Methods of Risk Avoidance

There are many ways to reduce the risk in general, and these meth­ods depend on eliminating the source of risk or transferring the risk to a third party. If this is done with a firm fixed-price contract, the risk is effectively transferred to the vendor.

Generally, in firm fixed-price contracts the vendor will always raise the price of the service to compensate for the effect of the risk. In addition to that the warrantees, performance bonds, and guarantees are additional methods for transferring risk.

The following techniques can be used to reduce and avoid risks:

• Clarifying requirements and objectives

• Improving communication

• Obtaining information

• Acquiring expertise

• Changing strategy

• Reducing scope

• Adopting familiar approach

• Using proven methods, tools, and techniques

ID

Description

Owner

Probability H> = 50%

= 3

M10-50% = 2 L< = 10%

= 1

Overall Consequence H = >500K$

=3

M = 50-500K$ = 2 L< = 50K$ = 1

Manageability L = 3 M = 2 H = 1

Score

Max

27

$K

If Risk Comes True

Weeks Delay If Risk Comes True

Risk Reduction Action

Date

Identify

Date

Close

1

manufacturer delivery on time

SCM

1

3

2

6

To monitor

performance

regularly

2

pump not match with specs requirement

ME

1

3

1

3

Review specs with the manufacture/ clarification meeting with the vendor

3

anchor bolt and dimension problems during construction

CE

1

1

1

1

Review drawings with machine

4

permits to work from operation

CM

1

1

1

1

a meeting with operation

5

Shut

down plan coordination

CM

3

3

2

18

Meeting with operations

Table 9.4 Risk assessment weight and monitoring sheet

320 Construction Management for Industrial Projects

Where:

CM is the construction manager SCM supply chain manager CONT is the contractor SD security department

HSE health, safety and environment department ME mechanical engineering department CE Civil engineering department

You can transfer risk by transferring liability and ownership through the following:

Financial means:

• Insurance

• Performance bond, warranty Contractual means:

• Renegotiate contract conditions

• Use subcontractor in parts of the project

• Joint ventures/ teaming

• Risk-sharing partnership with client

• Target-cost

• Note limit to which risk can be transferred

• Note that transfer usually involves a price tag