Risk Management In Construction Contracts

adventure Management In Construction ContractsRisk charge is vital when partial(p)ing for construction set ab knocked out(p)s. Risk is described by Atkinson (2001) as the prospect of an b petty(a)-toned overrence of a hazard and the magnitude of the consequences. Consequently fortune feces be considered as the likelihood of an amaze occurring and the resultant effect of that experience if it takes place.As defined by RICS (2009) run a pretend addressment is a essence of assistes where t all in allyks ar place, analysed and managed. It is a constant cycle that begins at the pre- cranky stage this doer that stakeiness of infection tin be priced into the bid and continues after locating flummox stage. During the different forms of a rove, new guesss will emerge throughout the squeeze. Identifying in advance e precise last(predicate)ows quicker mitigation to reduce seismic disturbance insecurity has on the bem implement.This study has examined the in the true of pre- ardent gamble management by development twain pre- cutting tool and federal agency urge on jeopardy ushers. As well as pretends there were opportunities and these were as well recognised in the executees of gamble management.This checkmate ara was chosen to be interrogationed after discussion with job enterprise managers and work colleagues, during my 2010 post course with Sir Robert McAlpine (SRM). This written report area was considered as an ideal subject area for a interrogation project because SRM were improving their bump management procedures.Therefore the plan of the study was to feedback constituteings, to just enhance the Tender jeopardy management shape. The line manager gave me take a chance memorializes for two different project subjects, and explained how SRM valuate risk at tout ensemble stages of a job. The emphasis world on high up mood construction, as this tuition was available from my placement and SRM.1.2 Rational eThe subject of what to query developed from consultations with colleagues and the line manager at SRM. The line manager was involved in risk management and was working to improve SRMs pre- mould risk branch to make it restate the set slenderize phase. This therefrom illustrated a requirement in the business and indeed construction for research in to this topic area. The main crusade for eventually electing the subject area of risk was the open access of development provided by SRM and the contact with knowledgeable personnel in my placement. This gave a bankrupt arrest of the processes really utilise, which allowed me to gain a greater grasp of the subject area. Also access was gained during placement to potential selective breeding in the miscell some(prenominal) of hale and stark naked risk learns from various High flair works undertaken by SRM.The steer, objectives and possible action came almost from carrying out the literary research, it wasnt until that p ass that the cultivation was collected, and a plan throwd of how to use it. The research aimed to understand how the pre-tender risk process may be inaccurate. After that considering how it could be im proved and whether it was possible to do so. Subsequently, recording all(prenominal) conclusions of pre-tender process in roll to develop and break-dance it.1.3 Aim, Objectives and Hypothesis1.3.1 AimTo serve whether the post signal risk process identifies significant additional risks that the pre-tender risk process failed to identify and thus jibe how inaccurate the pre-tender risk process is.1.3.2 ObjectivesIdentify processes currently utilise to manage risks at post consume and pre tender stage in recognising and meter risks.Analyse whether the key additional post abridge risks identify were include at pre-tender stage.Compare SRMs risk management processes with opposite condenseors and analyse to date the best solution.If possible, note whatever resulting conclus ions and enter results into the pre-tender risk process to modernise a new accurate tender risk management.1.3.3 HypothesisThe post weightlift risk process in Highway construction successfully identifies additional risks and as a result pre-tender appraisal is inaccurate.1.4 everyplaceview of work through with(p) / Methodology1.4.1 Literature ReviewIn order to understand the processes utilise to manage risk in the industry a literary inspection was embarked on. This meant the research would gain an appreciation of how risk is perceived by the industry, as prior to this my personal experience had entirely come from SRMs perspective and the processes they use. In order to gain real understanding and to funnel clearly on what my surmisal stated, it was resolute to conf utilize the literature refreshen into two segmentations. sensation segmentation, comprising of processes used by industry, taken from an assortment of books. The second section cosmos that of SRMs highwa ys process and accomp from separately oneing enters. This makes it possible for an judicial decision to be conducted amid SRM and the another(prenominal)(prenominal) contractors, so as to gain a better view of how Risk management at different stages of a contract work in Highway works.1.4.2 SRM ProjectsThe 3 SRM projects looked at were M1 J25-28, A19 prove ( both(prenominal) Highways Agency) and M74 Glasgow council, they were all Highway charge contracts although they differ slightly. A19 was Term Maintenance Contract (TMC) whereas M1 J25-28 and M74 call forth were ( mac) contracts.When examining the A19 upgrade the contract risk establish was acquired more(prenominal)over the tender risk register for this contract was not. However the contract risk register for this project was compared with a tender risk register from another contract. Not ideal exclusively the only solution at the time. The majority of the risks are common and on approximately projects registers, so comparable/related risks were drawn from the tender register, and include in the A19 contract risk register.An evaluation was done involving the contract risk be, and tender risks. This was done by incorporating the maximum, minimal, about possible make ups and the probabilities from contract and tender appraisals. A substance perspicacity for each risk occurred via averaging the maximum, stripped and most apparent woos so multiplied by probability of risk occurrence. All risks types were determine, in order to distinguish trends in risks set at pre-tender stage and free-base at post-contract stage or were not found at all.The M74 contract risk register was distinctive to M1 J25-28 and A19 upgrade registers as it didnt contain costs. Every risk was separate by its probability and impact, whether that was high, mean(a) or low assessment. Having a pre-tender risk register for this project, meant risks were matched up with the contract risks. Assessing if each risk was cover was done by arrogateing costs and probabilities to every risk. To adventure the overall assessment, the probability and cost were multiplied. These costs were then taxd against the overall pre-tender costs, as with the A19 upgrade.1.4.3 InterviewsInterviews via telephone were conducted with a few companies to really have what processes are used at post contract and pre-tender. Also to find out how precise these methods are. Companies interviewed wereMorgan EST.VinciBal quaternion BeattyMay Guerney1.5 Overview of main conclusionsThe info and analysis carried out imply there is information to sustain in part the hypothesis. This is collect to a large number of risks being set in contract stage that were not previously seen at pre-tender. Even though assessments for any one risk were fairly inaccurate, the overall assessments for pre-tender and post-contract stage were close. Showing that the pre-tender risk process is inaccurate and needed improving if assessments and risk management is to become more reliable.1.6 Guide to the reportChapter by Chapter overview of report1 entre An opening on risk management in relation to the project and validates the basis for choosing the subject area. It as well as states the aims, objectives and hypothesis which the project is open up upon, as well as outlining the work done and an overview of the Conclusions.2 Methodology Explains the methods used to investigate my hypothesis, from Literature reexamination, approaches used data array, analysis and interpretation of results. This describes the reasons for using the methods chosen and any research boundaries/ limitations.3 Literature Review This chapter contains my understanding and background reading for the subject area. This was done by, studying the risk process used in management. Allowing a greater comprehension of risk in Highways work, and how its viewed and used.4 Results and Analysis Confirms the results of the research, and the subsequen t analysis for the SRM projects and other contractors interviews. It outlines the assessment make concerning the pre-tender risk register and the post contract risk registers. From this it then cross-examines the data so as to be able to test the hypothesis.6 Conclusions and Recommendations This analyses all the results in relation to the hypothesis and whether they support it or not. It enlarge any limitations that affected the project, while also imparting proposals for both industry and any future oratorys.2 Methodology2.1 IntroductionThe methodology was vital to the accomplishments of research and was dealt with care in order for the most appropriate research methods to be chosen (Fellows and Liu, 2008). The methodology outcome depended on the subject area, research aims and standard of literature review obtained. For data collection and analysis, the methods employed ought to be realising the aims and objectives so as to continually test the hypothesis and validate the res earch.The information that was getable and available played a huge role, as work on the dissertation could not be done if the information wasnt relevant. The information therefore can be distinguishable by the hypothesis, as if the information is not on hand then one cant trial the hypothesis. receivable to these factors, risk management was identified as an appropriate topic from the beginning, scarce it wasnt until the research was started that defining the hypothesis was possible, yet having an impression of the aims and objectives that were to be accomplished. From the off, the aim was to gauge how precise pre-tender risk management was, even if unsure of the data and information existing prior to consulting SRM team.Ultimately this section highlights the research methods utilized in the research, and the close association that has been do when doing so between the methods and Aim, hypothesis and objectives.2.2 AimEmployed to help concentrate the methodology in choosing th e refine methods, also to clarify to the person who reads the dissertation what precisely is being investigated. So this shall be done by recalling the Aim set outTo see whether the post contract risk process identifies key additional risks that the pre-tender risk process failed to identify and thus determine how inaccurate pre-tender risk process is.2.3 decimal and Qualitative methodsIn Data collection there are two key styles quantitative and qualitative forms of research. Quantitative being the collection of data measured with figures and analysed with statistical trials in order to to test the hypothesis (Creswell, 1994). While Qualitative research is quite different, it is a method that uses meanings, experiences and descriptions (Naoum, 2007). Quantitative research can be easier to examine as it creates measurable/quantified outcomes that can create analytical arithmetical results. While, qualitative information from research has a tendency to be complicated as it often req uires researcher in stray and manipulation to ensure its appropriate for investigative procedures (Fellows and Liu, 2008). The research methods depend on the information obtainable and the aim of the research. In carrying out good found of research, its generally call for and essential to use both quantitative and qualitative. A combination of methods was used, to enable the correct and more reliable conclusions more is comminuted further in this section.2.4 Literature ReviewA literature review was undertaken to provide the core subject knowledge of risk management in construction. The idea was to comprehend how risk is analysed in the construction sector, and the procedures used in controlling it. Next research was done to discover how risk is managed, by using literature in form of books and journals. Then see SRMs risk management process from their risk management documentation.Dividing the literature review in two sections meant that one of the objectives could be fulfilled b y comparing SRMs risk management approach with other construction companies.Overall the literature review gave a greater understanding of the chosen topic of risk, and illustrated the problems and successes in risk management. While also present the diverse and numerous ways in managing risk, and how the approach identified and selected can depend on many a(prenominal) factors such as project size, contract used and size of companies involved in the managing of the project.The list literature sources below were used in delivering the dissertationTextbooks -were very useful in gaining the relevant knowledge of risk management, and procedures used. Books were found by searching Loughborough Universitys library database. Chapters needed or thought appropriate were studied, and compared against searches that had been do on the internet. A check system, which assessed the validity of both sources of information against each other. With much of the research it became apparent that in formation in books available werent current especially in the grey-haireder series of books. Despite this it wasnt a dilemma for Risk management as texts of up to ten years old were and are significant and relevant now, with some techniques having improved. The books allowed for great comparison for up to date information on the internet.Journals were again located on the Loughborough University library database, which with the relevant buzz words located material of use. Finding journals proved rugged in comparison to textbook numbers, yet the sources were helpful.Internet supplied a platform for research of literature. Being easy to use and handy, collating information could be done at speed and with relative ease. It allowed greater understanding of what type of book would be needed from the library. Information from the internet was important but it had its limits and it was vital to know that it can be inaccurate and cause misguidance, research can be more guaranteed with text and journals. This way of thinking about limitations in using the internet was in mind when searching websites on risk in the construction. Finding various helpful websites any information was compared other websites in order to increase reliability, but most importantly against book and journals. As with all research appropriate sources of reliability were identified and used like the RICS website. Two editorials from RICS site provided constructive, and were used in the literature review. In finding books the internet was most useful as many articles on websites highlighted book of particular relevance and use.SRMs Risk Management Procedures document SRMs risk management procedure document was used as section two of the literature review. Reading through the document and important information was used in the literature review, particularly, on the processes used by SRM in risk management. A comparison was made between SRMs procedures and with those found in the first half of the literature review.2.5 Data CollectionWhen actually store the data for the research the collection was again cashier into two parts. The initial data collection was from SRM projects, other data collection was associated to other contractors. The blueprint was to compare the risk procedures, and attempt at analysing which was the superior one. The next section shows how all the data collection was collected and prepared.2.5.1 SRM ProjectsThe data for SRM projects was collected during a placement year, when working in the relevant packages and job roles. Prior to any data collection, discussions with line managers and seniors took place in order to help formulate and aid the research as what would be required in price of data. At this stage no hypothesis had been decided, the idea was to assess the accuracy of pre-tender risk assessments. It was therefore recommended that the applicable information in the form pre-tender and post contract risk registers could be provided. T he contracts that would be made available were the M1 J25-28 scheme, A19 upgrade and M74 Glasgow project. Three convertible Motorway/road maintenance projects that differ from each other contractually.A19 upgrade is a TMC to maintain, operate a network of strategic roadstead in the North East. M1 J25-28 and M74 are both MAC contracts for exchangeable maintenance one in the midlands and the latter in Glasgow. A19 upgrade and M1 J25-28 are HA run, while M74 is for the Glasgow city council. The HA run their contracts by split up their contracts into 13 sections in the UK, and in these projects cases offer for the extension and maintenance of the roads within these sections.The reason that A19 upgrade was a TMC but M1 J25-28 and M74 MAC contracts is previous to the MAC HA projects were also run with the TMC contract, but now all is done under MAC style. The contracts run for 5 years with nonmandatory extensions. Different sections of maintenance start and end at different areas on t he motorway in question over a 5 year cycle, meaning that when MAC contracts were first used, some sections werent using them and using TMC etcA19 upgrade was a TMCs completed in 2009, whereas M1 J25-28 scheme was a mew MAC contracts just seeing completion in late 2010. The deflection in TMCs and MAC contracts is TMCs two separate companies, one as managing agent the other as main contractor. MAC contracts are one company, who runs as both the contractor and managing agent.Using the three contracts as the basis for the research the risk manager on the placement at SRM started off by providing a tender risk register for the M1 J25-28 and A19 contract, projects he had involvement on. Trying to find tender risk registers for M74 was problematic but couldnt find any. In order to make a full complete analysis, it was decided that for M74 to use another MAC contract tender risk register. This was exactly the same as M74 except the location geographically. For sure this would create limi tations but it was decided, it would possible to use the risk register as SRM tend to re-use the risk register from preliminary bids for specific contracts. So similarities would be high and that as long as it was noted in the dissertation as to its use and reasons why. Due to the generic wine nature of the risks they were deemed suitable as with what SRM do in practice.While on placement working on the M1 J25-28 contract meant developing contacts with people in the relevant field of risk management. Therefore requesting the use of the risk register on M1 job was easier than the other projects. The A19 contract risk register was also obtained contracts at work so. Finally also getting the M74 contract risk register, because although never having worked on this contract the line manager on my placement gave contact details of relevant personnel to enquire with and the registers were duly emailed.2.5.2 other ContractorsObtaining data via contractors in the sector of road maintenanc e was much more difficult than from SRM sources, as they were very protective of information they gave out. All the projects obtained so far from SRM contracts were Highways related, so the focus was on trying to collect data from Highway contractors. By doing this it would allow for a honest comparison between SRM and other contractors. Processes to manage risk are expected to be similar involving different construction projects the data was likely to be different.The plan was to get away questionnaires to the chosen contractors, but after unsuccessful returns it became apparent that another roadway would be needed, so interviews via telephone were deemed suitable. It seemed with written questionnaires, companies were more likely to reduce them, whereas on the phone they would respond to the questions asked immediately, with no real confusion of what the question was asking as myself in person could explain.The Highway contractors contacted wereMorgan est.VinciBalfour BeattyMay GuerneyA semi-structured set of questions was planned in order to gain the information required but also allowed telephone participant to elaborate and discuss the subject in a friendly professional manner. Contractors in Highways works were contacted, the dissertation of Risk Management was explained with the aims and objectives that needed to be achieved and the following questions were askedDo you have a pre-tender risk management method?How do you detect risks in the pre-tender phase?How do you calculate risks to arrive at a total risk pot?Do you undertake risk management post-contract phase?Could I obtain a pre-tender risk analysis and post contract risk analysis for my research use (for the Highways project you are on)?To each conversation it was explained that my aim was compare the risks types at tender stage with contract stage as well as assessments made. The questions were supposed to identify the processes companies used in managing risks. Overall the different companies were helpful in answering these questions. The ordinal and final question was done to get registers like that gained from SRM. It was the only difficult part as many refused to hand registers over from live projects out-of-pocket to the sensitivity of their data and company policies. However some registers were received but didnt really contain the all important(p) information required just a formatted company risk register. Throughout the interviews, notes were made on the first four questions and the results put into a table at the time of the interview showing the company and their response to each question. Thus, making analysis easier when looking at the responses later in the dissertation.2.6 Data AnalysisPrior to data analysis, the research had assessed how SRM price risks because of the literature review and looking at the risk registers. It was crucial to identify this before undertaking the data analysis as it established what type of analysis would be carried out, and therefore detailed below.Upon formulating the risks that have been identified each risk will be categorised with minimum, maximum, most likely jimmy and probability. Done for all of the risks, the information is put into a baste of simulation software called RISK which does hundreds to thousands of simulations, and creates a graph with a convex curve.The 75th percentile is put in the bid as the risk potential. SRM do this for all of their projects. For this dissertation we were concerned in the risks were identified and the individualist costing of each risk as shown in paragraph in a higher place with min, max etc. The focal point being what was keyed in to RISK as opposed to what it produces.For the Data analysis the SRM contracts have been split into their individual projects and the Other Highway contractors. The reason for splitting the SRMs projects is that the analysis alter in parts by way it had been collected as mentioned in the first place (some with full risk r egisters some in part).2.6.1 M1 J25-28s scheme and M74 GlasgowAnalysis for M1 and M74 projects were sensibly much the same. The M1 contract and tender risk register could be compared with the contract and tender risk register for the M74 contract, due to them both being Macs.To evaluate the accuracy of the risk assessments, comparable risks to the contract register, were removed from the tender register, put against the matching risk in the contract register. When comparing cling to in matching risks, it was vital to have a total cost for risks in both the contract and pre-tender register.The best and most impartial way to do this for the pre-tender risk register was to take the come from the maximum, minimum and most likely figures and multiply the probability. The maximum, minimum and most likely value are the affirm of potential expenses that could be incurred by the risk, and any total cost was decided to be an average of these, as all projects had them. As its unknown as to its actually occurrence the average should be multiplied by the probability, which gives a total potential cost to the risk.While the contract risk registers should be considered by severity and possibility by scale of 1-5, and then an assessment of the risk is undertaken, figuring out the minimum, maximum and most likely values of each risk.Mitigation measures are identified for each risk, and then assessment is done again as before the mitigation. The M74 contract risk register did not have minimum cost of the risks, so all risks were put on to be zero. Without any minimum values any overall assessments of the risk would not have been made. The reason for not using the likely value instead was so the data would use a range of values. It was decided greater accuracy would be found in circumstance the minimum as zero and range of values than the most likely. By setting all its risks as zero means they are an unimportant minimum value or a risk/event that doesnt happen. The M1 con tract register had all the necessary values so no intervention was needed. both(prenominal) contract risk registers failed to show any probability, just a likelihood scale from 1-5. Therefore it was assumed, giving the scale a per centum as would normally be done1 10%2 30%3 50%4 70%5 90%These percentages were used because they provided a suitable range, as risks with low likelihoods (1) are unlikely to occur but not impossible so 10% seemed a bonny percentage. Similarly 90% seemed a reasonable percentage for high likelihoods (5) as they are likely to occur but not certain. The other values were then evenly distributed between 10% and 90%. Having made these assumptions the overall assessment for contract risks was made in the same way as the tender risks, finding the average of the maximum, minimum and most likely and multiplying this by the probability. Where the same tender risk was identified as being applicable to more than one contract risk the overall assessment was divi ded by the number of contract risks it was applicable to. This was because when these values were totalled there would be double counting of these tender risks if this was not done.To show this information a table was created showing a list of contract risks, the corresponding tender risks, raw data inputted into the risk registers, and the overall assessments. I then split the contract risks into one of the following categoriesNot identified but cover (No cost).Not identified and not covered should be identified.Not identified cannot be identified.Identified and covered.Identified but not covered.Each risk was grouped by colour to state which category from above it swing in.2.6.2 A19 upgradeThe analysis for the A19 contract was started off in the same way as had been done for the M1 J25-28 and M74 contracts, going through the contract risk register and identifying any similar risks from the tender risk register.The assessments for the overall cost for the tender risks were made in exactly the same way, by taking the average of the maximum, minimum and most likely values and multiplying this by the probability. This was because the tender risk registers were in exactly the same format. However the differences came when the assessments of the overall cost for the contract risks were made. This was because for this project, the contract risk register assessed the risks in a different way to the Area 6 and Area 13 contract risk registers. This difference was that there were no costs in the A19 risk register.Instead the risks identified at contract stage were assessed in terms of likelihood and impact on a scale of high, medium and low. This meant that assessing the overall cost for the contract risks were harder because there was no costs given. Therefore the only way to assess the overall cost of the risk was to give the risk a cost and a probability based on whether it was high, medium or low and then multiply these two figures together. This means that deci ding what costs and probabilities to assign to each level of risk was important, as the overall assessment was bloodsucking upon these assumptions. In terms of what costs to give for each level of impact, the risk matrix that SRM use for prioritising risks was referred to. They assess the impact and probability of each risk using a 1-5 scale and they give the parameters for impact as being1 under 1,0002 1,000 10,0003 10,000 100,0004 100,000 1,000,0005 Over 1,000,000As this was a 1-5 scale and the risks and the contract risks were only divided into high medium and low, the figures for 1 and 5 was as too extreme both ways. For low risks I decided to take the high point of a risk impact of 2 (10,000) and for high risks I took the low point of a risk impact of 4 (100,000). For medium risks I took the core between these two values (55,000). Using these figures seemed reasonable based upon this scale, as it created enough of a range without a too big range.For the probabilities, the likelihood scale they use was based on descriptions rather than probabilities. From knowledge in research the probabilities for low were set at 10%, medium risks 50% and high risks 90%. These percentages were used because they provided a suitable range, as risks with low likelihoods are unlikely to occur but not impossible, so 10% seemed a reasonable percentage. Similarly 90% seemed a reasonable percentage for high risks, as they are likely to occur but not certain. For medium risks the midpoint between these two percentages (50%) was used, because they are possible to occur. The cost was then multiplied by the probability to give an overall value for each risk. Following this, the rest of my analysis was exactly the same as the M1 J25-28 and M74 contracts2.6.3 Further Analysis ExplanationThis section so far details how the risk registers were compared, which was the first step in terms of analysing the data, and these tables are included in the appendices at the end of this d issertation.However on there own, these tables did not give sufficient information to be able to test my hypothesis. Firstly, to question how accurate the identification of the risks was, the risks that were identified, and were not identified and not commercially covered, were filtered out, and lists were made of these risks. As this was done, each risk was put into a category to see if there were particular categories that are, and are not identified at tender stage. To analyse this, tables were created for risks identified and not identified, detailing the categories of risks, and the number of risks in each category. From these tables, two pie charts were drawn to show this information graphically.To analyse the assessment of the risks, a summary table was firstly drawn to show the number of contract risks in the following categories, and the total assessments relating to these risksNot identified but covered (No cost).Not identified and not covered should be identified.Not ide ntified cannot be identified.Identified and covered.