Abstract
Risk management is a very crucial aspect in contracting; it has been an issue since the early days. This is becoming more and more challenging as new dimensions have entered the arena. With a lot of stakeholders working together to produce value, this includes contracts, providers, customers, and end users. The risk management paradigm has shifted and transformed multiple times in the recent years. This chapter is trying to touch on the risks associated with traditional contracts, then move ahead to suggest a design model for risks in innovative contracts. In between, the chapter is touching on points related to outsourcing and governance.
TopRisk Allocation And Mitigation In The Traditional Construction Contracts
The primary process in a traditional contract is based on a buy/sell dipole between contractors, but the decision is based on the best offer and the minimum premium (Kordas, 2015). However, there are other important elements to consider while contracting including triple-constraint parameters such as time, cost and quality.
Successful project management aims at achieving the planned targets for both contractors and project clients. Those activities are often supported by a risk management system based on which contractors identify, assess, monitor, and control any type of risk that may emerge in any stage of the project.
Key Terms in this Chapter
Risk Management: The act of handling the risk exposure through mitigation, acceptance, sharing and avoidance. It includes the ability to handle information and technology risks based on stakeholders’ risk parameters.
Risk Modeling: Usually referrers to quantitative modeling of extreme events and systemic risks through the use of advanced mathematical techniques and multi-agent-based modeling.
Risk Frameworks: A skeleton that gives the total enterprise risk management strategy a proper guideline with steps to follow.
Risk Mitigation: A process that involves taking action to reduce an organization's exposure to potential threats and reduce the likelihood that those threats will happen again or will affect the project deliverables.
Outsourcing: A common method whereby a third party performs a function on behalf of the Enterprise, often when additional resources (either time, expertise, human resources, service, etc.) are needed.
Governance: Refers to the structures and processes that are designed to ensure accountability, transparency, responsiveness, rule of law, stability, equity and inclusiveness, empowerment, and broad-based participation.
Agile Methodology: A development method and a leadership philosophy that encourages teamwork, self-organization, and accountability to develop a dynamic service that can respond to change and continuously deliver business value.