Why should a construction company use risk allocation?
To fully comprehend the concept of risk allocation, one must understand the structure inherent in construction projects where the financial risks exist. The construction entities or companies involved in construction projects all face some level of financial risk, not only during the course of the project, but for many years subsequent to its completion. These risks vary, and are a function of the construction entities’ position within the hierarchy or chain of command common to most construction projects. These entities typically include the owner of the project, the architectural team in place to design the project, the management team in place to manage the project, and finally the contractors and/or subcontractors contracted by the owner and/or the management team to perform the actual construction work. Not surprisingly, the financial risk is most significant at the top of the hierarchy, but risk allocation is used to shift those financial risks down the chain of command as contra
