Unforeseen conditions are typically addressed in a project budget by applying only a single line item for contingency, intended to provide a cushion in overall project cost and sometimes to cover extra work or construction change orders. Such line items can have the unfortunate side effect of encouraging contractors to underbid the project and reap the rewards through “scope creep” and cost growth once the contract is awarded. The consequence for owners can be budgets exceeded and schedule deadlines missed.
The value professionals of SVS have pioneered the integration of risk management techniques into the value engineering process. Project risk management is a way to anticipate uncertainty, helping to avoid cost overruns and delays in schedule. One of its greatest benefits is its ability to quantify such soft issues as design quality, appropriateness for bidding, constructability, and contract loopholes in the context of budgets and schedules. It highlights project elements most likely to cause problems. It gives owners the information they need to focus special attention on mitigating actions.
SVS’s approach to project risk management consists of three steps:
- Identify project risks or risk events and the probability of achieving the project within the estimated budget and schedule milestones.
- Assess impacts on the project budget and schedule if these risk events occur.
- Develop and recommend ways to mitigate risk exposure and improve the probability of achieving the target budget and schedule.