A Risk Management Strategy To Hedge Projects Against Cost Escalation Caused By Price Inflation
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Date
2010-10
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The British University in Dubai (BUiD)
Abstract
The purpose of this research is to find out the most reliable hedges that the project manager can use to avoid or reduce the risk of inflation on projects. Inflation is an invisible, economical, financial and social problem that lay beyond the control of any traditional project manager. Afterward, the only option available to the project manager is hedging from the consequences of inflation to assure the success of his/her project.
To hedge from inflation, a comprehensive Literature review was done to explore what is available in the other countries in terms of hedges. In the next stage, data collection methodology is via conducting interviewees with some expert project managers who have international experience and regional experience as well. After that, compare the interview findings with the literature review to come up with conclusions and recommendations.
From the data analysis, it is found that the most project managers prefer to hedge from inflation from the planning stage. However, the most reliable hedge is the fixed price contract which belongs to risk “Transfer” method as per Taylor (2003) risk management strategy. The other most reliable hedges are doing proper cost estimation, understanding project variables and complying with the organization risk taking strategy.
Some limitations found in the research are the difficulty in approaching expert project managers who have international experience. Also, the risk management stages and methods definition can easily change the result of the research. Last but not least, the time given to complete the dissertation and the unavailability of sufficient fund to support the research financial has limited the research result.
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Keywords
inflation, hedges, risk management, planning, response and monitor, project manager