Using Risk Management Techniques to Control Contract Costs

Abstract

A method for evaluating the risk associated with a construction contract has been developed and applied to municipal contracts in Lansing, Michigan. Data on contract costs, change orders, and complexity were collected through an information system developed by the city. These data were analyzed and a number of “risk” nomographs developed based upon the analysis results. The nomographs allow construction management teams to determine the amount of effort that must be expended to monitor a particular project. The information system also allows managers to evaluate the activities of the construction managers and the city's construction program.