Senior people often speak in probabilities. Commercial risk appears when someone else treats those words as a basis for investment.
The 2013 exam case presents a useful hypothetical.
A real estate agent tells Andy that council approval for a proposed café would “definitely” be granted because the council generally supported tourism projects. Later, Andy learns that the vendor and agent allegedly knew the council would probably prohibit new cafés.
The exam asks what legal action may arise from the statement.
The source does not provide the answer. Current Australian law on misleading or deceptive conduct, representations about future matters, agency and remedies must be independently verified. [FACT CHECK REQUIRED]
The source does, however, support a broader governance question:
When does an opinion, forecast or reassurance become commercially significant because another party is expected to rely on it?
The Strategic Context
Projects depend on statements about the future.
“Approval is expected next month.”
“Funding is virtually certain.”
“The supplier can meet the date.”
“The regulator has no issue with the design.”
“The customer will probably renew.”
These statements help people make decisions.
But each statement contains uncertainty.
If the speaker has superior information, occupies a trusted position or speaks with apparent authority, the listener may invest money, sign a contract, hire staff or commit resources.
That creates risk before the formal contract even begins.
What Leaders Commonly Misread
The first mistake is believing that calling something an “opinion” removes all consequence.
That is too simple.
Current Australian Consumer Law and common-law rules may treat some statements about future matters differently depending on the circumstances and whether reasonable grounds existed. [FACT CHECK REQUIRED]
The second is assuming silence is always neutral.
The exam scenario alleges that relevant parties knew facts inconsistent with the optimistic statement. Whether nondisclosure creates liability depends on the legal setting. [FACT CHECK REQUIRED]
The third is giving a confident answer outside the speaker's authority.
An operational manager may know the technical position but not the regulator's formal decision.
The fourth is failing to distinguish evidence from expectation.
The fifth is not documenting the assumptions behind a forecast.
Reframing the Issue
Use the ERANORTH Representation Risk Test:
Who said it? → What exactly was said? → Fact, opinion or prediction? → What did the speaker know? → Was reliance foreseeable? → What action followed?
Who said it?
Authority and expertise affect how a statement may be understood.
What exactly was said?
“Likely” and “guaranteed” are not the same.
What type of statement?
Existing fact, interpretation, opinion or future prediction?
What knowledge existed?
Did the speaker have information supporting or undermining the statement?
Was reliance foreseeable?
Could a reasonable person expect the listener to act?
What action followed?
Was money, time or organisational capacity committed?
This framework is useful even before legal liability is assessed.
Strategic Analysis: Confidence Should Be Calibrated
A mature organisation does not communicate every uncertainty with legalistic disclaimers.
It calibrates confidence.
Compare:
“Council approval will definitely be granted.”
with:
“Our current planning assessment is that approval is likely, but formal approval has not been issued and the council retains discretion.”
The second statement is more useful because it separates organisational judgement from external authority.
The same principle applies in project governance.
A sponsor can state that funding is expected while making clear what condition remains outstanding.
A contractor can state that recovery is achievable while identifying assumptions about access and resources.
A procurement team can state that a supplier appears preferred without implying award before approval.
Clear uncertainty reduces decision risk.
Reliance as a Management Question
Legal reliance has specific requirements that must be verified under applicable law. [FACT CHECK REQUIRED]
Management can use a simpler test:
Would we expect the recipient to spend money or change position because of this statement?
If yes, the communication deserves more discipline.
This is particularly important in:
- property;
- infrastructure approvals;
- supplier commitments;
- employment;
- financing;
- joint ventures;
- procurement debriefs.
Strategic Analysis: Decision-Sensitive Communication Deserves Governance
Not every statement requires formal approval.
But some communications have a much higher ability to change another party's behaviour.
ERANORTH can classify these as decision-sensitive representations.
Examples include statements about:
- regulatory approval;
- funding;
- contract award;
- site availability;
- demand forecasts;
- customer commitments;
- delivery capacity;
- technical compliance;
- future employment or subcontract opportunities.
The common feature is that the recipient may commit resources because of the statement.
A mature organisation can therefore apply proportionate controls.
Low-impact operational estimates may remain informal.
High-impact statements should be supported by evidence, appropriately qualified and made by someone with the necessary authority.
This is not only about avoiding claims.
It improves strategic decision quality internally.
Executives themselves rely on representations from project teams. If a program director says an approval is “essentially complete” when a material external decision remains outstanding, capital can be committed prematurely even though no external party is involved.
The same risk exists inside the enterprise.
This makes representation discipline part of governance culture.
Leaders should encourage teams to use language that distinguishes:
confirmed fact
from
current assessment
from
assumption
from
aspiration.
Those distinctions make uncertainty visible without paralysing action.
They also make later review more honest. If an assumption proves wrong, the organisation can understand why rather than rewriting history as though certainty had always existed.
Strategic Analysis: Reliance Can Begin Before a Contract Exists
The timing of a representation matters because commercial commitment often begins before formal contracting.
A supplier may hire staff while expecting award.
A property buyer may commission design work while expecting approval.
A project team may mobilise resources while expecting funding.
A customer may alter operations while expecting a promised delivery.
This is why governance cannot assume that risk begins only when the contract is signed.
The practical question is whether the organisation is creating a reasonable basis for another party to change position.
Where that possibility is material, informal optimism should be replaced with clear decision status.
Phrases such as “preferred”, “subject to approval”, “indicative” or “not yet authorised” are useful only when they accurately reflect reality and are used consistently.
A label cannot cure conduct that communicates the opposite message.
Current legal consequences remain jurisdiction-specific. [FACT CHECK REQUIRED]
The leadership principle is to align words, authority and process so that the recipient is not left guessing which statements can safely be acted upon.
Decision Framework
Before making a material commercial representation, ask:
1. Authority
Are we authorised to speak for the decision-maker?
2. Evidence
What supports the statement?
3. Uncertainty
What remains unresolved?
4. Audience
What is the recipient likely to do with the information?
5. Qualification
What needs to be stated so confidence is not overstated?
6. Record
Should the statement be documented formally?
This is communication governance.
From Strategy to Execution
Immediate action: identify decision-sensitive statements in approvals, procurement, customer negotiations and supplier management.
Medium-term capability building: train leaders to distinguish confirmed decisions, current assessments and future expectations.
Long-term strategic positioning: create a culture where uncertainty can be stated clearly without being interpreted as indecision.
That is especially important in complex programs where many outcomes depend on third parties.
Signals to Monitor
Watch for words such as “definitely”, “guaranteed” and “no problem” in situations controlled by another authority; business cases relying on verbal assurances; suppliers mobilising before formal approval; customers acting on informal predictions; or teams discovering later that the speaker knew contrary facts.
Questions for the Leadership Team
- Which statements are other parties likely to rely on?
- Who is authorised to make them?
- What evidence supports the level of confidence expressed?
- What material uncertainty remains?
- Are we distinguishing our view from an external party's decision?
- What action could the recipient take in reliance?
- Should the communication be clarified before more value is committed?
Closing Perspective
Commercial communication creates value when it helps people decide.
It creates risk when confidence exceeds evidence.
Leaders do not need to stop expressing judgement.
They need to make clear where judgement ends and formal certainty begins.
Related article: IRAC for Executives: A Better Way to Diagnose Contract Problems
Related article: The Signed Contract Is Not Always the Whole Commercial Story
About EraNorth Insights
EraNorth Insights publishes practical analysis on strategy, projects, operations, transformation and decision intelligence for professional and organisational use. About EraNorth.