Deciding on Risk Mitigation Strategies: An Infirmary Example
When implementing mitigation strategies for potential risks on a project, a project manager must be aware of making correct decisions that consider the relative risk aversion of the decision maker. This means, many times, making decisions on the “tails of the distribution”, not necessarily using averages or mean values. The next project case constitutes a very complete example on that sense based on a concrete decision that has to be made regarding establishing or not a field infirmary on a project construction site.
A project manager for a construction company has to evaluate whether it is worth to invest on an infirmary on the field site. An infirmary would not only decrease the severity of potential labor accidents but it would also comply with national labor safety regulations. Additionally, even though the client is not enforcing the establishment of an infirmary on the field, it has implemented a contract clause regarding eventual accident events. As it has been laid out, the project management company can incur in as much as five labor accidents during the course of the construction project without any penalty. If more than five accidents are incurred in the project, a penalty of $25,000 per each one of any total number of accidents incurred will be fined to the company.
On the other hand, if the company decides to establish an infirmary during the course of the project, it has been estimated that it will have a fixed cost of $50,000 regardless of any number of accidents potentially occurring.