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OFFICE PROJECT MANAGEMENT

Risk Management

GROUP 3: Duran, Espia, Gatela, Hernani, Ibaez I BS Architecture 4a


MARCH 2015

Contents:
Introduction
Managing project risks and opportunities
Project disputes
Firm insurance

Introduction

RISK
the possibility that something bad or unpleasant will
happen

The word risk derives


someone
or
something
that may cause
something bad
from
the
archaic
Italian
or unpleasant to happen
word
riscare,
which
to put (something) in a situation in which it could be
lost, damaged, etc
means run into danger
or to imperil, endanger,

Introduction

MANAGEMENT
the act or skill of controlling and making decisions
about a business, department, sports team, etc
act or art of managing: conducting or supervising of
something

Introduction

Risk Management
is the identification, assessment, and
prioritization ofrisks followed by coordinated
and economical application of resources to
minimize, monitor, and control the probability
and/or impact of unfortunate events or to
maximize the realization of opportunities

Managing
Project Risks
And
Opportunities

Risks can come from different ways


There are two types of events:

negative events

positive events

risks
opportunities

Opportunities
can lead to rewards
One would want to take maximum
advantage of this

Risks
can lead to losses
One would like to avoid and minimize this

Difference of issue and risk

Risk
An uncertain future event or condition which if
happens affect mission objectives
Associated with future events which has not
happened yet

Issue
A risk which has already occurred
Generally regarded as a problem
This is what risk management is aiming to avoid

Risk Appetite and Tolerances

Risk Appetite
Amount and type of risk an organization is
prepared to seek, accept or tolerate
The willingness to take risks

Risk Tolerance
Organizations readiness to bear risk

Why take risk?

There is a balance between risk and reward


Generally, more risks lead to more rewards.
But this is not always true
One would want more rewards with less risk

Four Classic Strategies


Used by Firms to Manage Risks

How the Architect Manage Risks

Identifying sources of
risks

sources of risks

No. 4 : Negotiation and Contracts


Deal Makers and Deal Breakers
Working without an agreement
Heightened standard of care
Indemnities
Construction means and methods
Guarantees and Certifications
Proper Scope
Administration of the contract for
construction
Limitation of liability

Making
better
agreements
Establish
standard
in-house
practices
Getting
professiona
l
support
Use
standard

sources of risks

No. 3 : Client Selection


Know the firms expertise know the market
Know the client
Condominium Projects
Repeat Clients are like Gold
Get the Right Builder
Impact of the Project Delivery Method

sources of risks

No. 2 :

Project Team Capabilities

Use of Technology
Staff Continuity on Projects
Office standards

sources of risks

No. 1 : Communication
Peer Reviews: Quality Assurance/Quality Control
Know the Contract
Conduct Proper Meetings
Document Control
Warning Signs of a Claim
See It First
How to Preserve the Client Relationship

sources of risks
No. 1 :

Communication

Risk Management Principles


Create Value
Be an integral part of organizational processes
Be part of decision-making processes
Be systematic and structured
Be transparent
Be responsive to change
Be capable of continual improvement and enhancement
Be continually or periodically re-assessed

Benefits of Risk Management:

Better decision-making through a good


understanding of risks and their
likely impact.

FEWER
SURPRISES

EFFECTIVE USE
REASSURING
OF RESOURCES STAKEHOLDERS

STEPS IN RISK MANAGEMENT


Plan risk
management
Identify risks
Analyse risks
Plan risk
response
Monitor and
control risks

STEPS IN RISK MANAGEMENT

Plan Risk Management

Specifies management intent, systems and


procedures required for managing risks
Will provide the definitions of various risk
related terms, roles and responsibilities
related to risk, and tools and templates
Specifies how the next four steps are
executed

STEPS IN RISK MANAGEMENT

Plan Risk Management

How to do this

Risk identification
Risk analysis
Risk response
Risk monitoring

STEPS IN RISK MANAGEMENT

Identify Risks

First key step in the actual management of


risks
Process of identifying potential risks, their
cause, and consequences
Systematic process

STEPS IN RISK MANAGEMENT

Identify Risks

Best done in a group environment


Together with....
ManagementArchitect/designer
Staff/
employees

Other
stakeholder
Owner/
client

Risk register list of all the risks identified

STEPS IN RISK MANAGEMENT

Analyse Risks
Process of quantifying the risk events documented in the
previous step
Risks are analysed to set priority
Sets focus on high priority risks

STEPS IN RISK MANAGEMENT

Plan Risk Response

How to decrease the possibility of negative


risks
How to increase the possibility of positive risks

STEPS IN RISK MANAGEMENT

Monitor and Control Risk

Regularly review identified risks and ensure


that these are still relevant
- identify new risks
- eliminate risks no longer relevant
Unexpected risks
risks that occur which were not
identified in the earlier steps

Project
Disputes

PREVENT DISPUTES
BEFORE THEY START

The best way to resolve a dispute is to prevent the


dispute from ever beginning, or at least to prevent it from
gaining any serious momentum.
The three most powerful tools in doing so are the
successive steps of:
client selection;
client education; and
contract documentation

DISPUTE RESOLUTION
METHODS:
MEDIATION
ARBITRATION
LITIGATION
Note:

There

are also countless variations to each path, and


even some which blend them in some ways. However,
understanding the basic process, advantages, and disadvantages
of each is really the first stepping stone in the successful and
strategic use of the options.

MEDIATION

a process in which a neutral person or


persons facilitate communications
between the disputants to assist them in
reaching a mutually acceptable agreement

MEDIATION

Favoured by the AIA that it is the default first step in the dispute
resolution process
Proved to be so useful in efficiently and cost-effectively resolving
design professional claims that many professional liability carriers
provide significant financial incentives to architects and engineers
who can resolve their claims by this means
One rule that generally apply to all mediations is that it is a
confidential and privileged process such that any statements made
in mediation cannot be cited, quoted, or otherwise used against a
party in any subsequent proceeding or elsewhere

MEDIATION

Four factors that can be most influential toward the


potential for success in mediation:

Settlement
The goal of mediation is a
Party Participation and Authority
settlement
Selection of Mediator resolving the dispute.
important considerations for the selection of a mediator:
Whether as a result of mediation
Expertise
Empathy
Perspective and Persuasion
Energy
or direct
negotiation,
it
is critically
Adequate Advance
Exchange
Information and
important
that
thisof settlement
Positions
agreement
be reduced to a
Timing
written agreement as soon as

ARBITRATION

The process whereby the parties


voluntarily submit their disputes for
resolution by one or more impartial
third persons instead of by a judicial
court process.

ARBITRATION

4 characteristics of Arbitration resolution


mechanism:
1. A private/third-party decision maker chosen by
the parties or by a service provider chosen by
the parties
2. A mechanism for ensuring neutrality in the
rendering of the decision
3. An opportunity for both parties to be heard
4. A binding decision or result

ARBITRATION

Parties can be included in and bound by arbitration only if they


have agreed to do so.
Most design and construction disputes are not isolated to a
single party, but may also include multiple other parties such
as other design professionals, contractors, subcontractors, and
supplier/manufacturers.
Although there may be very isolated strategic exceptions, it is
generally critical for efficiency and fairness that all such
parties and disputes be resolved in a single arbitration.

ARBITRATION

Arbitration has many fans. It is included in many


public works agreements and private developer
agreements.
Most common perceived advantages to arbitration are:

Privatethe
dispute
is
not
Greater
control
over
selection
less
costly,
due
to little
or
no
Faster
due
to
avoidance
of
Avoidance
of
confidential,
but
arbitration
of decision
maker,
and
discovery
and
shorter
path
to
court
congestion
and
timing
awards
are
not
published.
better-qualified
and
lay
juries
hearing.
However,
the
and
more
limited
prehearing
Limitations
on
this
privacy
experienced
decision
arbitrator(s)
themselves
must
procedures
and
discovery.

LITIGATION

The public court system


provided by local, state, and
federal governments and it is
subject to the rules and
procedures adopted by those
governments.

LITIGATION

Is the default resolution venue


Absent an agreement, this is where nearly all disputes
involving architects end up.
Can be slow (years), expensive, distracting, timeconsuming, and public.
Generally the out-of-pocket costs to access the courts can
sometimes be less than arbitration, and the procedures
are time tested and well known.

EARLY NON-FACILITATED RESOLUTIONS

Mediation, arbitration, and litigation


contemplates the involvement of
third parties to assist in or resolve
the dispute. However, others
may rightly suggest that what
may be needed is merely for
the participants to just talk to

EARLY NON-FACILITATED RESOLUTIONS

THIS PROCESS would start with a


mandatory meeting between the
Often,
such processes
will resolve issues
before
they
project
managers
within
five
escalate into a genuine dispute.
business days. If they cannot
If that is the happy result of such a process, it is
resolve
issues,
it would inthen
important
thatthe
the resolution
be memorialized
writing
and signed by both
escalate
tosides.
the principal level for
a second discussion within five
business days based on written
Ideally such a process is a rapid, phased, and escalating
process with limited rounds.

EFFECTS OF CONSTRUCTION METHODS


IN DISPUTE RESOLUTION

The advent of the new approaches to


construction brings more uncertainty into the
construction process, since many specifics are
not determined at the time the contracts are
signed. These uncertainties inevitably lead to
more disagreements, which in turn increase the
need for some satisfactory means of resolution.

TRADITIONAL CONSTRUCTION
ARBITRATION
Traditional Construction
Voluntary, Binding Arbitration

NEW CONSTRUCTION METHODS


Fast Tracking
Design-Build
The Construction Manager

MODERN CONSTRUCTION SYSTEMS' IMPACT ON


DISPUTE RESOLUTION
May be subject to unknown, contingent liabilities that could
impose a higher degree of risk
Fast track procedures eliminate certain precautionary stages
in the evolution of the construction process.
Design-build eliminates the dispute resolution role of the
independent architect.
Construction management eliminates certain traditional
checkpoints.

FIRM
INSURANCE

INSURANCE
The equitable transfer of the risk of a loss, from
one entity to another in exchange for payment.

form ofrisk managementprimarily used


tohedgeagainst the risk of a contingent, uncertain
loss.

IS LIKE A LIFE SAVER..

INSURANCE

Insurer or Insurance Carrier


Is a company selling the insurance
The insured or policyholder
Is the person or entity buying the insurance policy.
Premium
The amount ofmoneyto be charged for a certain
amount of insurance coverage

RISKS FOR ARCHITECTS


ARCHITECTS must protect their firms against:
litigation alleging negligence;
theft or destruction of property;
personal risks ranging from health and disability to life and
retirement
Should share similar concerns regarding their own employees.

Newer, lesser-known virulent risks:


unproven sustainable products and design
changing standard of care
hidden electronic metadata
contracts that imply fiduciary duty

2 Types of Insurance
Applicable to Architectural Firms

Professional Liability
Insurance
Commercial General Liability
Insurance

PROFESSIONAL LIABILITY
INSURANCE
A professional liability insurance policy
agrees to defend and pay on behalf of the
architect for claims alleging an error or
negligence in the performance of
professional duties, in exchange for the
premiums paid to the insurance
company.

PROFESSIONAL LIABILITY INSURANCE

Some firms decide not to purchase professional liability


insurance, a business decision usually based on the cost of
the coverage that could ultimately put the firm and its

architects in jeopardy.

NOTE

: Even with professional liability coverage, a firm


continues to retain some risk.

PROFESSIONAL LIABILITY INSURANCE

Reasons why an architect should consider the purchase


of professional liability insurance:

Continuing
Business
operations
survival
Contract requirementsSocial
responsibilit
y

PROFESSIONAL LIABILITY INSURANCE

Basic considerations for selecting professional liability


insurance for a firm:
The coverage limits
Deductibles
Cost of the insurance
Endorsement options
Exclusions
Core policies themselves

PROFESSIONAL LIABILITY INSURANCE

The stability of the insurance carrier is paramount

it is good practice to evaluate all the


potential insurance carriers available

PROFESSIONAL LIABILITY INSURANCE

architects rely heavily on their


insurance broker in the selection
Broker
of a professional liability insurer.
help firm owners evaluate the basic policy forms and
Therefore,
a critical step in
endorsements and how suitable they are to their
practice
choosing
the best insurer for
professional liability exposure is
in the selection of the broker to
access the marketplace.

COMMERCIAL GENERAL
LIABILITY INSURANCE
Covers liability from incidents that occur on or off the
policyholders premises or that arise from nonprofessional aspects
of the insureds practice.

The three basic coverage areas

property damage,

bodily injury

personal and advertising injury

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

Immediately protects the firm


from injury and property
damage claims that could
seriously and detrimentally
impact the business
Protects a business from
lawsuits
General liability policies set
limits on the amounts an
insurance company is
obligated to pay for each type
of claim

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

helps to protect against claims


brought by employees, such
as:
Discrimination
sexual harassment
wrongful termination
Etc.
Coverage pay damages and
defense costs.

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

provide wage replacement and


medical benefits to employees
injured in the course of
employment
designed to ensure that
employees who are injured or
disabled on the job are
provided with fixed monetary
awards, eliminating the need
for litigation
also provide benefits for
dependents of those workers
who are killed because of workrelated accidents or illnesses

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

Protects companies for


copyright, trademark, or
patent infringement claims
arising out of the companys
operation
Generally, this insurance will
pay defense costs and any
judgment up to the policy
limits
Protects the firm from suit by
a competitor for infringing on
an idea belonging to someone
else.

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

reimburses the architect for


ongoing expenses and loss of
profits in the event of a fire or
other casualty that interrupts
normal business operations
can be written to cover fire,
windstorm, extended coverage
perils, computer crashes, and
other hazards

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

this policy agrees to defend


and pay claims on behalf of
the architect for claims
arising out of an alleged
negligent act in managing
the security of a computer
system

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance

should also be considered


since architects are also
exposed to auto claims,

Technology liability coverage


Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

the architect or the firm


can be liable for auto
accidents while the autos
are operated within the
scope of employment

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

covers losses due to a


bonded employee's theft
of business property and
money
is appropriate for all
persons involved with the
custody or disbursement
of funds, management of
firm finances,
authorization of payments,
purchasing,
and other activities
requiring the use of funds

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

Insurance that covers


liability of the insured
assumed in a contract
It is important to
learn to understand
contracts and their
importance to
insurance and risk
management
Business contracts may
contain a hold-harmless
provision that will
contractually transfer
anothers legal liability to
the architect

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

Professional, general,
automobile, and other liability
policies are interrelated
It is important to verify
insurance coverage and
amounts to avoid gaps in
protection or duplication of
coverage, as well as to
correlate insurance limits

COMMERCIAL GENERAL LIABILITY INSURANCE


General liability coverage
Employment practices liability coverage
Workers compensation insurance
Intellectual property insurance coverage
Business interruption insurance
Technology liability coverage
Business automobile liability
Fidelity bond
Contractual liability
Coordination of liability insurance
Umbrella or excess liability policies

provide higher limits in


conjunction with
underlying general
liability, automobile,
and employers liability
policies

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

covers theft, burglary, and


robbery of money, securities,
stock, and fixtures from
employees and outsiders.

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

Builder's risk insurance


covers buildings while they
are being constructed.

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

covers the costs associated


with having to demolish and
rebuild to code when your
building has been partially
destroyed

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

Commercial leases often require


tenants to carry a certain amount of
insurance.
A renter's commercial policy covers
damages to improvements you
make to your rental space and
damages to the building caused by
the negligence of your employees.

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

covers claims that arise from


defective products that cause
injury or harm
coverage vary with the type of
product that is made

COMMERCIAL GENERAL LIABILITY INSURANCE

Crime Insurance
Builder's Risk Insurance
Ordinance or Law Insurance
Tenant's Insurance
Product Liability Insurance
Health Insurance

most businesses need to


offer their workers health
insurance
this insurance offers a
health coverage benefit to
the employees

NOW.

CAN YOU MANAGE RISKS???

References:

The Architects Handbook of Professional Practice, American


Institute of Architects

Dispute Management Under Modern Construction Systems, Robert


Coulson

Introduction to Risk Management, QualityGurus.com

Wikipedia

Merriam-Webster Dictionary

smallbusiness.findlaw.com

businessinsurance.org

.E.N.D.
Thank you!!!