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Ten Tips for Mitigating Risk in Construction Projects

Coordinating insurance and risk management concerns with the need of a construction project can be challenging. In their latest, online-exclusive column in Risk Management magazine, Robert Horkovich and Kevin Connolly of Anderson, Kill & Ollick, offer some important tips to ensuring that insurance contracts and construction contracts are properly aligned.

1. Recognize the construction contract as the bedrock of risk management.
The contract documents are the place for agreements to provide insurance, as well as additional insured provisions, indemnity and exculpation clauses. They are also the place to make clear which parties are responsible for the many surprises that arise during the course of construction, from latent subsurface conditions to accidents and failures to construct the project in the manner that the owners and designers intended.

For more, check out the rest of the article, only on RMmagazine.com.

Major Expansion for Nevada Quake Research Center

September was national preparedness month. But disasters aren’t just going to take the other 11 months of the year off, you guys, so it’s important that the efforts to increase readiness continue. 24/7/365 is what I always say.

Critical but under-reported to that endeavor is research. We can’t know how to prepare unless we know precisely what we are preparing for.

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So it was with great exuberance that I came across this news story from the Insurance Journal about a major expansion to one of the nation’s premier earthquake research labs, the Center for Civil Engineering Earthquake Research at the University of Nevada, Reno.

A new $12.2 million federal grant will allow the University of Nevada, Reno, to more than double the size of its earthquake research center, making it the largest quake simulation facility in the country, school officials said.

Construction of a new 23,000-square-foot Shake Table Laboratory will allow for seismic tests on much bigger models of buildings and bridges than have ever been tested.

The lab has been conducting earthquake research for 25 years on shake tables, simulating seismic waves propagating through layers of soil beneath foundations to see how different structures react. The expansion will make it possible to house five 50-ton-capacity shake tables instead of the present four.

Great news indeed.

The final pricetag of the expansion is expected to be $18 million, creating a center of more than 30,000 square feet by 2013. And perhaps most encouragingly, this .

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2 million allocation comes as part of a $50 million package of grants that the Commerce Department handed out recently for the construction of new scientific research facilities in the United States — meaning that nearly 25% of the funds went to disaster research.

Looks like natural catastrophe risks are moving up the federal radar.

And as Ian Buckle, director of the center’s Large-Scale Structures Lab, aptly noted, the pay-off is well worth the investment.

“This will be a quantum jump in the range and complexity of experiments that can be undertaken in both new and existing laboratories, with advances in state-of-the-art earthquake engineering that are not currently possible,” said Ian Buckle, director of the center’s Large-Scale Structures Lab.

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“Safer buildings, bridges and more resilient communities will be the end result,” he added.

I think everyone can get behind that.

Nevada Earthquake Research

The Rogers and Wiener Bridge Structures Lab at the University of Nevada, Reno. (Photo: University of Nevada)

6 Key Areas of RM for the Banking Industry

If you haven’t heard enough about risk management within the banking industry, well, that’s a good thing. The more ideas about the discipline and how it can be implemented within the sometimes-risk-loving financial institutions, the better.

On that note, Ernst & Young recently released “CFO Report: Bank Capital Management in Uncertain Times.” The report covers, as stated, capital management strategies, but it also delves into the areas of risk management getting the most attention at global banks. Since the financial crisis, banks recognize that the quantitative risk models many had relied upon are no longer adequate. The survey found that CFOs, chief risk officers and the organizations that they are a part of are coming together to focus on six key areas of risk management:

Reassessment of business strategy
Analysis and implementation of capital optimization opportunities
Monitoring and revision of capital adequacy goals
Reduction of the complexity of business operations and rationalization of legal entity structure
Improvements in reporting
Improvements in data quality and systems
  1. Reassessment of business strategy
  2. Analysis and implementation of capital optimization opportunities
  3. Monitoring and revision of capital adequacy goals
  4. Reduction of the complexity of business operations and rationalization of legal entity structure
  5. Improvements in reporting
  6. Improvements in data quality and systems

Peter Davis, E&Y’s director of credit risk services, talks about capital management and understanding the risks associated with a new regulatory environment (read: Basel III) in this brief but informative video.

At Citi, Risk Management Is Still Lacking

At least so says a new report from Crédit Agricole Securities financial analyst Mike Mayo, a vocal critic of Citigroup who met with company execs on Friday (after having “lobbied for nearly two years for an audience with” Citi chief exec Vikram Pandit) in preparation for the release of his long-term outlook on the company.

we are not convinced that there has been enough improvement in risk management, a huge consideration for this reason: for each $3 that Citi made last decade, it gave back $1 due to poor risk management. Citi still seems to have aggressiveness with financial targets (well above historical), accounting (tax credits), and corporate governance.

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Also, the strategy does not always seem in sync with execution and/or financial reporting.

A history of mishaps and poor judgment

Citi mentioned that it has a new team. Yet, we’ve heard this before. Since 1998, Citi has had 30 major reorganizations or senior management changes, a disruptive lack of continuity that increases the chance for mishaps.

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Not surprisingly, over this same time Citi has had about 20 significant events that reflect breakdowns in risk management, ranging from fines and settlements for dealings with Enron and WorldCom to exceptional reserve builds and writedowns.

All told, these events have added to over $100bn in pretax losses. Thus, the issue for Citi is less about squeezing out extra growth versus not messing up.

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Ouch.

That last sentence doesn’t sound good at all.

UPDATE: Fox Business reporter Charlie Gasparino gives a thorough breakdown of Mayo’s report in this video.