Management of Contractual Risks

Management of cl leaseual take a chance of exposures1 IntroductionManaging attempt should be a fundamental spark of bidding for Building or bridle-paths give way. Risk is described by Atkinson (2001) as the probability of an occurrence of a hazard and the magnitude of the consequences. Consequently fortune may also be considered as the possibility of an experience misfortune and the resultant effect of the experience if it ere to take place.As defined by RICS (2010) guess vigilance is a content of act upones where bumps atomic number 18 recognize, examined and beca procedure of work controlled. It is a constant cycle that begins at the put-on stage this agency that pret checks of events atomic number 18 put into a bid from the start and also at the end of social organisation. During the antithetical phases of a draw, m whatsoever immature even antecedently un-thought of essays materialise finished come out of the closet. Recognising them quickly exclus ivelyows faster mitigation in nine to bowdlerise impact pretend has on the project.This study has examined the inaccuracy of thespian wreak of managing chance with the accustom of just about(prenominal) fraud and lease learns. There were also opportunities, they were treasure.The substance ara of risk was selected fol brokening discussions with managers and work colleagues, during my 2010 placement year with Sir Robert McAlpine (SRM). This study was considered as an ideal mental object area for a inquiry project because SRM were improving the g everyplacenance they currently incorporate.So the plan of the study was to sack any conclusions do on the explore, so as to further elicit the fake practice within SRM. My colleagues gave me some risk entropy sheets for a few projects. The emphasis beingness on highway construction, as this reading was available from my placement and SRM.1.2 RationaleThe subject of what to reflexion into developed from consultat ions with colleagues and the position manager at SRM. My colleagues were inte sojourned in the managing of risk and were working to reform SRMs pretender risk bear upon to ensure it replicated the guide phase a bit more(prenominal). This therefore illustrated a requirement in the business and indeed construction for research in to this topic area. The main reason for lastly electing the subject area of risk was the open access of breeding provided by SRM and the contact with acquaintanceable personnel in my placement. This gave a better intellect of the procedures, tout ensembleowing greater under(a)standing in subject area of risk. In admittance access was gained during placement to potential info in the form of signalise and pretender risk designates from various Highway works undertaken by SRM.The aim of the research as came about by undertaking literary research, up to that point none of the entropy was collected, or plan formulated of how to use the entropy. Th e aim was to understand how pretender erudition of risks may be inaccurate. later on that considering how it could be im turn up and whether it was accomplishable to do so. Subsequently, recording any conclusions of pretender act upon in order to develop and better it.1.3 Hypothesis, Aims and main Objectives1.3.1 AimsWere to collar if management of the stipulationual risks identifies signifi providet additive risks that the pretender risk process failed to recognise and thus determine how inaccurate the pretender risk process is.1.3.2 ObjectivesFind the processes presently employed to deal with risk, in two contractual and pretender phases and in recognising and measuring them.Investigate if important additional contractual risks recognised were within the pretender phase register.Compare SRMs risk management processes with opposite contractors and analyse to give away the best solution.If possible, none any resulting conclusions and stimulant drug results within the pre tender register and accordingly produce a new and accurate one.1.3.3 HypothesisThe management of contractual risks in Highway construction success salutaryy identifies additional risks, consequently pretender assessment has become inaccurate.1.4 Overview of work through with(p) / Methodology1.4.1 SRM preciss/jobsThe SRM jobs employ on the research comprised of, M1 J25-28, and A19 c every(prenominal) down ( some(prenominal) Highways assurance jobs) and M74 Glasgow council, altogether Highway projects. A19 was Term Maintenance Contract (TMC) whereas M1 J25-28 and M74 progress were ( mac) contracts.When examining the A19 upgrade the contractual records were acquired tho the pretender risk records were non. However the contractual records were equalized to a risk bid from a different project. Not ideal scarcely the only solution at the time. The majority of the items were cerebrate, so parallel/related items were pull from the pretender items, then included in the A19 co ntract register.An valuation was make involving the contract and pretender risks. To do this the max, min, presumable costs in addition to the likeliness of a risk event were incorporated from contract and pretender appraisals. A extreme sound judgement of the risks was calculated via averaging the max, min as advantageously as probable costs which are multiplied against the likelihood of the risk event. All risks types were identify, in order to distinguish trends in risks recognised at the pretender and found in contract phase or were not found at all.The A19 contract risk register was typical to M1 J25-28 and M74 upgrade registers as it didnt contain costs. Every risk was divided by its probability and impact, whether that was high, medium or low appraisal. The pretender register, risk items were fitted against the occurring contractual register items. To see if every item in the registers were through with(p), costs and probabilities were designate to the A19 contractu al risk system of appraisal. In getting a tally perspicacity, both probability and risk price were multiplied. These costs were then evaluated against the general pretender costs.1.4.2 Highway contractor InterviewsInterviews via telephone were conducted with a few companies to in truth see what processes are apply at post contract and pretender. too to find out how precise these methods are. Companies consultationed wereMorgan EST.VinciBalfour BeattyMay Guerney1.4.3 prevails ReviewIn order to understand the risk management procedures in construction and more specifically in Highways work a literary review was embarked on. This meant the research would gain an appreciation of the perception of risk by construction, prior to any literary review, my personal experience had only come from SRMs perspective and the processes they use. In order to gain real understanding and to funnel clearly on what my possibility stated, it was clear-cut to split the literature review into t wain sections. bingle section, comprising of processes employ by industry, taken from an assortment of declares. The second section being that of SRMs highways process and ac companioning documents. This makes it possible for an assessment to be conducted between SRM and the different contractors, like how different stages of a contract work in Highway works.1.5 Overview of conclusionsBoth the randomness gained and analysis undertaken, imply the data could sustain the surmisal and main aims. Due to a large risk amount being found in contractual phase that was not previously seen at pretender. Even though assessments for any one risk were fairly inexact, overall assessment of pretender and contractual seemed strong. Showing pretender registers was inaccurate and take to be better if assessments and risk management has to become more reliable.1.6 hide Guide1 Introduction An opening on the managing of risk in the thesis darn validating the backside in selecting the subje ct area. The entree states the aims, objectives and hypothesis that the researched was established upon, as well as outlining the work do and an overview of the Conclusions.2 Methodology Explains the methods use to investigate my hypothesis, from Literature review, approaches used in analysis and review of tuition and any cases. This expresses the reasons for utilising the techniques chosen also any research restrictions. Its meant to be a methodical, simple approach to how things were done.3 Literature Review This chapter contains my understanding and Knowledge of the subject area. Done by means of, studying the risk process used in management through books, journals and the internet. Allowing a greater erudition of risk in Highways work, and how its viewed and used.4 Results and outline Confirms the outcome in the investigation and subsequent breakdown of SRMs jobs as well as the Highway contractors interviews. It outlines the judgments made concerning the pretender an d contractual assessments. The Hypothesis was then rivuleted against the information found, to see if its statement is true or false.6 Conclusions- This analyses all the results in relation to the hypothesis and if theres is any basis that it testament hold up. Detailing limitations affecting the research, while also imparting proposals for both industry and any future harangues.2 Methodology2.1 IntroductionMethodologies are racy to the accomplishments of research and must be 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 amount 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 vali understand the research.The information that was obtainable and available played a huge role, as work on the dissertation could not be done if th e information wasnt applicable. The information therefore shadow be pertinacious by the hypothesis, as if the information was not on hand then one batht trial the hypothesis. Due to these factors, risk management was identified as an appropriate topic from the beginning, but it wasnt until the research was started that defining the hypothesis was possible, still having an impression of the aims and objectives that were to be accomplished. From the off, the aim was to gauge how precise pretender risk management was, even if unsure of the data and information subsisting prior to consulting SRM team.Ultimately this section highlights the research methods utilised in the research, and the near association that has been made when doing so between the methods and Aim, hypothesis and objectives.2.2 Aim diligent to help concentrate the methodology in choosing the right methods, also to crystalize to the person who reads the dissertation what precisely was 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 pretender risk process failed to recognise and thus determine how inaccurate pretender risk process is.2.3 Quantitative and Qualitative methodsIn Data collection there are two key styles quantitative and qualitative forms of research. Quantitative method, being a grouping of information done using figures, which is then evaluated by arithmetic trials to trial an assumption or theory (Creswell, 1994). While the Qualitative method was quite different, kind of using connotations, previous incidents and words (Naoum, 2007). Quantitative Methods can be less exhausting in examining it shapes measurable outcomes that create analytical arithmetical results. They tend to be better for differentwises to read and understand. While, qualitative information from research has a tendency to be complicated as it often requires researcher input and manipulation to ensure its appropriate for investigative procedures (Fellows and Liu, 2008). The methods adopted depend upon data obtainable as well as the research itself. By executing good research, its generally necessitate and essential to use both quantitative and qualitative. Therefore a mixture of the two was brought to play, for a more correct and more reliable conclusion more is circumstantial further in this section.2.4 Literature ReviewAs mentioned previously literary appraisal was undertaken providing a core subject knowledge in risk management of Highway construction. The idea in doing this was grasping how risk was analysed in Highway construction sector, and the procedures used in controlling it. Next research was done to discover how risk was 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 by comparing SRMs risk management approach with other construction companies.By doing the literary appraisal it imparted a better comprehension of the chosen topic of risk, and illustrated the problems and successes in risk management. While also screening the diverse and numerous ways in managing risk, and how the approach identified and selected can depend on more issues like project type, contract used or even size of companies and jobs themselves.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 located in the library were discovered using the computer search engines. using. Chapters needed or thought appropriate were studied, and compared against searches that had been made on the internet. A check system, which assessed the validity of both sources of information against to each one other. With a lot of the research it became apparent that info rmation in books available werent current particularly in the older series of books. Despite this it wasnt a predicament for Risk management as texts of up to ten years old were and are significant and applicable 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 difficult in comparison to textbook numbers, yet the sources were helpful.Internet supplied a political program 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 guarant eed 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 get -go half of the literature review.2.5 Data CollectionWhen actually collecting the data for the research the collection was again split into two parts. The initial data collection was from SRM projects, other data collection was associated to other contractors. The intention 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 information on the SRM jobs were formed while in placement during 2010, while working on the M1, involved in subcontractor packages and various Quantity surveying related work. Prior to any data collection, discussions with colleagues and senior managers took place in order to help formulate and aid the research as what would be required in terms of data. At this stage no hypothesis had been resolute, the idea was to assess the accuracy of risks in the pretender assessments. Therefore colleagues stated and recommended the use of valid information in the form pretender and contractual risk registers could be provided. The contracts that would be made available were the M1 J25-28 scheme, A19 upgrade and M74 Glasgow project. Three similar Motorway/road sustainment projects that differ from each other contractually.A19 upgrade was a TMC to maintain, operate a network of strategic roads in the North East. M1 J25-28 and M74 are both MAC contracts for similar tutelage one in the midlands and the latter in Glasgow. A19 upgrade and M1 J25-28 are HA pop off, while M74 was for the Glasgow city council. The HA dismission their contracts by splitting their contracts into 13 sections in the UK, and in these projects cases offer for the cite and maintenance of the roads within these sections.The reason that A19 upgrade was a TMC but M1 J25-28 and M74, MAC based contracts were that previous to the MAC HA projects were also fail with the TMC contract, but now all is done under MAC style. The contracts run for 5 ye ars with optional extensions. Different sections of maintenance start and end at different areas on the motorway in enquire 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 TMC completed in 2009, whereas M1 J25-28 scheme was a modern MAC contract just saw mop up in late 2010. The difference in MACs and TMC are TMC two discipline companies, one as managing agent the other as main contractor. MAC consists of the 1 contractor, running both as an agent to the client and as main contractor on site.Using the three contracts as the basis for the research the risk manager on the placement at SRM provided a pretender register for the M1 J25-28 risk management and A19 contractual phase, both of which he had involvement on. Trying to get pretender ones for M74 was problematic but couldnt find any. In order to shake a full complete analysis, it was decided that for M74 to use some other MAC pretender ri sk register. Pretty often similar to M74 except the location geographically. For sure this would create limitations but it could possible in using another risk register as SRM do when starting on a new comparable bids. 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 nature of the risks they were deemed sui submit as with what SRM do in practice.While on placement working on the M1 J25-28 contract meant developing contacts with colleagues who work day in day out on the subject are. Therefore requesting registers on M1 job was easier than the other jobs. The A19 contractual register came to me inn the similar way. Getting the M74 contractual register, as the risk team on my placement had contact details for which to enquire with and the registers were duly emailed.2.5.2 Rival Highway assertersObtaining information via rivals in the sector of road maintenance was much more difficult than from SRM s ources, as they were very protective of information they gave out. The SRM jobs were Highways related, so the focus was getting some from Highway firms. By doing additional data collection it allowed for an honest comparison between SRM and other contractors. The methods were evaluate to keep back been alike if not the same, involving different construction projects the data was apt(predicate) to be different.The plan was to send questionnaires to the chosen contractors, but after out(prenominal) returns it became apparent that another route would be needed, so interviews via telephone were deemed suitable. It seemed with indite survey, contractors were inclined to take no notice of it or put a more generic thoughtless answer, While via a telephone interview response to the questions asked would be immediate and better, 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 asked the below queriesDoes your guild throw a methodology for the management of pretender risks?How does your company detect risks in the pretender phase?How does your company calculate final risk totals?Does your company undertake risk management after the contractual phase?ould I obtain a pretender and or contractual risk register to use in my research (for the Highways project you are on)?Each Contractor interviewed was told research being undertaking intended in contrasting data in pretender phase against the contractual as well as any assessments made. The questions were supposed to see what processes companies used i n managing risks. Overall the different companies were helpful in answering these questions. The Fifth 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 due to the sensitivity of their data and company policies. However some registers were received but didnt really contain the important information required just a formatted company risk register. passim 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 digest of dataPrior to analysis, the research had assessed how SRM price risks. It was of the essence(p) in penetrating this before as it established the type of analysis would that be approved, and is circumstantial below.Upon formulating the risks that h ave been identified each risk will be reason with maximum, most likely, minimum quantifys and probability. The data was put through a programme pretend formulates hundreds of simulations, creating a graph showing the data. The 75th percentile is put in the final pretender as the final risk total. SRM do this for all of their projects. For this dissertation we were concerned in the risks recognised and respective(prenominal) costing risks as shown in paragraph above with min, max and probable 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 man-to-man projects and the Other Highway contractors. The reason for splitting the SRMs projects was that the analysis varied in parts by way it had been collected as mentioned earlier (some with full risk registers some in part).2.6.1 M1 J25-28s scheme and M74 Glasgow epitome for M1 and M74 projects were pretty much the same. The M1 contr act and pretender risk register could be matched up to the pretender and contractual registers for the M74 contract risks, due to them being MACs.In evaluating the accurateness of the risk registers and appraisals made, comparable risks to contractual register were then removed from the pretender. When comparing values in matching risks, it was vital to have a total value for both pretender and contractual registers.The best and most impartial methods for pretender register were to average the minimum, maximum, probable figures then multiplying by likelihood of the event. These were a post of potential expenses which 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 crustal plate of 1-5, an d then an assessment of the risk was undertaken, figuring out the most likely value as well as minimum and maximum.Mitigation amount of moneys are identified for each risk, and then assessment was done again as before the mitigation. The M74 didnt have min prices in its contractual register, therefore all risks were assumed 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 setting 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 contract register had all the necessary values so no intervention was needed.Both contract risk registers failed to show any probability, just a likelihood scale from 1-5. Therefore it was assumed, giving the scale a percentage instea d, 10%, 20%, 30%, 50%, 70% and 90%. Then the total appraisals of the contractual registers were done through an identical method. Where similar contractual risks could be distributable to a few pretender risks in a register or vice versa, the total appraisal amounts were split by the quantity of risk items, in preventing them being counted twice.This was tabulated under the headings the contract risks, pretender risks, information put into the registers, and total assessment. The contract risks were then categorised unestablished however is protected (No value). unrecognised but not protected ought to have been recognised.Unrecognised unable to recognise. value while also protected.Identified yet unprotected.Each risk was grouped by colour to state which category from above it fell in.2.6.2 A19 upgradeThe breakdown of the A19 job was began in a similar way to the M1 J25-28 and M74 contracts. The metre total cost for pretender register was done the same as in the other projects by averaging and the different range of values and dividing by probability of them occurring. When totalling the contract risks differences became apparent as the register calculated risks another way, as there were no costs.So Instead they were measured under the probability and impact style grid, using severity status as guides, whether that be low, medium or high. So in order to measure the total value of risks would mean assigning each risk a value and probability based on the risk severity system used, then times the two numbers to get the total assessment for that given risk This therefore required the assignment of cost and probabilities to be accurate. So by using the Risk severity matrix as used by SRM, a cost could be associated to a received risk level. With use of the grid SRM review probability/likelihood with a scale from 1-5 and assign costs in numerical order of the probability scale for impactBelow 1,000Between 1,000 10,000Between 10,000 100,000Between 100,000 1 ,000,000 preceding(prenominal) 1,000,000The figures above seemed a very useful guide and perfect to use, create a good range that could be easily used in analysis.The likelihoods for the risks events were given percentages instead of low, medium, high, so as to fit in to accord and be like the information found in M1 and M74 projects, so pathetic being 10%,Medium at 50%High 90%.These numbers were chosen as the provided not too certain outcomes for low and high at 10 and 90 percent, while the medium worthy to being the mid point between the two figures. So in getting the total risk value, costs times probability. Then the rest of the analysis followed the same steps taken by M1 and M74 data analysis.2.6.3 Analysis summaryThe tables of data for all three projects showing the comparisons made are in the appendices. These tables were only a start in analysing data as they on their own only show limited information that cannot fully test the hypothesis.So Risk recognition was key obje ctive and so a list was formulated of any risks recognised, not recognised and not assessed, were omitted. From this list, risks could be categorised and therefore see which type of items could or could not be seen in pretender by the bid team. Now having had risks recognised and risks unrecognised as threats in pretender meant potentially testing a hypothesis as to whether pretender stage is inaccurate. From this new data 2 graphs were made highlighting and representing more clearly the type of items in registers that was recognised in pretender and those that werent.A review table was then drawn to finally account for the contract risks and categorised as belowUnrecognised however is protected (No value).Unrecognised but not protected ought to have been recognised.Unrecognised unable to recognise.Recognised while also protected.Identified yet unprotected.This table only really accounted for risks in pretender register which corresponded with contract risk, but not the other way round. So it didnt account for all risks found in pretender bid or how many werent in the contract register. So a total evaluation of risks featured in the pretender bid but not in the contract register, so as to fully see the accuracy or inaccuracy of it. As a result a Pretender table of risks recognised at contractual phase was made and the total appraisals done at both pretender bid and contractual phase were compared and contrasted.Last part glimpsed through inaccuracies of pretender register. Done by removing risks identified in pretender and contractual documents, the disparities then tabulated. The variations were categorised, and detailed in a Histogram.2.6.4 Rival Highway ContractorsThe ways in which the other Highway teams identified assessed risks at pretender stage, were investigated. This was done by referring back to the table formulated at the time of the interviews. Proceeding with recognition and classification methods, digging out the methods used, what company use d what method type. The same was done for the appraisals of risk, so formed 2 pie charts showing the recognition and appraisal of the rival companies risk management processes. It illustrates the most popular methods used by the Highway Contractors interviewed. These methods were compared against the methods SRM use. Many of the companies did turn down the opportunity in handing over information, citied by them as the company policies not to do so and the information is delicate. However some registers were received but didnt really contain the crucial information required just a formatted company risk. Also it proved difficult to obtain pretender and contractual registers, instead receiving one without having the other to compare against. Need to fill in contractors interviewed etcIt was very helpful to look at the various formats of different registers that companys used, and the informatio