Claims management goals
2020-08-03. Discussing a supposedly simple situation.
When asked what are the claim management goals during project implementation, most project experts are quick to respond: “to increase profits”, “to improve the project by taking an aggressive approach” and “to put disastrous projects back on track”. At first glance, all these answers appear plausible. But do these responses really represent the goals of claims management?
What does the term “claims management” actually mean?
If we take a step back, figuratively speaking, and literally translate the term “claim management” from English into German, we get the following meanings:
- “Claim” = entitlement, assertion, demand.
- “Management” = administration, handling, control.
“Claims management” can therefore mean entitlement administration, demand control or assertion management, to name just a few - meaningful - word combinations.
What does the term “entitlement administration” include, for example? During project implementation, the concluded project agreement gives rise to mutual claims between the client and the contractor in the project. If during the course of the project there are any changes, either by design or no, to the scope of the project agreement, or changes to the framework conditions contractually agreed between the project parties, the parties may face mutual compensation claims for the consequences of these changes. Both contractual parties must administer, handle, control or “manage” these claims.
The basis for this is the project agreement/ legal system applicable to the project agreement. This results in opportunities and/or requirements for the contractual parties as to how claims against the other contractual party in the project can/ must be asserted/ defended within defined deadlines. The sum of the related organisational/ procedural and methodical actions is called claims management.
Is there a definitive claims management goal?
Claims management therefore applies to projects. Wikipedia defines a project as follows:
"A project consists of a concrete and organised effort motivated by a perceived opportunity when facing a problem..... Each project has a beginning and an end, and as such is considered a closed dynamic system. It is developed along the 4 Ps of project management: Plan, Processes, People, and Power (e.g., line of authority). It is bound by the triple constraints that are calendar, costs and norms of quality, each of which can be determined and measured objectively along the project lifecycle."
In other words, projects are subject to external and internal influences during their implementation. The consequences of these influences must be controlled by those responsible for the project, in order to achieve the goals defined before/during project initiation, despite the effects of this disruption. Claims management is the project management discipline that deals with the consequences of external influences (beyond your own area of responsibility) on the project. The impact of internal influences (this time within your own area of responsibility) on the project is not handled using claims management methods. Why not? If, for example, the sluggish work of your own engineering department leads to delays in the project, it would be pointless for the project manager to claim compensation from the head of the engineering department, because the external project client demands a contractual penalty from their contractor for the delay.
It would not be efficient to use claims management in this case, as even successfully asserted internal compensation claims would only result in internal budget deferrals. “The right-hand paying the left-hand” is a good way of putting this. In practice, therefore, it is unusual to talk of claims management if disruptive influences on the project from your own area of responsibility need to be compensated. In this case, the project manager intervenes; coordinating remedial measures, thereby getting the project back on schedule. Compensation claims are not even presented, due to a lack of responsibility in terms of the project agreement.
Claims for compensation for process disruption, deviations and changes to the project’s progress between legally independent contractual parties must, however, be managed, handled and controlled. This is done in order to complete the project within the agreed cost, schedule and quality targets. Claims management primarily serves to achieve the project goals; or to be more precise, to fulfil the contractual relationship towards the contractual partner established by the project agreement, as well as to prevent your own company from being placed at a disadvantage due to external disruption for which you are not responsible.
Even when claim management is not used, claim management still exists!
“We don’t use claims management. We always work in partnership with our customers/ contractors,” is an occasionally heard statement. It doesn’t seem credible that companies, which by definition intend to make a profit, ignore the consequences of disruption whose causes are not their responsibility, according to the project agreement. Every project manager that checks whether contractual partners have fulfilled their obligations in “their” project is using claims management. Every company that demands compensation for additional project costs for which the project partners are responsible is using claims management. They may not always adopt a perfect, clearly structured and methodical approach to dealing with additional project claims, but they still use claims management.
Intention alone can turn a knife into a weapon.
There is nothing dishonourable about claims management. Rather, it is a tool for fulfilling the project agreement between clients and contractors on an equal footing. “Our customers/ contractors are our partners” is an attitude to which we should not merely pay lip service in the project business. When project partners understandably decide upon compensation for disruption, deviations and changes to the project, based on verifiable facts and on the basis of the project agreement, a partnership approach will be maintained, even if there is a hold-up in the project. If the client regards themselves as the “supreme customer” who “the subservient” contractor must always follow, this may well pave the way for the contractor to use contract management methods to create contractual loopholes during the project quotation phase, which will allow them to use claims management to “get one over” on the “supreme customer” for their own benefit during the course of the project. This may well be a claims management goal, but is definitely not advisable.
It is better to regard claims management as a means of fulfilling the project agreement, with the aim of making the project a success. This requires equal partners in the project. Whether the claim management “knife” is a weapon or a utensil depends on the framework conditions under which it is used. The same applies to its goals. In short: while we may understand the profit-optimising approach of a project’s contractual parties, in spirit, the contractual parties should always want to do good, long-term business with one another.
Would you like to stay up-to-date with our publications? Follow our company on Linkedin.