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2 3 4 an integrated approach identifying project

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Unformatted text preview: gn-Build Design-Bid-Build Owner Owner Owner Owner Design --Builderr Design Builde A/E A/E Subcontractors Subcontractors A/E A/E Contractor Contractor Sub Sub Key Point #3 Choice in Risk Allocation Responsibility for Risk By Law Statutes Regulations Common Law By Contract Risk Shifting Insurance By Default Denial of Responsibility Acceptance of Responsibility Fair Allocation of Risk 9Which Party can best control risk 9Which party can best finance the risk 9Which party can best manage the risk 9Which party can more easily accept the consequence of risk Risk Matrix Risks Owner Architect/Eng ineer Contractor Subcontractor Injury to contractor’s employees General Liability or owner’s protective Professional liability or general liability Workers’ compensation General Liability Injury to subcontractor’s employees General liability or Professional owners protective liability or general liability General liability Workers’ compensation Injury to general public General liability or Professional owner’s protective liability or general liability General liability General liability Physical damage to project during construction Builder’s risk Professional liability or general liability Builder’s risk Builder’s Risk Physical damage to project after construction Property policy Professional liability General liability (completed operations) General liability (completed operations Approaches to Avoid and Reduce Claims y Realistic Contractual Allocation of Risks y Match Risk Allocation to Compensation y Dispute Prevention through Incentive Programs y Use Integrated Programs to Protect all Parties Key Point #4 Economical Solutions for Construction Risks Allocation of Insurance-Related Risks & Costs: Strategies Construction Industry Institute Study (1993) y Invest in Loss Control and Safety Programs y Limited Indemnity by Contractors y Less Insurance, More Risk Management y Controlled Insurance Programs – Not New. What is New is increasing Utilization Key Point #5 Controlled Insurance Programs (CIP’s) Definition of Wrap-Up: (or CIP, CCIP, DCIP, OCIP) y The purchase of the following insurance coverages by one entity for all firms working at the jobsite(s): y Workers’ Compensation y General and Umbrella Liability y Professional Liability y Builders’ Risk y Professional coverage begins when design starts, others when construction starts and all continue for three to five years after completion Owner- or Contractor-Controlled Insurance Program y Wrap-up Advantages y Cost Savings y Control y Public Relations Wrap-up Feasibility Bid Reductions Wrap – Up Cost $5 MM $1.5-3 MM Wrap-Up vs. Conventional $23.5 MM Construction Hard Costs $100,000,000 Cost Savings Key Point #6 Project Professional Policies Pitfalls in Professional Liability Insurance y Problems – Low, Aggregated Limits y Solutions y Good certificate of insurance backed by contract requirements y Buy project professional insurance on larger projects y Buy owners’ protective insurance Owner’s Protective Professional Liability: Sample Program Design Firm Primary Limits Typical Professional Liability Limits Project No. 1 Project No. 2 Owners Protective Professional Liability Sample Program $16 $14 $12 $10M aggregate limit excess of Each individual underlying policy Design Firm Primary Limits $10 $8 $6 $4 $2 $0 Arch.#1 Soils Eng. #2 Project No. 1 Interiors #3 Arch. #4 Eng. #5 Project No. 2 Landscape #6 Political Risk Modeling Expropriation P8 P4 P9 Coup Ideology A No compensation P5 P1 Compensation No Expropriation Coup Ideology B Expropriation P10 P6 P11 P7 P2 No Expropriation Compensation No compensation P3 Stability Probability of Expropriation without compensation = P1xP4xP9 + P2xP6xP11 MIT OpenCourseWare http://ocw.mit.edu 1.040 Project Management Spring 2009 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms. Project Uncertainty Management Management Based on Presentation given by Based Dr. Oddmund Granli Dr. Fred Moavenzadeh Department of Civil and Environmental Engineering Spring 2009 Project Uncertainty Management Project A gradual change in how we define projects gradual From risk management towards uncertainty From management Towards life cycle management Towards Towards a holistic approach Towards Focus on value creation Focus From risk management towards uncertainty management management A number of different definitions of number risk and uncertainty are currently being used The term ”Risk” is considered and The perceived as a negative outcome and contains elements of fear. Project Organization and Contracts Contracts Uncertainty, (Risk and opportunities) Uncertainty Ability to predict outcome of parameters or foresee events that may impact the project. Uncertainties have a defined range of possible outcomes described by functions reflecting the probability for each outcome. Uncertainty functions can describe discrete events or continuous ranges of outcomes. Risk Possible negative outcome expressed by probabilit...
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