Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  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 criticism—this is, after all, an agreed report—at 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 that.

  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 that sentence?
  (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 assessment process?
  (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 councils—and the Chief Executives will say whether it is right or wrong—had 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.

Mr 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 that sentence?
  (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.

Mr Bacon

  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 PSREs—the public sector research establishments—should 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 more formal?
  (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 been done.
  (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, very difficult.

  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 at.

  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.

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