recklessness’ brings to the fore memories of Northern Rock. The House of Commons Treasury Committee inquiry held to identify the lessons to be learned from the failure of UK banks during the 2007-2008 financial crisis[15] identified that among the banks that ran into trouble, there was evidence of a direct correlation between risk exposure and leverage. As banks increased their borrowings, the risk of their inability to repay their borrowings due to a fall in income increased[16].  In its findings the inquiry acknowledged that those financial firms that showed the greatest appetite for rapid growth through leverage were amongst the heaviest casualties. Increased debt simply led to increased risk. An example was the British bank Northern Rock. It was the first British bank in 150 years to fail due to a bank run[17]. As stated in the inquiry report “the directors pursued a reckless business model which was excessively reliant on wholesale funding”. There are clear parallels between Northern Rock and Carillion particularly with regard to the extent of their borrowings.


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How to cite this article: Chapman, R. (2018). Ineffective risk management and the collapse of Carillion; PM World Journal, Vol. VII, Issue XII (December).  Available online at https://pmworldjournal.net/wp-content/uploads/2018/12/pmwj77-Dec2018-Chapman-ineffective-risk-management-and-collapse-of-carillion2.pdf

About the Author

Robert J. Chapman, PhD

United Kingdom


Robert J Chapman
is an international risk management specialist and Director of Dr Chapman and Associates Limited. He is author of the texts: ‘Simple tools and techniques for enterprise risk management’ 2nd edition, published by John Wiley and Sons Limited, ‘The Rules of Project Risk Management, implementation guidelines for major projects’ published by Gower Publishing and ‘Retaining design team members, a risk management approach’ published by RIBA Enterprises. He holds a PhD in risk management from Reading University and is a fellow of the IRM, APM and ICM and a member of the RIBA. He has provided risk management services in the UK, the Republic of Ireland, Holland, UAE, South Africa, Malaysia and Qatar on multi-billion programmes and projects. Robert has passed the M_o_R, APM and PMI risk examinations. In addition he has provided project and risk management training in Scotland, England, Singapore and Malaysia. Robert is an external PhD examiner.

Dr. Chapman can be reached by email at [email protected].

To view other works by Robert Chapman, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/robert-j-chapman-phd/


[1] The Public Administration and Constitutional Affairs Committee report, “After Carillion: Public Sector Outsourcing and Contracting”.  https://publications.parliament.uk/pa/cm201719/cmselect/cmpubadm/748/748.pdf /09 July 2018

[2] Commons Select Committees web page www.parliament.uk , Carillion plc. https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/76905.htm .  

[3] Richard Barfield/PWC Risk appetite – How hungry are you? https://www.pwc.com/gx/en/banking-capital-markets/pdf/risk_appetite.pdf

[4] Carillion plc , Group Business Plan, January 2018, p 6

[5] Unravelling a web of failures at UK outsourcer Carillion, Financial Times, https://www.ft.com/content/37f63372-58f3-11e8-b8b2-d6ceb45fa9d0, May 16 2018.

[6] UK Parliament (2018) House of Commons Hansard. Carillion. 12 July 2018. Volume 644. https://hansard.parliament.uk/commons/2018-07-12/debates/2D8B6F0E-B8C0-47C6-B9D0-D274EC5D72DD/Carillion

[7] House of Commons web page. www.parliament.uk , Carillion plc. https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/76908.htm

[8] House of Commons, Business, Energy and Industrial Strategy and Work and Pensions Committees. Carillion. Second Joint report from the Business, Energy and Industrial Strategy and Work and Pensions Committees of Session 2017–19.

 16 May 2018, https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf

[9]  Ibid

[10] UK Government. Commons Select Committee. Pension scheme trustees questioned on Carillion. 30 January 2018. https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/carillion-pension-trustees-17-19/

[11] BBC (2018) Carillion collapse: Insurers pay out £30m to suppliers, 25 January.

[12] ‘Trade and other payables’, p. 21 of the Carillion Interim financial statement for the six months ended 30 June 2017

[13] Report by the Comptroller and Auditor General, Investigation into the government’s handling of the collapse of Carillion, Session 2017–2019, HC 1002, p6.

[14] House of Commons, Business, Energy and Industrial Strategy and Work and Pensions Committees. Carillion. Second Joint report from the Business, Energy and Industrial Strategy and Work and Pensions Committees of Session 2017–19.

16 May 2018. https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf

[15] House of Commons. Banking Crisis: dealing with the failure of UK banks. House of Commons Treasury Committee, Seventh Report of Session 2008-2009, 1 May 2009.

[16] Chapman (2011). Simple tools and techniques for enterprise risk management. John Wiley and Sons Limited.

[17] The Guardian (2012). Financial crisis: timeline. The financial crisis, five years on: how the world economy plunged into recession. Patrick Kingsley, Tue 7 Aug 2012. https://www.theguardian.com/business/2012/aug/07/credit-crunch-boom-bust-timeline