PCM-Lecture16-Risk-Allocation

PCM-Lecture16-Risk-Allocation - Project and Construction...

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Unformatted text preview: Project and Construction Management Project and Construction Management Lecture #16 Lecture #16 Risk How is it Allocated? Luis Prieto-Portar 2009 Risk Management There is increased scrutiny by managers over how money is spent. Contractors must be aware of the constant market changing demands both locally and regionally. These complex interrelationships are solved through, (1) communications , and (2) through computations . Everything is connected, and risk is anticipating that connection . Risk is the potential variance from expected returns is a pithy definition from Dr. Harry Markowitz, Nobel Prize for Economics. The pragmatic assessment of risk by a contractor is vital to stay in business. Cartoon from Rose, Walker LLP, Trial Attorneys, American Way, February 1, 2008. The increased losses incurred in construction by owners and contractors have exposed both of them to the increased expedient of resolving most construction disputes through arbitration , mediation or litigation . In the recent past, owners ran risk-free projects for themselves by dumping all the responsibilities on the contractor. Owners used exculpatory clauses for everything in the project that had any remote possibility of risk (such as, underground conditions, substandard designs, flawed specifications, wild price increases for materials, etc). The contractor used to accept the risk in exchange for a reimbursement for taking that risk. Today, knowledgeable contractors are no longer willing to take all the risks while being limited to a guaranteed fixed price. Now they are aware that they can recover losses that are the result of an unfair contract condition. The role of the RPR ( RE ) is delicate: they are entrusted to protect the owner and the A/E from risk of claim losses. However, it is a basic principle that (1) all risks rightfully belongs to the owner, unless he transfer them to others through fair compensation , and, (2) risk can only be transferred to a firm that has the knowledge to assume that risk and control or minimize it . The logic flowchart for risk decisions.risk decisions....
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This note was uploaded on 08/29/2011 for the course CGN 4930 taught by Professor Prieto-portar during the Spring '11 term at FIU.

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PCM-Lecture16-Risk-Allocation - Project and Construction...

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