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3/11/2003CVEN 349 - Maxwell1 Construction Is A Complex and Risky Business Module 05-01 – Introduction to Risk Contrasting the Three Points of View – Owner,

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Presentation on theme: "3/11/2003CVEN 349 - Maxwell1 Construction Is A Complex and Risky Business Module 05-01 – Introduction to Risk Contrasting the Three Points of View – Owner,"— Presentation transcript:


2 3/11/2003CVEN 349 - Maxwell1 Construction Is A Complex and Risky Business Module 05-01 – Introduction to Risk Contrasting the Three Points of View – Owner, Designer, Builder Modified: June 11, 2014

3 3/11/2003CVEN 349 - Maxwell2 Purpose: To describe briefly the natural competitiveness of traditional practices within the construction industry. To illustrate how that leads to risk allocation – how risk is normally assigned to the various parties involved. That is, who is liable for what?

4 3/11/2003CVEN 349 - Maxwell3 Learning Objectives: Students must be able to list conflicts as seen by the Owner, the Designer, and the Builder Students must be able to site the general risk allocation rule. Students must be able to list the allocation of specific risks to the usual three parties.

5 3/11/2003CVEN 349 - Maxwell4 It is an Adversarial Process As strange as it may seem, the EPC (Engineering, Procurement, and Construction) process is an adversarial process wherein each of the three main parties (the Owner, the Designer, and the Builder) tends to be at odds with the other two because of conflicting interests and objectives.

6 3/11/2003CVEN 349 - Maxwell5 The People Part Most of the art of construction project management involves sorting out these external conflicts – partnering, negotiation, etc. As well as external conflicts within your own organization – team and organizational problems

7 3/11/2003CVEN 349 - Maxwell6 What Are Some Examples of External Conflicts? Schedule Changes Scope Creep / Design Changes Change Orders Local Building Codes and Inspection Union Work Rules

8 3/11/2003CVEN 349 - Maxwell7 What Are Some Examples of Internal Conflicts? Marketing – Sell the job, regardless of the technical feasibility. Technical – Deliver the Statue of Liberty every time, regardless of the budget or client expectations. Fiscal – Stay within budget regardless of the quality and quantity of the work.

9 3/11/2003CVEN 349 - Maxwell8 Exercise #5.1.1 Take out a piece of paper, put your name and team # on it. Individually take 2-minutes to list some conflicts you may have observed at work – regardless of where you worked. As pairs take 3-minutes to discuss what caused these conflicts. Ask several pairs to report.

10 3/11/2003CVEN 349 - Maxwell9 The Science Part This course involves the numerical tools related to the Project Managers four major responsibilities: schedule, budget, work, and safety. You have to be able to succeed at both to gain positions of great responsibility (and great reward) within the process.

11 3/11/2003CVEN 349 - Maxwell10 Types of Construction Houses & light commercial (30-35%) Buildings & heavy commercial (35-40%) Industrial – Chemical plants, paper mills, power plants, etc. (5-10%) ** Heavy - Dams, bridges, etc. (5-10%) ** Transportation - Highways, railroads, canals, etc. (15-20%) (linear) ** ** Where engineers control things

12 3/11/2003CVEN 349 - Maxwell11 The Owners Point of View Project will be managed by Internal Staff or CM Firm. There are Government (all three levels) to be satisfied: EPA, Building Codes & Permits, Use Codes & Permits, Access Permits, Tax Assessments, OHSA, … Project Funding: Internal Cash Flow, Banks, REITs, Other Lenders, Tax Abatements, … Future Users: Internal, External, …

13 3/11/2003CVEN 349 - Maxwell12 Owner, Contd. Risk Shifting: Bonding Companies, Insurance Companies, Contract Clauses… Government Owners have Special Problems: Bidding Rules, Contracting Rules, Defaulting Rules, Labor Compliance Rules, Fraud Rules, Conflict of Interest Rules, … …

14 3/11/2003CVEN 349 - Maxwell13 Designers Point of View Engineering Staff will be internal or external: Structural, Foundation, Environmental, HVAC, Other Special, Architectural Staff: Building and Other Special Regulators: Professional Boards, Building Codes Risks: Financial, Management, etc.

15 3/11/2003CVEN 349 - Maxwell14 Designer Contd. Conflicts between plans and specifications ** Faulty Design ** Shop Drawings ** Errors and Omissions** **What you get sued for.

16 3/11/2003CVEN 349 - Maxwell15 Builders Point of View General Contractor – Usually a specified minimum, say 40%. Primary responsibility Suppliers: Steel, Concrete, Materials, … Trade Unions: Electricians, Masons, Painters, Glaziers, Carpenters, Dry Wall, Roofers, Plumbers, Laborers, Truckers, Operators, etc. Sub contractors: Electrical, Mechanical, Erectors, Conveyances, Masonry, Dry Wall, Finish, etc.

17 3/11/2003CVEN 349 - Maxwell16 Builder Contd. Regulators: OHSA, Owners Inspectors, Code Inspectors, Labor Inspectors, Union Work Rules. Major Risks: Safety, Budget, Schedule, Acts of God, Workmanship, Labor Strife, Financial Partners: Insurers, Bonding Companies, Bankers

18 3/11/2003CVEN 349 - Maxwell17 Your Primary Objectives as PM No matter who you work for, where you are in the organization, or what part of the process you own, your job is to deliver a product: On Schedule, On Budget, On Scope (Work that meets or exceeds customer expectations), While Maintaining a safe and non-threatening work place. All this and have a life.

19 3/11/2003CVEN 349 - Maxwell18 PAT# 5.1.2 Take out a sheet of paper and put your name on the Right-Side, Top Corner. Individually, take the next 3-4 minutes to list the usual parties involved in the construction process and the conflicts that may arise from their traditional relationships.

20 3/11/2003CVEN 349 - Maxwell19 What is Risk? Risk is the variation in the possible outcomes that exist … in a given situation. Types of risk: Construction risks. Physical and Environmental risks. Contractual and Legal risks. Performance risks. Economic risks. Political and Public risks.

21 3/11/2003CVEN 349 - Maxwell20 How is risk allocated to the usual parties? 1.All risks are rightfully the Owners unless they are transferred to or assumed by another party for fair compensation. 2.Subject to: whether the party assuming the risk has both the competence to assess the risk and the expertise to control it or minimize it. 3.And: the choice and allocation must take place before the loss occurs.

22 3/11/2003CVEN 349 - Maxwell21 How is it managed? You try to minimizing risk – regardless of whose risk it is. You try to identify the exact nature of the risk. You try to reallocate risk by contract. You try for an equitable sharing of the risks to all parties concerned.

23 3/11/2003CVEN 349 - Maxwell22 Who should accept which risk? Multiple Parties.

24 3/11/2003CVEN 349 - Maxwell23 Who should accept which risk? Owner.

25 3/11/2003CVEN 349 - Maxwell24 Who should accept which risk? Contractor

26 3/11/2003CVEN 349 - Maxwell25 Who should accept which risk? Engineer

27 3/11/2003CVEN 349 - Maxwell26 PAT #5.1.3 Take out a sheet of paper Individually take 3 minutes to list the 3 rules in allocating risk. Pass to the aisles.

28 3/11/2003CVEN 349 - Maxwell27 Class Assessment Take out a sheet of paper and … Write 2 sentences on the topic that you think you will have the most problem remembering for the next exam.

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