The new leader of Birmingham City Council faces "significant uncertainties" and challenges if the authority is to continue its improvement, according to a government watchdog panel.
The Birmingham Independent Improvement Panel, set up in the wake of last year's damning Kerslake review of the local authority, has reported some progress by council officers and political leaders.
In its most upbeat assessment yet, the panel says the new leader, set to be chosen by Labour councillors on November 23, will need to get a grip quickly on the improvement programme if the council is to avoid a government takeover.
But, in its report to Local Government Secretary Greg Clarke, the panel highlights some progress areas such as partnership working, the hiring of extra senior managers, a more open communications strategy, progress towards a combined authority and long term financial planning.
But it warns the improvements demanded in Kerslake's report last December have yet to be achieved.
The panel's report also sought to quell rumours it was taking an active interest in the battle for the leadership of the council following the resignation of Sir Albert Bore last month, saying the election of a successor was "entirely a matter for members of the city council".
Chairman John Crabtree said: "The new leader will face a crucial few months in which the council needs to demonstrate to its residents that it has the commitment and energy to drive forward the improvement programme, broker a different and more productive relationship between politicians and the council's senior managers, face up to the extremely challenging budget situation and evidence a transformation in its ways of working.
"It will be very important for the new leadership to work constructively with the panel and we will continue to offer challenge, advice and support to the council and do all we can to assist the new political leadership as it faces up to the significant challenges ahead."
The assessment is marked contrast to the tone of the previous report last August in which the panel concluded the authority was failing to improve and its leadership was weak.
That brutal assessment was one of the key factors in build up to the resignation of Sir Albert Bore.
The panel says the change in leadership offers a chance for the council to be run differently, including involving councillors of all parties, better partnerships with outside organisations and increasing transparency and openness.
But it also warns that equally there is still a risk of failure.
It's report states: "The council is at an important crossroads. With a leadership election and senior staff changes imminent, it faces significant uncertainties and transitions.
"We will be expecting that the coherence of the council's budget preparations, its overall direction and the pace of progress will not be adversely affected.
"However, should this not be the case we will highlight it immediately."
The council must provide a progress report early in December and hold a public meeting on December 14 at which residents will be able to question the new leadership.
The panel will next report back to government in January.