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Managing Project Risk in Engineering and Construction - A Primer Stanford University November 27, 2006 Todd Rowland

Topics for Discussion. Why manage risk?How is risk managed at the enterprise level?When does active risk management begin at the project level?What actions can be taken to manage risk at the project level?. Why Manage Risk?. All value is added to the engineering and construction process by manag

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Managing Project Risk in Engineering and Construction - A Primer Stanford University November 27, 2006 Todd Rowland

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    1. Managing Project Risk in Engineering and Construction - A Primer Stanford University November 27, 2006 Todd Rowland

    2. Topics for Discussion Why manage risk? How is risk managed at the enterprise level? When does active risk management begin at the project level? What actions can be taken to manage risk at the project level?

    3. Why Manage Risk? All value is added to the engineering and construction process by managing risk Two broad categories of risk Fortuitous Commercial/Technical Managing commercial and technical risk is what engineers and contractors do best Design Cost Schedule Quality Subcontractor performance Some engineers & contractors also manage fortuitous risk well and increase their margins Risk is managed at both the enterprise level and the project level

    4. Managing Risk at the Enterprise Level Risk Appetite How much risk is an enterprise willing or capable to accept or retain Risk Tolerance Business Controls Balance Sheet What to do with Risk Retain and manage Transfer

    5. Risk Transfer Insurance Property Fixed Property Builder’s Risk Equipment Casualty Workers’ Compensation General Liability Professional Liability D & O Contracts

    6. Risk Retention and Risk Finance Commercial & Technical Risk Generally un-insurable Fortuitous Risk Deductibles Self Insured Retentions Captives Risk Purchasing Groups

    7. Risk Management at the Project Level Begins when the RFP is received Evaluate Contract and Tech Specs Insurance required? Balanced contract? Is Project Delivery System appropriate? Is schedule achievable Is the job doable, technically Does the project fit the enterprise risk appetite? Bid Decision

    8. Initial Actions at the Project Level Evaluate and Understand Accept the risk Price it Pass it down Self-Insure it Refuse to accept the risk Contract it away Walk away Transfer the risk Your insurance Someone else’s insurance

    9. Risk Management During Project Execution Control the project Technical controls systems Earned values cost controls Resource loaded schedule Peer review Execution controls Safety and health Work planning Micro-scheduling Know and Understand your “Best Risk Management Tool”

    10. The Best Risk Management Tool

    11. The Contract Defines the risk in the project Establishes cost criteria Establishes performance criteria Allocates the risk to the appropriate party Provides a mechanism to re-allocate and compensate for un-foreseen/un-expected risk Provides a mechanism for a third party to decide on allocation when the primary parties disagree

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