Understanding relationship between risks and claims for assessing risks with project data

Abstract

Purpose

In construction management, risks and claims are treated separately, but several studies tacitly acknowledge a strong link between the two. In this context, this research intends to investigate whether risks and claims have a causal relationship? Based on this causal relationship, a claim-based risk assessment model (C-RAM) is developed to quantify occurrences and cost implications of risks using project data.

Design/methodology/approach

First, the causal relationship between risks and claims is established through a conceptual framework for content analysis of the literature on risk management (RM) and claim management (CM). Then, a C-RAM is developed based on the content analysis of 234 claims from 24 settled arbitration awards.

Findings

Risks and claims are found to be two stages in the same chain of uncertain events that affect projects, subsequently revealing a causal relationship between risks and claims. Due to this causal relationship, claim documents become a potential source of risk information from past projects. Proposed C-RAM quantifies occurrences of risks with three parameters: number of projects in which a risk occurs, number of ways in which a risk occurs, and number of claims a risk causes if it occurs. Also, cost implications of risks are quantified as percentage of contract sums for interpretation as tangible values.

Research limitations/implications

Though C-RAM is applicable to all types of claims, the results in this paper are based on impacts of risks in past projects that caused claims and reached to arbitration stage.

Practical implications

The causal relationship between risks and claims will encourage integration of knowledge on RM and CM which is currently treated separately. Practitioners can now visualize claims as cost implications of risks that occurred in projects. Further, C-RAM makes risk assessment (RA) more objective by quantifying the cost implications of risks as percentage of contract sums which can be readily used for contingency estimation.

Originality/value

The relationship between risks and claims, and the potential of claim documents as a source of project risk information, can initiate a new paradigm in RM research based on project data.

Citation

Kumar, R., Iyer, K.C. and Singh, S.P. (2021), "Understanding relationship between risks and claims for assessing risks with project data", Engineering, Construction and Architectural Management, Vol. 28 No. 4, pp. 1014-1037. https://doi.org/10.1108/ECAM-11-2019-0664