Risk Management · Bassam Mahmoud Ibrahim Al-Tahtamouni, Parsons Brinckerhoff Created Date:...
Transcript of Risk Management · Bassam Mahmoud Ibrahim Al-Tahtamouni, Parsons Brinckerhoff Created Date:...
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Better Practice Operational Tools and Techniques for Effective Construction Procurement
Risk Management
Ahmad Ali Al Ansari 20 January 2020
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The Big Question
Are we getting Value for Money out of our
Construction Projects?
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The Problem
• Cost Overrun
• Time Overrun
• Quality Degradation
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Procurement
Procurement involves the following 4 parts:
• Organisation Method:
structure, level of authority & delegation, decision making process, etc.
• Payment System:
lump sum, measured, cost reimbursement, etc.
• Tender Procedure:
documentation, open or selective, single or two envelops, cost
estimation, etc.
• Conditions of Contract
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PWA Common Procurement Methods
•Design – Bid – Build (DBB)
•Design & Build (DB)
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Risk Management
Statement:
The selection of procurement method decides the level
of risk in construction projects
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Areas of Risk – Internal Factors
Resources & Project Organisation
Data & Information
Process & Operation
Finance & Estimation
Procurement & Contractual Aspects
Contract Administration
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Areas of Risk – External Factors
1. External Stakeholders
2. Environmental
3. Market Conditions, Resources &
Logistics
4. Budget & Financial
Approvals5. Legal
6. Political
7. Etc.
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Question?
What is the level of
Consideration given to managing & mitigating
risks generated from
those areas in building up
our Construction Procurement Strategies and
selection of most appropriate methods?
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Risk Management & Procurement Process
There are two main linkages between risk management and the procurement process:
Cost Management
Contract Strategy
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Cost Management
“Effective risk management provides a better and
more realistic approach to defining risk allowance,
in terms of calculating contingencies and
tolerances*. If risk can be quantified in financial
terms, then it is possible to provide a more
effective approach to cost management.”
* Thomson and Perry (1992)
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Contingency Management
The risk impact can be minimized through providing
a contingency allowance to mitigate the effects.
• The common practice is very subjective in contingency
allocation.
• A global percentage value is applied – a subjective
estimate.
• Need: accurate appraisal of contingency sums helps in
greater cost certainty.
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Example
Inter-relationship between Cost, Risk and Design Management
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Management & Practice (Teamwork)
Management action
Verify risks through clarifying the nature of risk, identify other concerns and mitigate the effects – Risk Register.
Analyze the significance of risk impact.
Prioritize risks in terms of probability of occurrence and magnitude of impact –
Identify project specific risks through workshops & brainstorming sessions.
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Procurement & Contract Strategies
Risk management helps in establishing ……
• Project Priorities
• Number & Type of Work Packages
• Roles & Division of Responsibilities
• Terms of Payment
• Basis for Contractor selection
• Degree of Client Control & Involvement
• Most Appropriate Allocation of Risk