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Published on: 17 Apr 2017 by securityspecialist1

Basic Safety Nets in Project Management

Risk management in projects requires the incorporation of safety nets like in the contract, project scope, project finance and testing of project deliverables.

The concept of safety nets is important to preempt problems from occurring during the implementation of a project. Communicating potential issues early into the project will make project owners aware and hence commit on how to resolve such implementation concerns together with the project company.

These safety nets can be incorporated into the contract, project coverage or non-coverage, financing and scenario testing of project deliverables.

Basic Contract Safety Nets

(1) Time Freeze

Activities that require responses from government regulatory agencies or from the project owner before the project can proceed from one stage to the next can temporarily stop the project midway through its implementation. It would be prudent to draft a time freeze clause in the project deadline in cases of such responses to ensure that the projects company will not be penalized for delays beyond its control.

Likewise, it would make sound financial sense to include in the time freeze clause that when such responses are unusually protracted, the client has to compensate the projects company from losses due to upward changes in minimum wages set by law, increase in bank interest rates or price increases in supplies or equipment necessary to complete the project.

(2) Response Provision

Clients have to receive project deliverables that have been delivered at specific milestones. Since receiving does not always equate to deliverable acceptance such as in the case of software development or architectural or engineering design, any client acceptance provision or approval clause should have a corresponding response provision from the projects company.

The response provision should indicate that when the client receives a deliverable, the said deliverable is deemed accepted or approved after, say, 30 days when the client has not issued a written response within the time period. In this regard,

Delivery Receipts or Deliverable Acceptance Sign-Off Logs with signed acknowledgments from the client are very important to minimize disputes and liabilities.

Basic Project Scope Safety Nets

(1) Modification versus Change Requests

Part of the project communication strategy is to inform the client in writing (contract, inception report, modification template forms, change request template forms) on the big difference between a modification request versus a change request.

A modification request is still in line with the project specification and will not drastically change the project specification while a change request is the opposite. Also, modification requests are typically undertaken for free while change requests should feature additional charges or additional payments for extra work previously unspecified. This is because change requests drastically change the project specification or involve additional work.

(2) Signed Acknowledgment of Deliveries or Deliverables with Descriptions and List of Specifications

Signed Acknowledgment Receipts with descriptions and bulleted points of specifications for each deliverable that are consistent with the project contract texts or project inception report texts are very crucial in managing the project scope.

Without these signed receipts, the project scope can unnecessarily expand without additional compensation to the projects company and cause unwarranted delays in the completion of the project.

Basic Project Finance Safety Nets

(1) Bill Factors

Reputable or established international institutions understand the unforeseen or unexpected costs in project implementations thus accepting bill factors usually not in excess of 3.0 as a standard industry practice to ensure successful project completions.

However, clients who are contracting a project for the first time may not comprehend the rationale behind bill factors. Hence, a projects company has the option to apply a bill factor with appropriate footnotes explaining the rationale in the bid proposal or offer a detailed cost structure for such unforeseen or unexpected costs that can affect the project.

(2) Profit Margins and Currency Fluctuation Spreads

Project companies have to ensure sufficient profit margins per project so that company operations can be sustained. Corporate taxes; research, development and engineering costs that are not directly related to the project; personnel training costs; market research; offset of unprofitable projects; and other necessary operating expenses should be sufficiently covered with ample project profit margins.

Low profit margins for commodities that can be sold quickly in the thousands at shorter time periods are not applicable to project companies that may have seasonal projects or are only able to win less than 20 projects a year.

Currency fluctuation spreads should likewise be sufficient otherwise a contract clause for extreme currency fluctuations is necessary to protect the projects company with multi-country deployments or global supply chain.

Basic Testing Scenario Safety Nets

(1) Scenario Coverage

Project deliverables should be clear and certain on what scenarios and situations will the project warranties and guaranties cover. This is to limit project liability and maintain the project company's integrity or preserve its good reputation.

Hence, the testing of project deliverables should cover very specific transactional process scenarios or testing standards. Transactional processes that have not been subjected to testing should not be covered in any warranty or guarantee.

(2) Third Party Testing and/or Certification

It makes prudent sense that the project deliverables be tested and certified by reputable government agencies or credible third parties known in their specific industries. This safety net likewise ensures that the project company's project managers are accountable for each project that they have managed.




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