Firstly， please look the picture “requirement” about the article contentThen， read 5 examples I provided.Combine this 5 examples , make them become a new one . (this 5 article have same content), please paraphrase them,and make sure meet the requirement.example 3 structure I think it’s better and more clearly than others.
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5. Risk Allocation
In a conventional model, risk allocation is primary involved in general frameworks of risk management. It can control and allocate the
responsibilities between contractors and clients with complex and dynamic process. Moreover, the risk allocation is developed an ability to
eliminate the probably risks and absorb the passive effects when the risks are arrived. In order to deal with risks arising from the development of
a new customer management system (CMS) by GLE, there are three options to distribute the risks including Fixed Price Contract, Partnering and
Risk Sharing to guarantee ACG under the control. Each option contains the following views:
Describe the approach
Risks should be undertaken by the contractors
Advantages and disadvantages to GLE in adopting this approach
5.1 Option 1: Fixed Price Contract
The fixed price contract is defined as the usage of the resources; it is one of the most general contracts. The contract is to manage budget to the
supplier by distributing risks. Moreover, the contractor should undertake the responsibility of all price risks and workload. The simple project
may be more appropriate in this situation by predicating small risks as well as tenders and bids. The fixed price contracts may bring benefits in
efficient contractors. The following points show the characteristics of fixed price contractors:
Both parties approve the budget in the contract should support the largest number of project sedimentation;
The structure of company should finish all tasks within the scope of the whole contract budget and the construction unit should make
headway payment in the project construction;
The structure unit should not take responsibility to make headway payment by surpassing portion when the construction budget surpasses
the whole cost.
Furthermore, the additional budget should be predicated by GLE. Therefore, GLE can deliver most responsibility to ACG and ACG will bear the
primary risks in this project.
The following common risk describes contractors may undertake in fixed price contract:
The budget exceeds of primary assumption;
The allocated tasks are implemented behind the duration, over the budget and poor qualities buy project team;
Risks are indeterminate with agreement scopes;
TRS increased may bring mistakes by testing.
The fixed price contract is very useful because of unpredicted costs and risks even though fixed price needs more time to define the cost of each
item. It can validly deliver the risk effects and uncertain expenses to contractors. In addition, fixed-price project can lead to define the value of
the whole stock in advance.
Advantages
GLE may undertake less responsibility
Disadvantages
If contractors lapse the quoted prices before bid provides,
losses will occur and it may result the risks of price
Contractors will gain the maximum benefits when they
carry out the whole control throughout the project
Since the total price is fixed, the price specified in the
contract will be the final settlement amount as long as the
owner does not alter the content of the construction
contract. For employers, the price of such a decision in the
form of work can save a lot of measurements and
calculations. Thus, they can focus on managing the
progress and quality of construction
It may come across the inflation and will get enormous losses
even though fixed price contracts offer contractors with
tremendous profit margins
Contractors are hard to compute the workload in tendering. If
the workload is estimated with a high excessive, the price will
lack of competition. If the workload is underrated, contractors
will suffer losses and undertake risks. In this aspect, contractors
always meet large quantity losses
It is difficult to develop and define the scope to IT project
Table 5: Advantages and disadvantages of undertakings fixed price contracts in GLE case study
5.2 Option 2: Partnering
The partnering contractor is related to the development of collective partnerships by both parties. Partnering is an approach to prevent and
minimize the conflict in a complex project. Gunn (2002) pointed out that effective parties can better accomplish and enhance the standard of
gratification of customers. The mutual objective is to share benefits and risks by generating a longstanding cooperative relationship on joint trust
of all parties. Mutual trust should be developed with sharing openness in information between ACG and GLE. They should lay out collaborative
processes through the recognizing of producers, team construction and cultures. These two parties can relief risks by working together and meet
the win-win outcomes. GLE can offer ACG sufficient time to manage and mitigate risks. There are three risks assumed by contractors:
ACG and GLE are demanded to consult solutions for risks together in partner contractors
ACG and GLE jointly inspect and manage project risks
The planning of examination and checklist are fragmentary before the project starts
This approach should be adopted for all risks related with project program, because ACG is more experienced in controlling IT projects. Partners
make all parties to control risk by sharing risk register. They have opportunities to transfer and share experiences and knowledge. The following
table shows the strengths and weaknesses to GLE management of this option:
Advantages
This method has more agile ability in a project
ACG and GLE can effectively to reduce and share risks
by working together
It can be more clearly to control the project with
schedule and budget compared with other options
Create mutual trust between ACG and GLE and strive
for common achievements
Disadvantages
Mutual trust plays a really significant role in this
approach
The risks may manage in different methods due to the
different cultural background
The project may be delayed because of the conflict
between ACG and GLE
Partnering is hard to carry out and if implemented
incorrectly, it could bring problems and would not meet
requirements
5.3 Option 3: Risk Sharing
Risk sharing is the risk allocation approach that may be in a combined form with partnering or separate applied. It can be regarded as a part of
partnering. The objective of this approach is to assign risks to each organization with the capability to manage and handle risks. The GLE and
ACG should share potential risks due to lack of system testing. Some risks may be appeared when this option is applied in a project. They should
control and manage the mutual funds to deal with risks. Therefore, to handle the risks and reallocate funds are required to them. The table below
shows the strengths and weaknesses to GLE management of this option:
Advantages
Both GLE and ACG will share the risks and savings by
approving the cost sharing formula
GLE can utilize expertise and technology by other
corporations
It can stimulate ACG to use lower cost in the project and
can inspire the implementation with a better increased
Sharing the risks with contractor
Disadvantages
The requirements of contract must be created by both
GLE and ACG
It could increase the cost due to supervise the cost of
ACG and cash flow by appointing an audit team
There is a lack of information and data and the possibility
of change, therefore it may not be estimated correct cost
of the project
It may be hard to control and manage
Table 6: Risk sharing pros and cons
5.4 Recommendation
Comparing with these three options analysis, the Risk Sharing would become the best contract for GLE to distribute and predicate risks.
Moreover, this approach is more agile to face uncertain issues and it would be more appropriate to applied in the complex IT project due to GLE
lacks of experience. In addition, Risk Sharing may be the best option that the scope and risks have not been evidently recognized before the
bidding producer an advanced pricing contract. It would provide GLE a chance to estimate the price in each of the processes. To recognize the
abilities of each party by handling risks is necessary when the contract is chosen. The following recommendation measures should be
considerable by GLE:
GLE should create protocols with contractors
GLE should give contractor correct information with sufficiently and exactly
GLE should evaluate the abilities of each party to contractors by handling and transferring and sharing risks for distributing different
contracts
GLE should prepare comprehensive contracts, such as the primary budget for each item
5.0 Risk allocation
Risk allocation is a key element for risk management which could balance the
allocation of responsibilities between customers and contractors (Bing 2005). The
purpose of risk allocation is to reduce the negative consequences of risk probability.
GLE ensure the transfer of the main risks to the main contractor. Able Consulting
Group (ACG) would accept the risks clear and optimize in the project.
In this report, there are three options for Able Consulting Group (ACG) to allocation
of risk which contain Fixed Price Contracts, Partnering and Cost plus fee Contracts.
5.1Fixed Price Contracts
Description:
Hwang (2013) shows that Fixed price contract is within the agreed range of risk and
the contract price would not be adjusted. The GLE will provide a fixed price contract
to ACG. The ACG would active some plans based on the requirements of GLE. The
project duration would last long time and would occur various of change requests.
The ACG should undertake the risks which contain contracting scope not clearly,
higher prices for material and labour. In these contracts the contractor assumed full
workload and price risk.
Advantages and disadvantages to GLE
Advantages:
Project cost is easy to calculate. If GLE do not change content of the construction
contract, the contract price would be the final settlement price. For GLE, this
contract could save a lot of measurement and accounting assignment. The GLE
would focus on supervise the progress and construction quality ensure all the
deliverables under control and monitor (Ku 2012).
Second, the contractor would bear the price risk. If there are some mistake during
the bidding process such as quantities omission or error count, the contract price
increases during the risk borne by the ACG, GLE would not compensate.
Disadvantages:
This kind of contract also has some limitations for those projects which long duration
and the lack of detailed project design or a clear mandate and scope of the project. If
ACG does not have sufficient time to assess the site, analysis and preparation of
tender documents construction plans. The project management process would not
effective and the project might not finish on time.
5.2 Partnering
Description:
Partnering is a novel and outstanding model on contract and project management.
Porwa (2013) illustrate that the relationship would make the traditional organization
transformed into a no bound organizational. Organizations would share resources
and rapport interests. This model obtain benefits include improved efficiency
increase opportunities for innovation and reduce costs.
Advantages and disadvantages to GLE
Advantages:
In the Partnering model, GLE and ACG not only would reduce costs, shorten the
construction period but also reduce uncertainty in order to avoid litigation between
the parties. Moreover, it would achieve a reasonable profit-sharing and risk-sharing.
In particular, the parties involved could break through the limit of their own
resources, complementary advantages, to achieve the optimal combination of social
resources. GLE and ACS could share rich content which including the resources,
results and information.
Disadvantages:
First, unreasonable risk sharing agreement would inevitably increase the cost of the
party, thus affecting the enthusiasm of the other partners and may lead to project
failure. Project participants would not control all risks. Once the GLE and ACG have
some communication problem, it would cost control risks spending increase. There
are some risks could not control, such as natural disasters and political factors
(Lahdenperä, P. 2012).
Second, the parties’ benefits which obtain benefits vary, uneven distribution of
benefits would cause of problem or failure of the project appears. Participants at risk
size should match the size of their proceeds. During risk sharing, it is necessary to
link the degree of risk. If get more profitable, they would bear more risk.
5.3 Cost plus fee contract
Description:
Iossa & Martimort (2015) told that Cost plus fee contract final contract price and the
actual cost of the contractor a certain proportion of remuneration calculated at the
time the contract is signed cannot determine a specific contract price. It would
provide a flexible method to motivate contractors(ACG). The GLE would bear all the
costs actually incurred and bear all the risks of the project. Since the contractor risk
reduction, compensation is also reduced.
Advantages and disadvantages to GLE
For GLE, such contracts have certain advantages:
First is that GLE would shorten the construction period, without waiting for the
completion of all construction plans began bidding and construction.
Second is that GLE would use construction contractor technical experts to help
improve or compensate for design deficiencies.
The third is determining the maximum guaranteed price constraint project costs do
not exceed a certain limit, thus shifting part of the risk.
Disadvantages:
The disadvantage is that GLE of the project cost is difficult to control, ACG would not
pay attention to reduce the cost of the project.
5.4 Recommendation
For these three options, the option 2 which is partnering would be a better option to
ensure ACG achieve the goals and risks could under their control. The partnering
option is a win-win option that provide functions of risks allocation (Błaszczyk&
Błaszczyk 2013). In order to allocate risks, GLE would like transfer the urgent risks to
ACG. However, it would responsible for some of the risks during the partnering
model. Though ACG accept more risks, it would get enough benefits and protect
from this model.GLE and ACG should share both responsibilities and risks, it is the
core element for the risk allocate and would benefit for the whole project.
4. Risk Allocation
4.1 Option1: Partnering
Description
Partnering as an emerging cooperative relationship, the operation is different with
traditional methods. Partnering could be considered as the long-term commitment
that both clients and contractors could use possible recourses and obtain profits
efficiently (Bayliss & Cheung & Suen & Wong, 2004). The cooperation atmosphere
that based on mutual trust and respect, common goal, efficient communication and
understanding of expectation could be established by partnering (Lendrum, 1997).
The partnering should not be the relationship that limited and connected by the
legal contract; each member should join the partnering relationship voluntarily.
According to Bresnen (2000), the application of partnering could transfer the
partnership from competition to cooperation and collaboration.
Risks that should be undertaken by the contractors
Due to the in-depth and comprehensive partnership between customers and
contractors, the risks would be shared between GLE and ACG. All the organisations
that involved in the partnering should be awareness the differences with traditional
cooperative relationship. Risks should be managed cooperatively; the friendly and
efficient attitude for risk management would contribute to the improvement of
competition and project quality.
Advantages and disadvantages
Advantage:
The recourses
of both organisations would be applied and managed more
efficient.
The comprehensive cooperation and friendly
atmosphere could improve the
working and communicational performance.
In the long-term cooperation, the understanding of partners could contribute
the
reasonable recourses distribution, efficient communication, same judgement
criteria and professional skill awareness.
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Disadvantages:
The partnering
might require additional human recourses than traditional
approaches.
The implementation would be complicated and requiring more prophase tasks
and professional skills. The lacking of awareness and human recourses could
result in the inefficiency and failure.
The long-term cooperation might not continue between GLE and
ACG; the
cooperative relationship would be ended when the CMS is finished.
4.2 Option2: Fixed Price Incentive Fee Contract (FPIF)
Description
The Fixed Price Incentive Fee (FPIF) contract could offer more flexibility and initiative to
ACG and GLE, given the situation that actual cost is less that target cost, the saving cost
could be shared between customers and suppliers that based on the sharing ratio
(PMBoK, 2013). The additional income could ensure the working performance of the
supplier. In the meantime, the establishment of ceiling price could guarantee benefit of
GLE. Due to the complication of CMS, the financial incentive and ceiling price of FPIF
would be the efficient factors for ensuring project quality, schedule and budget.
Risks that should be undertaken by the contractors
GLE and ACG would share the risks of the project. Due to the flexibility of FPIF, the
risks could influence both clients and contractors. However, the existing of ceiling
price transfer some portion of risks to ACG; if the payment of contractors is great
than ceiling price, only the amount of ceiling price would be payed to contractors.
Advantages and disadvantages
Advantages:
The payment for ACG would be based on the actual cost, in order to maximise
the
profit, the efficiency of the contractor would be higher than the contract without
incentive fee.
Given the situation that GLE is lacking IT knowledge, the existing of ceiling price
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could partially protect the benefits of GLE.
Disadvantages:
As a shared risk contract,
the efficiency of encouraging contractors would be
lower than partnering.
The scope of the project is not identified clearly; the scope changes will high
influence the overall payment. The frequent changes could generate more risks
and require additional human recourses.
4.3 Option3: Firm Fixed Price Contract (FFP)
Description
The Firm Fixed Price contract only has one parameter; the final payment is fixed that
the additional cost and saving should be the responsibility of contractors. In the
other hand, the additional cost that coming from changes of the scope and
procurement specification should be the responsibility of clients (PMBoK, 2013).
Risks that should be undertaken by the contractors
ACG would undertake all the risks, as the result of single fixed parameter of FFP.
However, the changes of scope and requirements of CMS might be happened since
the lacking IT knowledge and skills of GLE. Given this situation, the additional risk
and cost might be undertaken by GLE.
Advantages and disadvantages
Advantages:
With the clear identification of
scope and estimation of CMS functions, GLE
could transfer most risks to ACG.
In order to maximise the profit
or minimise the cost, ACG could be encouraged
to finish the project efficiently.
FFP would not require additional human recourses from GLE.
Disadvantages:
FFP require clear estimation, plan and scope, since GLE is lacking IT knowledge
and
skills, the accuracy of estimation and efficiency of planning might negatively
influence the risk management and overall payment.
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If the additional requirements of CMS and changes occurring during the
implement processing, ACG would not be accepted and influence the
cooperative relationship.
4.4 Reco …
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