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New Risk Management Chapter - CSI’s Project Delivery Practice Guide
Introduction
The Construction Specifications Institute (CSI) has recently published CSI’s Project Delivery Practice Guide (PDPG) 2nd Edition. In this new edition, content has been included that aligns with current industry practices, plus the addition of the important topic of risk management in the design and construction process. CSI requested SmartRisk's support in the writing of the new Risk Management Chapter.
Project Delivery Practice Guide
The PDPG is the recommended study guide for design and construction professionals for the Construction Documents Technologist (CDT) certification exam. The PDPG provides a conceptual understanding of the entire construction process. It addresses skills that can be applied immediately in design and construction documentation development, administration, specification writing, product research and selection, and the understanding of the roles of the entire project team. PDPG aids in the communication and documentation efforts on projects, and now includes guidance for managing and mitigating risk in the new Risk Management Chapter.
Risk Management Elements
Risk management goes well beyond contracts and having insurance in place. A complete risk management program includes the identification, assessment, and prioritization of risks within a firm, and on projects. This process is followed by the coordinated effort of applying the appropriate resources for minimizing, monitoring, and controlling the impact of risk when rendering professional services. To be truly effective, a firm has to take a more holistic approach in addressing risk management, which means:
- Understanding risk management elements
- All members of the firm recognizing the importance
- Acknowledging there are internal and external risks on every project
- Critical risk management concepts are built into the culture, operations and business practices of the firm
- Continuous improved is essential
Critical in Todays Litigious Environment
Applying effective risk management practices has become critically important in today’s highly litigious environment, and with increased pressures being placed on design and construction professionals with reduced scopes, compressed schedules and fees – all elements that have increased the risk and legal actions against design and construction professionals. When risk management practies are applied effectively, they include:
- Values gained by risk mitigation
- An integral part of the firm’s decision-making
- Addresses uncertainty and assumptions
- Applies a systematic and structured approach
- Decisions based on the best available information
- Tailoring strategy for each project
- Consideration of human factors
The PDPG Risk Management Chapter - addresses various risk aspects; however focuses primarily on professional liability exposures, the highest area of risk for design and construction professionals. In order to be successful, risk management must be viewed as problem-solving process by recognizing and understanding risk factors, then applying actions needed for mitigating those exposures. There are three (3) fundamental elements for limiting risk:
1. Identifying risks that could impact the firm and
project
2. Assigning risk to the party in the best position to
manage the exposures
3. Implementing a risk management plan
PDPG Risk Management Guidance
The following is a sample of the guidance provided in the PDPG Risk Management Chapter regarding the analysis of risk, and the preventive measures that can be applied for managing exposures.
Risk Identification - The first critical step in the risk management process is identification of risk and potential exposures. This is the process of identifying a known risk, a potential threat, or an action or event that could possibly cause problems on a project. To do this effectively, a professional with experience must be involved in the process with knowledge of where problems have historically occurred, or where they could possibly occur. Identification of potential risk could relate to the client, project type, services to be provided, project team, contractor, design, or other factors.
Risk managers can help firms identify areas of risk including developing risk identification categories and helpful tools for recognizing possible sources or risk including industry claims trends.
Risk Assessment - Once potential project risks have been identified, they must then be assessed as to their possible impact, and probability of occurrence on a project. These quantities can be either simple to measure, or difficult to know at the beginning of a project. Therefore, in the risk assessment process it is critical to make a best-educated decision at that time in order to properly prioritize the implementation of a risk management plan. As additional information is obtained as the project moves forward, the risk management plan should be adjusted accordingly. The best-educated decisions from risk managers, past experience by staff members, and other data will be the primary sources of this information.
Risk assessments should produce information for the management of services so that the primary risks are easy to understand and that the risk management decisions may be prioritized.
Risk Management Measures - Once risks have been identified and assessed, techniques to manage risk fall into one or more of the following four (4) categories. These measures are described in detail the PDPG new risk management chapter.
1. Risk Avoidance
2. Risk Reduction
3. Risk Sharing and Transfer
4. Risk Retention
PDPG’s Other Risk Management Guidance Topics
The Risk Management Chapter of the PDPG provides a wealth of information regarding risk identification methods, practices, processes, charts and forms to assist firms in the development of risk management programs and plans. Topics include:
- Client and Project Selection
- Contract Agreements
- Standard of Care and Professional Negligence
- Risk Management Plan
- Client Expectations
- Quality Control and Quality Assurance
- Project Closeout
- Professional Liability (PL) Insurance
- Factors Determining PL Insurance Costs
- Features When Selecting an Insurance Carrier
- Others
Risk Management Benefits
Based on SmartRisk's analysis of organizations risk management programs, firms with effective risk programs, benefits include:
- Improved performance
- Higher profitability
- Greater client satisfaction ratings
- Fewer legal problems and claims
- Lower insurance costs
If you are interested in reviewing information on CSI's Delivery Practice Guide (PDPG) new edition, please visit their website, or cut and past this link into your brower.
https://www.csiresources.org/practice/publications/guides/pdpg
You are welcome to forward this newsletter to others who may be interested.
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Thank you.
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