Contractors Risk Management when tendering large scale projects

Student: Grigoris Totos
Year: 2012
Affiliation: National Technical University of Athens/Athens University of Economics and Business
Level: Postgraduate
Thesis written in English

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As do most common and typical projects, construction projects have several characteristics, specific deliverables, time limits, financial constraints, economic requirements, special organizational and legal conditions etc. Therefore, one might say that each investment project or general project is a complex endeavour. The above statement, especially applies to the Construction Industry, where the projects, face various risks and complicated relations, which influence them continuously. Scope/performance targets, time targets and cost targets are the three objectives of project management that will lead to a successful project execution.

Principally in the construction industry when performing projects the time objective is closely and inseparably related to the cost objective. In addition, the various risk factors cause different severity consequences. Poor decision-making that causes various mishaps occurs when these risk factors are not considered properly or are ignored.
Proper Risk Management during the construction period is a key part in the management of a construction project. However, the project implementation phase is not the only phase where Risk Management should be considered. It is essential that the Risk Management Process is implemented throughout the project lifecycle. One of the most important phases, where Risk Management provides the maximum advantages is during the Project Tendering phase.
The Tendering phase is crucial for every project, because it does not represent only the winning or losing of a contract. When a tender is lost, there is no impact on the construction phase because simply there is no construction phase. On the other hand, when a tender is successful the quality of the tender as well as the circumstances under which it was gained plays a vital role, for the Construction of a project since its budgets, schedules and organization have been set during Tendering.

Construction companies in general are well aware of risk, but in a more generic and simplistic form than what is shown here. They are continuously involved with situations and environments that alter on a day-to-day basis. However, the majority of the Contractors envision risk as something general, look upon risk with fear and act according to the situations as they come through. This negative perception of risk that most Companies have, leads them to act on their experience and feelings in respect to the risks that may be involved in the projects they implement. The cause for this is lack of understanding what risk is and how it is controlled. The above situation guides most Contractors actually to lose possible opportunities in their attempt to avoid risks.

To assist in this situation, a step through method for Contractors to use during tendering Large Scale Construction Projects is provided. The ground base for the proposed method is the PMBOK and the Project Management Institute (PMI) Practice standard for project risk management, and acts as a supplement of those that focuses on Risk Management during tendering.
The initial understanding of the Risk Management definitions such as "Risk" and "Uncertainty" that are involved in the tendering procedure is of paramount importance and assists Contractors in having a clear picture concerning their meaning and their relationship.
An in depth literature review is performed in respect to Project Risk Management putting the basis for understanding and allowing further analysis to be fruitful. Aspects covered are RM scope and objectives are as well as the key success factors involved. The process of RM as presented in the PMBOK is viewed and results are drawn.

Prior to laying down a method to be applied during tendering, it is essential to get a clear indication on what Tendering is and processes are involved. Contractors have to take under serious consideration the type of contract implicated, when Tendering for Construction projects since it may alter dramatically the Tender pricing and method of bidding. This thesis is studying E.P.C (Engineer - Procure - Construct) contracts and their tender specification, the decisions involved and the costs that may arise.
Apart from the theoretical evaluation of tendering, an actual Tendering procedure derived from a large-scale International contractor in a cross-functional flowchart is presented. This procedure shows the complete actions and activities that take place from the project initiation phase (Invitation to tender) up to the Tender closing phase and the Technical and Commercial Submission.
Finally a complete method of risk management is given, that addresses issues of Risk Identification, Risk Analysis Risk Response and Risk Management and Control. Even though there are numerous ways of accomplishing these basic RM steps, the proposed method focuses on solutions that are quick and easy to adopt by any Contractor. Therefore with the application of the proposed Risk Breakdown Structure (RBS), Risk Register, Probability & Impact Matrixes, Monte Carlo Simulation and Risk Response Strategies, the Contractor that will use this method will lay down the grounds for a well balanced RM procedure.
What needs to be stressed out, is that the identified risks presented in the RBS and the risk register as well as in the Qualitative and Quantitative analyses are based on an illustrative project with a Direct Cost of 1 Mil Euro and are in such extent to cover multiple aspects.

Τίτλος στα ελληνικά: Διαχείριση κινδύνων κατασκευαστών κατά την υποβολή προσφοράς για τεχνικά έργα μεγάλης κλίμακας

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