Project Management

Procurement and Organization Theoretical Organizational Structures –

Hierarchical ManagingDirector

Operations Director

Finance Director

HR Director

BDU Director

Head ofFacilities

Mgt.

Head ofOperations

Regional Managers

H&SManager

Area FM’s

Account Managers

Head ofFinance &

Admin

Head ofHR

PersonnelManager

Training Manager

Head of Marketing

Head ofDevelopment

Project Management

Procurement and Organization Hierarchical – Pros and Cons Pro’s

• Clear chain of Command

• Able to deal with large single projects

• Manager has authority to control subordinates.

• Works well with remote & self contained projects (- construction sites ???)

Cons

• Chain of Command can be easily broken leading to a directionless team.

• Possible suppression of empowerment.

• Project teams may have to dissolve as there is no base work.

• Team size may force multiple roles – diminishing expertise and focus

Project Management

Procurement and Organization Theoretical Organisational Structures –

MATRIX.GENERAL MANAGER

PROJECT MANAGER

(1)

PROJECT MANAGER

(2)

Research &

DevelopmentEngineering

Finance &

ProcurementMarketing

Project Management

Procurement and Organization Matrix – Pros and Cons

Pro’s

• Management of Multiple / Complex projects & operations.

• Better with small projects.

• Can potentially provide expert focus

• Gives an extended life/purpose for the team that goes on after the Project

Cons

• Multiple draw on resources.

• Project manager may have lack of authority and has to act in coordinator role (unless a Secondment Management type i.e. PM has higher authority. )

• Relies on good communication and “goodwill” between departments.

Project Management

Procurement and Organization Theoretical Organizational Structures –

Hybrid (rotational)

Managing Director

HRDirector

OperationsDirector

FinanceDirector

BDUDirector

Head ofFacilities

Mgt.

Head ofOperations

Head ofDevelopment

Head of Marketing

Head ofHR

Head ofFinance &

Admin

Project Management

Procurement and Organization Hybrid – Pros and Cons Pro’s

• Allows range of specialist skills to be tapped into.

• Lets Managers manage.

• Allows directorate team to adopt strategic position away from day to day ops

• Works well with remote & self contained teams departments.

Cons

• Directorates feeling of loss of control

• fuzzy top down structuring.

• Prevailing department alignment.

• Competition for resources.

MScPROJECT MANAGEMENT

ManagingRisk

Roy Clarke

Managing Risk

Reading List:

• Risk Management.John Ridley & John Channing Pub: Butterworth – Heinemann ISBN 0 7506 6833 4

• Project Management in Construction Dennis Lock Pub: Gower ISBN 0-566-08612-3

• Procurement Tendering & Contract AdministrationMark Hackett Pub: Blackwell publishing ISBN 0 7506 8128 4

• Contract Practice for Surveyors Ramus, Birchall, Griffiths Pub: Butterworth – Heinemann ISBN 0 7506 4558 X

Definitions & Context.

• Definition: 'A risk' is either (a) to hazard, danger or exposure to mischance or peril, or (b) the chance or hazard of commercial loss, especially in the case of insured property or goods (Shorter Oxford Dictionary).

• Definition: 'Analysis' is the resolution of anything complex onto its simple elements, or the exact determinations of its components (Shorter Oxford Dictionary).

• Definition: 'Risk Analysis' is techniques for examining and coping with risks within the project (Reiss, 1995).

Latham on “risk”

No construction project is risk free. Risk can be managed,

minimised, shared, transferred or accepted. It

cannot be ignored.(Constructing the Team, Latham

Possibility of Gain

Possibility of Loss

Contractual Risk Management

Pro-Active vs Re-Active

PROACTIVE

- To prevent before the event

- To assess and predict

- Damage never occurs

REACTIVE

- To react after the event

- To review/investigate

- Damage already done

The Time to Act.C

um

ula

tive

C

ost

Conceive Design Plan Allocate Execute Deliver Review Support

TimeTime

Contractual Risk

RISK MANAGEMENT

IDENTIFYDETERMINE

IMPACT

TAKE ACTION

PRIORITISE

AVOIDANCE

ACCEPTANCE

MITIGATE(LIMIT)

TRANSFER

MONITOR

IGNORE

The Identification of Risk

• What unplanned or unintentional events can affect the project –

Disruption of Time based sequencing.Reducing the Quality of the building.Adversely affecting the Cost of the construction.

Damaging reputations and creating bad publicity.

Identification Techniques

• Additional Focus - Project Risk Management Team.

• Brainstorming (Risk Matrix & Risk Register Development)

• Case study and document review.• SWOT• Assumption Analysis.

The evolution of risk management studies

Project Stage

Focus on the Risk Management Study

Inception Are the risks Acceptable?

Strategy Are conditions in place to proceed?

Feasibility Are risks allocated appropriately?

Pre-Construction Are risks under control?

Use What can we learn for the future?

Source: Hackett et al. (2007) Aqua group guide to procurement ……..

Balancing RisksBalancing Risks

Probable Likelihood V’s Potential Severity.

Risk can be broken down into two factors:

ProbableProbable Likelihood Likelihood =

How often is the Risk likely to happen?Are there other factors that may increase

the likelihood (compounded risk)

PotentialPotential Severity Severity =

What would the outcome be? Death, Major Loss,

Cessation of works

Likelihood Severity

Hierarchy of Control Methods

1. ELIMINATEStop doing the activity / job / task

or using the materials plant equipment

2. REPLACESubstitute / mechanise

3. REDUCEPersons / numbers of times used / quantities

used

4. CONTROLBarriers / permits to work / safe systems of

work / personal protective equipment

Contractual Risk Management

IDENTIFY RISK

ANALYSE RISK

QUANTIFY RISK

Identify Means of

RE-EVALUATE

Choice of Action TRANSFERRetain

INSURE CONTRACT OUTSelf Fund Revenue account

EventCause

Probability

Reduction

Effect

Severity

Elimination

Source – Facilities Management : Alexander

Transfer of RiskInsurance

Risk?

That can andmust be Insured

Risk that can beInsured if required

Risk that aredifficult or impossible

to Insure

The contractor or Client must Accept

the risk

Statutory Requirement

Management Choice

Contractual Requirement

Examples

•Employers liability for injury to employees

•Liability to 3rd parties arsing out of the use of motor vehicles on public roads

Examples

•Liability for damage to customers property

•Indemnifying the customer against injury to persons

Examples

•Loss or damage to tools and equipment at the project site.

•Pecuniary loss through an unforeseeable cause

Examples

•A loss where the insured would stand to benefit as a result of the insurance

•Unreasonably high chance of the loss occurring

Source: D. Lock 2004

Insure (Transfer)

Insurance can be seen as a straight foreword

transaction –

where the party paying the premium will have any named

damages recompensed.

Contractual Risk Management

Contract out (Transfer)

Normally results in the client paying a premium to transfer

the risk to the Contracted Party –

The transfer does not eliminate the risk.

-ITS NOT FREE !!!!

Contractual Risk Management

Standard Form Contracts.

Elements of a SFC that help mitigate risk -

LiquidatedAscertained

Damages (LAD’S)

Performance Bonds

Provisional cost SumsPC Sums

Defects Liability & Retention Sums

Insurance(SFC Clause 6)

Limit of Contractors Design

Liability

Liquidated Ascertained Damages

• SFC (CD) Clause 24.2.1

“Require in writing the Contractor to payto the Employer liquidated and ascertaineddamages at the rate stated in appendix1…. For the period between the completiondate and the date of practical completion.”

Defects Liability and Retention Sum (1)

• SBC (CD) Clause 16.2 [Defects Schedule]

“Any defects, shrinkages or other faults which shall appear within the Defects liability period and are due to the failure of the contractor to comply with his obligations under this contract ……….

.…….. and within a reasonable time after the receipt of such a schedule of defects, shrinkages and other faults therein specified shall be made good by the contractor at no cost to the Employer”

Defects Liability and Retention sum (2)

• SBC (CD) Appendix 1 [Defects Liability Period]

- The Contract requires the parties to agree a Defects Liability Period (in months).

- 6 months is the default period if no other period is inserted into the Appendix.

- The defects liability period starts at Practical Completion.

Defects Liability and Retention Sum 3)

• SBC (CD) Clause 30.4 [Retention Monies]

“The retention which the Employer may deduct and retain…. is such percentage of the total amount”

30.4.1.1 “the Percentage referred to in the conditions and appendix 1 as the “retention percentage” shall be 5% unless a lower rate shall be agreed.”

NOTE 2.5 % of the retention money is released at Practical Completion

Contractual INSURANCEJCT SFC Section 6 (See H/O)

Clause 6.1 The Contractor indemnifies the employer in the event of death and personal injury.

Clause 6.2

The contractor indemnifies the employer against any expense / loss / claim or proceeding arising from injury or damage to property.

Guarantee’s &Bonds

• Guarantees and Bonds are arrangement whereby the obligations that one party owes another are guaranteed by a third party

• The third party is usually and insurance company or bank

Source: Contract practice for surveyors – J Ramus

Guarantee’s &Bonds

The Use of Bonds-

i) To protect the interests of a one off developer.

ii) Where a new or unproved contractor is involved in a project.

iii) Tender bonds in respect of nominated subcontractors.

iv) Where a bond is thought appropriate for the risk inherent in the project.

Source: Contract practice for surveyors – J Ramus

Performance Bonds

• Aims to ensure the performance of one party to a contract – Usually the Contractor.

• Usually the limit for compensation is 10% of the contract sum.

• A Guarantee from a “Mother Company” may be sufficient.

Source: Contract practice for surveyors – J Ramus

Practical Risk Mitigation

• Over costing of Preliminaries (front loading).

• Contingency Sums.

• Provisional Sums.

• Defined Schedule of Rates (for use in Variations).

Definition of Design Risk

The failure of the design through –

Poor detailing.Incorrect material selection.Miscommunication.

Leading to unfitness for purpose.