Managing the Project: The Supervisors Role Session 3: Understanding and Managing Risk

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Managing the Project The Supervisors
RoleSession 3 Understanding and Managing Risk
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Session 3 Topics
1. Project funding 2. Pre-construction
information 3. Contract clauses 4. Environmental
issues 5. Project complexity 6. Labor availability
7. Subcontractor safety performance 8.
Litigation 9. Workmens Compensation
claims 10. EMR 11. Bond rates 12. Number of
vendors 13. Repeat work

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SESSION 2 TOPICS
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Understanding and Managing Risk

• Upstream
• Project funding
• Pre-construction information
• Contract clauses
• Environmental issues
• Project complexity
• Labor availability

• Downstream
• Subcontractor safety performance
• Litigation
• Workmens Compensation claims
• EMR
• Bond rates
• Number of vendors
• Repeat work

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Managing Risk

• The Project Teams Role in Risk Control
• To understand the contract and the scope of work
• To establish early in the project the level of
  documentation required, based on the anticipated
  potential risk and type of delivery
  system/contract in use
• To document project activities
• To constantly check job progress, production,
  quality and conditions for variations or
  deviations from the originally contracted work
• To discuss potentially significant impact with
  project management
• To intensify the documentation effort when
  necessary to control large risks

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Risk Management

• Owners delegate risk by contracting for design
  and construction services
• Contractors delegate risk by subcontracting and
  insuring
• Subcontractors further delegate risk by
  sub-subcontracting

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Risk Management

• General Sources of Risk
• Budget/cost (money problems)
• Time (schedule problems)
• Design (design flaws)
• Quality (construction defects)
• Safety (loss of life, loss of time, loss of
  property)

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Risk Management

• Each of the general sources of risk typically has
  a system for managing the risk. These areas of
  risk management include
• Bonding and sureties (monetary risk/construction
  defects)
• Insurance (safety)
• Subcontract vs. self-perform (cost risk, schedule
  risk)
• Site management (safety)
• Budget and cost controls (monetary risk)
• Quality control plan (construction defects,
  design flaws)
• Schedule (time)
• Safety plan (loss of life lost time)

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Bonding and Sureties

• Your project forms a piece of the profitability
  picture for your company
• Overall company profitability and financial
  management affects bonding rates
• Bonding rates affect overall company
  competitiveness in the bidding market

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Insurance

• Your project represents a small portion of the
  companys overall safety and (insurance) loss
  picture
• Your companys safety performance and loss
  history affects its insurance rates
• Insurance rates represent a cost of doing
  business
• With lower rates, your company is more competitive

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Work

• Subcontracted work
• Locks in cost of doing work (if lump-sum
  subcontract)
• Has performance risks associated with
  subcontractor (slow work, poor quality, default)
• Keeps company employees available to perform work
  with better profitability
• Helps reduce OSHA and Workmens Compensation
  exposures

• Self-performed work
• Cost of work depends upon labor productivity
• Provides greater control over work schedule and
  quality
• May enhance job profit on cost-plus work
• Enlarges OSHA and Workmens Compensation
  exposures
• Builds (or reduces) companys reputation for
  craftsmanship

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Site Management

• General contractor or design/builder is typically
  liable for anything that happens on site
• Injuries to public
• Damage to property of others
• Environmental contamination
• Soil erosion runoff
• Losses due to theft
• Labor productivity (relationship of storage to
  work)
• Traffic control

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Cost (Money)

• Overall project costs exceed budget
• Missed productivity goals (labor cost overrun)
• Increases in material prices due to inflation,
  steel auctions, etc. (material cost overrun)
• Scope creep
• Litigation and court awards
• Liquidated damages clauses

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Quality Control

• Testing requirements
• Inspections
• Process quality
• Deadlines
• Documentation
• Skilled worker training
• Plan and specification compliance
• Code compliance

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Schedule (Time)

• Delayed notice to proceed
• Extreme weather/winter construction
• Insufficient/incomplete design
• Failure to procure long-lead-time items
• Insufficient resources (crew sizes, equipment
  availability, etc.)

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Safety

• OSHA regulations
• PPEs
• Scaffolding
• Fall protection
• Hazardous materials storage
• Confined spaces
• MSDS
• Training
• Competent person

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Project Factors Affecting Risk

• In addition to the general risk factors, there
  are project factors affecting risk
• Location of project
• Nature of project
• Construction process
• Project organization

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Risks Managed in the Field

• Some of the risk management occurs primarily in
  the field, including
• Enforcement of safety requirements
• Quality assurance
• Labor cost control

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Costs Associated with Poor Risk Management
Workers Compensation Losses Other Costs
Associated with Risk Medical costs Pollution
and environmental costs Indemnity payments Risk
management administrative costs Expenses for
legal, witnesses Risk transfer costs
for insurance and adjusting Premium
taxes Safety management services In-hous
e claims personnel costs Liability
Losses Deductibles and self-insurance Damages
for bodily injury Broker and agent
fees/commissions Damages for property
damage Uncovered losses/legal expenses Litigation
expenses Interest rate and exchange
rates Adjusting Surety bond premiums and
credit risk costs Performance losses not
covered Property losses Subcontract certificate
exposures Direct losses Indirect cost of
claims Indirect losses Educational programs and
training costs Business interruption Productivity
of labor crews Management philosophies on
risk
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The Future of Risk Management
From Risk Management, Insurance Bonding for
the Construction Industry, by Steve Davis and Ron
Prichard, AGC of America Publication 3520
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Understanding and Managing Risk

• Successful management of risk also entails
  knowing when to involve corporate legal counsel
  in the making and enacting of decisions
• If you are not sure how to proceed, ask the
  project manager or operations manager