Examination of Witnesses (Questions 140-159)|
OBE, PROFESSOR SIR
CBE, PROFESSOR JULIA
GOODFELLOW CBE, AND
MONDAY 11 MARCH 2002
140. "While carrying out this examination
we did not find an example of a formal risk assessment in a commercialisation
project." I take that as a criticism. It is a criticism which
I want you to explain. I am quite happy for you to say things
have changed since then but I do want you to explain why that
criticism was an appropriate criticismthis is, after all,
an agreed reportat the time and to explain how that was
able to be the case?
(Mr Young) My understanding is, and my research council
colleagues will say whether this is right or wrong, that there
certainly were risk assessment processes in all research councils
including these three at the time the Report was written. "Formal
risk assessment" is a particular form of words. All these
three research councils will have had guidance in place on assessing
the risks of projects and they will give you examples and we can
show you the texts of those. I do not think the Report was saying
141. In that case, Mr Young, what was it that
you were agreeing to when you agreed that sentence in this Report?
You are telling me that it cannot possibly be what I assume it
meant so what was it that you were agreeing to when you agreed
(Mr Young) I do not challenge the statement in the
Report. What I am saying is that there were robust risk assessment
processes in all the research councils. Some of them have been
changed since, some of them may not have been.
142. I take it then that the distinction you
make here is the word "robust" for the word "formal"?
(Mr Young) Yes, I think so.
143. What you are saying is that there were
robust risk assessment processes but there was no formal risk
(Mr Young) As defined in this particular way and as
instanced in table 14, but all the research councils were carrying
out then and are carrying out now risk assessments similar to
the generic description in table 14.
144. Would you accept that in any risk assessment
one of the most important things that one can do is to formalise
the process of risk assessment? If you do not have a formal process,
it may be that you have a robust process, but I would have thought
that with the panel of scientists sitting next to you the importance
of making that a formal process that one goes through to check
off would have been rather apparent?
(Mr Young) I do not believe the Report itself makes
recommendations about the risk assessment.
145. What it does is show a model of good practice
which it highlights in Appendix 4.
(Mr Young) That is right. Research councilsand
the Chief Executives will say whether it is right or wronghad
all got systems of assessing risk similar to the generic description
in table 14.
(Dr Taylor) My reading of this is an emergence of
a volume of opportunities over a period of time and I think when
they are saying they did not find an example of a formal risk
assessment, I read that as meaning a generic, uniform process
across a whole council. In the days being talked about here the
volumes of cases and activities and so on was probably not sufficient
to justify the laying down of a single, generic, formal process
right across a council. That does not mean in my understanding
that the processes that were carried out case-by-case as opportunities
emerged were not robust and rigorous and scrutinised by the council
and its Audit Committee and the people involved in managing the
institute. I read this as a move towards a much more systematic,
organisation-wide, generic, formal process justified by the fact
that the volume of opportunities presenting themselves is much
greater than it was in the case of two councils here.
(Professor Lawton) A specific example may help you.
I have been in post for two and a half years and when I came in
we did not have an innovation fund at all, we were struggling
with one spin-out company, and that was as far as my council had
got and therefore we did not have a formal approach to risk assessment
because we were not doing very much of that kind of activity.
When the evidence for parts of this Report were taken we were
in the early stages of putting that right. Now we have an innovation
fund, now we have a whole series of other activities, we have
seven spin-outs, we have been learning by the process. Yes, we
do have a series of formal and robust processes that allow myself,
my council and my Audit Committee to be confident that we are
not exposing the council or the public purse to undue risk.
146. I am out of time so, Mr Young could you
finally therefore assure us that there are now in place uniform,
formal and robust processes throughout all the organisations,
because I took that to be a criticism of what had been the case
in the past?
(Mr Young) Yes I can and I did not take it to be a
criticism. I think the explanation has now been given better than
I gave it, that the snapshot at the time was at a time when formal
risk assessment procedures were not seen as necessary for some
research councils because it was such early days in the commercialistion
history. Now all councils have a formal risk assessment procedure.
Mr Gardiner: Thank you.
Chairman: Thank you, Mr Gardiner. The last questioner
is Richard Bacon.
147. Mr Young, you just said that the Report
does not make formal recommendations about risk assessment, which
I think is right, but of course the Baker Report did in August
1999. In paragraph 1.17 it said: "Public sector research
establishments should not have to live in fear of punishment for
failure after an event but, rather, be obliged to have proper
risk management systems before the event."
(Mr Young) That was in August 1999. This report was
only published in February of this year. I go back to the sentence
that Mr Gardiner quoted: "We did not find an example of a
formal risk assessment in a commercial project." Not one.
Ms Leahy, is that correct, that you mean there was not one formal
risk assessment in the various projects at which you looked?
(Ms Leahy) Yes, that is right and we did not see a
model of this sort in use when we looked at projects.
148. Can I ask you what you meant by including
(Ms Leahy) We put this illustrative gate system in
the Report. We took it from the literature and we thought it was
useful and we had not seen it being used in the ones we looked
at. There were obviously risk assessment procedures in place,
but we did not see this particular model or a particular model.
Mr Bacon: You did not see a formal risk assessment
model in use anywhere? May I ask were you writing into that sentence
a degree of criticism?
Chairman: You may ask it but the answer will
have to wait. I apologise. We will have a ten-minute break.
The Committee suspended from 18.54 to 19.03
for a division in the House.
Chairman: We are quorate.
149. I must say Mr Young's comments left me
at a bit of loss. If everything is rosy and there has been a complete
sea change in climate since Baker I am at a loss to see why the
NAO write this in paragraph 4.11. The NAO wrote in paragraph 4.8:
"Although Research Establishments are assessing the risks
associated with commercialistion projects they have not yet developed
a structured approach", and at the top of 4.11: "Formally
considering the risks and opportunities before a project enters
each successive stage of development will help to safeguard value
for money and the public interest." When we go back to Baker
which was three years ago we see: "The PSREsthe public
sector research establishmentsshould have proper risk management
systems." Three years later the NAO is signalling things
are not all rosy. Is that a fair summary?
(Ms Leahy) We certainly thought risks were being assessed
in a robust way on the deals that we looked at. As volumes were
building up we felt a more systematic and formal approach would
be useful but we felt that their commercialisation work was evolving
in such a way that it did merit the formal procedures in advance
that everybody knew about rather than having to look and see what
other people had done. We were not implying that risks were being
handled badly at that time but that they could be improved.
150. There could be improvements by making it
(Ms Leahy) Partly as we say because the number of
deals had increased and did seem to justify this sort of system.
151. Thank you very much for that. Mr Young,
if I could ask you about targets and objectives. Once again Baker
said in paragraph 1.19: "Public sector research establishment
chief executives should develop performance measures and targets
against which their knowledge transfer efforts can be assessed."
If you then turn to the NAO Report in paragraph 2.6 it says: "The
Office of Science and Technology, Research Councils and Research
Establishments need to further develop objectives and targets
to provide an effective incentive to encourage commercialisation."
Would you like to comment on that. Once again, Baker said you
should be doing more about targets and objectives, three years
later it appears that there is a criticism that not enough has
(Mr Young) The recommendation is that we work further
on the indicators and I certainly accept that and of course we
are doing just exactly that. What the Report brings out rather
well is the various sorts of activity which come under the commercialisation
heading and I refer again to table 5 on page 15. What we are setting
in place is a whole system of performance indicators to show progress
by each research council which are very, very different from the
one-size-fits-all in this commercialisation area. Some will do
much more licensing, some will do more joint ventures, others
will deal with patents and therefore spin-out companies may or
may not be a fair measure. So what we have done is work out with
the research councils key indicators of progress. I listed them
earlier and I do not suppose you want me to read them out again.
152. Not at all. I have not got very long. Ms
Leahy, is the effect of 2.6 that you are not completely satisfied
with what is being done?
(Ms Leahy) It is a very difficult area. We thought
very hard ourselves to see if we could try and add value in any
targets that might be set. I certainly agree with the need to
look at a range of targets.
153. But you did include a sentence that more
should be being done?
(Ms Leahy) Yes and my understanding is that people
are trying to think hard about how to develop better targets.
It is difficult but we do believe that further work should be
done on it. My understanding is that we really are trying very
hard to try and develop that and we are very pleased to see that.
154. Can I ask you about valuation of intellectual
property rights. It says in paragraph 4.18 on page 37: "The
evidence available to us in the course of this examination suggests
that there is little formal assessment of the value of the intellectual
property involved. There is therefore a risk that the public sector
will tend to accept the private sector's valuation . . . "
Mr Young, would you like to comment on that?
(Mr Young) This is a key area. What we have done is
issue guidance in December 2001 prepared by the Patent Office
which said precisely the formal processes that the research councils
should go through. I hope they found it useful. Certainly it is
a key area for them to get right, but it is potentially very,
155. I would like to clarify the numbers we
are talking about here, rather like Mr Davies and Mr Rendel. Professor
Goodfellow, can you tell me what the total BBSRC budget is?
(Professor Goodfellow) Approximately £250 million
and that goes to universities and institutes.
156. I understand and the MRC budget, Sir George?
(Professor Sir George Radda) £360 million approximately.
157. And the NERC?
(Professor Lawton) £200 million.
158. Mr Young, the EPSRC, which is the biggest
council, has been excluded from this. Is that because it does
not have any research institutes of its own?
(Professor Lawton) The NAO chose which ones to look
159. Was that why?
(Ms Leahy) They have very few research establishments
compared to the ones that we looked at. I am not sure if it is
one, two or three but it is of that order, I believe, and the
majority of the spending seemed to be on equipment.