Level:
Intermediate
TCM Section(s)
7.7. Procurement Planning
7.6. Risk Management
Venue: 2024 AACE International Conference & Expo
Abstract: Collaborative contracting models have been receiving worldwide attention, especially in the UK and Australia, with increasingly more countries exploring its use. It is a relatively new delivery strategy in Canada where owner and all non-owner participants (NOPs) work together with integrity and making best-for-project mindset decisions. Risk/reward sharing is an important concept to provide incentive for project participants to enhance the project performance and achieve a win-win scenario for all those involved. There are multiple approaches from the literature that explored how the risk/reward sharing ratio can be optimized to incentivize parties’ risk solving efforts. As such, this paper summarizes previous work relating to this topic and compares 2 specific approaches in more detail to serve as a guide and to initiate further future discussion on improved methodology for risk/reward sharing ratio optimization. Key aspects influencing the risk/reward sharing mechanism are defined and serve as the foundation for the comparison. These principal aspects include participants’ risk attitudes, cooperative behavior and the stochastic nature of risks, customized risk perception based on risk criteria, and optimization strategies. A numerical case example adapted from the literature is also used to present the relevant methodology and outputs.
TCM Section(s)
7.7. Procurement Planning
7.6. Risk Management
Venue: 2024 AACE International Conference & Expo
Abstract: Collaborative contracting models have been receiving worldwide attention, especially in the UK and Australia, with increasingly more countries exploring its use. It is a relatively new delivery strategy in Canada where owner and all non-owner participants (NOPs) work together with integrity and making best-for-project mindset decisions. Risk/reward sharing is an important concept to provide incentive for project participants to enhance the project performance and achieve a win-win scenario for all those involved. There are multiple approaches from the literature that explored how the risk/reward sharing ratio can be optimized to incentivize parties’ risk solving efforts. As such, this paper summarizes previous work relating to this topic and compares 2 specific approaches in more detail to serve as a guide and to initiate further future discussion on improved methodology for risk/reward sharing ratio optimization. Key aspects influencing the risk/reward sharing mechanism are defined and serve as the foundation for the comparison. These principal aspects include participants’ risk attitudes, cooperative behavior and the stochastic nature of risks, customized risk perception based on risk criteria, and optimization strategies. A numerical case example adapted from the literature is also used to present the relevant methodology and outputs.