!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: MIT Course on Project Management II: Construction Risk Management

Monday, November 30, 2009

MIT Course on Project Management II: Construction Risk Management

In lecture 23 (pdf) of Prof. Fred Moavenzadeh's course on project management, he takes up the subject of managing contruction project risks.

Prof. Moavenzadeh emphasizes six points:
  1. Risk management should be handled on an integrated basis, combining attention to risk financing (e.g., purchase of insurance), loss prevention (e.g., establishing good site security and doing thorough disaster planning), and agreement on how disputes will be resolved.

  2. Take a systematic approach to risk identification. Consider project type and site, project participants, the project delivery method (e.g., design-bid-build), budget and financing, scheduling, legal issues, and political risks (e.g., risk of expropriation).

  3. Aim for a fair allocation of risk. Consider which party can best control each risk, which can best finance each risk, which can best manage each risk, and which can most easily accept the consequences if a particular risk is realized. The outcome of the risk management analysis should be an integrated program that protects all parties.

  4. You need to stay up-to-date on the most economical ways of managing construction risk. Costs can be lowered by investing in loss control and safety programs, providing limited indemnity to contractors, reducing dependence on insurance in favor of risk management, and using controlled insurance programs (see next point).

  5. More and more players in the construction sector are utilizing controlled insurance programs (CIPs). A CIP involves the purchase of the following insurance coverages by one entity (owner, developer, or contractor) for all firms working at the jobsite(s): workers' compensation, general and umbrella liability, professional liability, and builders' risk. The advantages of this approach include cost savings, organized control by the purchasing party, and good PR from the evidence of concern for protecting participants in the project.

  6. Professional insurance (e.g., for architects and engineers in a design firm) presents pitfalls to be avoided, namely low and aggregated limits on coverage. Solutions include obtaining a good certificate of insurance backed by contract requirements, buying project professional insurance on larger projects, and buying owners' protective insurance to increase coverage limits.
If you'd like to see a real-world example of construction risk management (in the public sector), you can visit the California Department of Transportation project risk management webpage.