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Collaborative
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Guide
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Guide to risk
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1 |
Introduction |
2 |
Encouraging collaboration |
3 |
The importance of risk identification, management and allocation |
4 |
A new contractual framework |
5 |
Acknowledgements |
3 |
About this projectThe importance of risk identification, management and allocation |
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The need for the identification and management of risks arises before any project is identified. Unless a client clearly identifies his business objectives, he cannot assess whether a proposed construction project will assist or hinder his business. Furthermore, whilst the construction industry pays lip service to the importance of risk management, it is very often not carried out at all or else is carried out by individual parties (usually the contractor) in isolation from other project participants. The identification and management of risks needs to involve all the relevant project participants (in particular the client). The tool for this process is a risk register which, although well known in principle to most participants in the industry, is not widely used in practice. In addition to risk identification and management, it is helpful to allocate known risks in an open way between the contracting parties. Traditionally this is accomplished by a combination of direct contractual obligations (e.g. to complete the works by a fixed date) together with a list of events entitling extensions to this time period and/or entitlement to compensation. Usually, the above list of events remains fixed under the particular contract. This may have an advantage in terms of allowing the proposed contracting parties to know, at the time of tendering, where the risks will fall. However, it has the disadvantage of applying a straitjacket solution to different circumstances without the opportunity for parties to consider the likely cost consequences of the occurrence of individual risks and decide which party is better able and/or best placed economically, to manage individual risks. Many risks will be capable of being "removed" by insurance. If cover can be extended to cover all project participants under some form of project policy, the duplication of risk allowances in supply chain prices can be removed with the consequential opportunity for cost savings. The Guide to Risk Management sets out in greater detail the background to, and explanation of, risk management with guidance on a simple process that can be adopted or adapted to identify and manage project risks. |
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