Claims-Management-Strategy: Structured decision-making-process in claim situations

„In project management, we do not fly“

It sounds logical and comprehensible what the FOR-DEC method offers in providing support to pilots in aviation with its ultimate goal of perfect safety of "men and equipment". But what does this have to do with claims management in the context of executing industrial projects?

Both in aviation and in project management people are faced with the necessity to cope with new and complex situations every day having to take important decisions under great time pressure.  „My gut feeling tells me that ….“, says the seasoned project director and takes an intuitive decision.

In intuitive decision making, two heuristics are of major importance: „similarity matching“ and „frequency gambling“ as termed by James Reason, a British psychologist of Manchester University. Both heuristics aim at taking quick decisions on the basis of experience gained to date.  They, however, imply as well that information on the current situation is neglected, as only patterns of more or less comparable situations in the past are considered. This approach has been termed: „best practise“.

„Best Practises“ in claims management - a curse or a blessing?

„Groundhog Day“ - that is the title of a critical article in Peter Addor's blog, a Swiss mathematician and systems theoretician, on the subject "best practises" and their applicability in day-to-day project activities. Among other things, Peter Addor writes:

„You know how to deal with frequent situations. You are familiar with them and know from experience how to act. I have, for example, often come across icy forest paths and know how to walk without falling down. But I have never come across a covered hole on such paths. I do not have any experience with such holes and would probably just fall in! If I passed such covered holes every day, I would develop a sensitivity for discovering and bypassing such holes“.

Translated into situations occurring every day in project management, this simply means that in claims management blind trust in the effectiveness of „best practises" must not necessarily function well enough to prepare for contingencies. Everyone in project management surely knows about „covered holes on familiar forest paths".

FOR-DEC adapted to claims management in day-to-day project activities.

Should a situation arise where a claim asserted by a contract partner (in the present case a subcontractor of the contracting engineering company) is to be defended against, it would make sense to   …:

• … clarify the relevant facts with the members of the team directly involved in such claim:
•  What are the facts which gave rise to the claim?
•  How are the facts documented by our own company? Verifiability!
•  How are the facts documented by the contract partner asserting the claim? Verifiability!
•  How serious are the effects (money, construction time) of the contract partner's claim for our own company?
•  Which are the contractual provisions the contract partner bases his claim on? Clarity! Validity!
•  On which contractual basis can the claim asserted by the contract partner be defended against? Clarity! Validity!
• To what extent is our own company dependent on the contract partner?
•  To what extent is the claiming contract partner dependent on our company? 
• ...identify the courses of action („Options“):
•  The claim asserted by the contract partner is strongly rejected without giving any reasons.
•  The claim asserted by the contract partner is rejected as not being verifiable.
• The contract partner is informed that he would not receive a follow-up contract if he maintained the claim (Caution: compliance issue).
• The claim asserted by the contract partner is accepted and converted into a change order to the contract.
• No answer is given to the contract partner hoping that he will change his opinion and abandon the claim („waiting for the problem to resolve itself“).
• The contract partner is put off and told that this claim will be settled in the negotiations on the final invoice for the project.
• The contract partner is confronted with a counter-claim in a similar or higher amount.  
•  etc. pp.
• …

• …to evaluate the risks and benefits for each option in a matrix and to compare the benefits and risks quantifiably. By defining a key figure for risks/benefits = RB in the value range from -10 to +10 it is easy to quantify the value of an option. Below there is a fictitious example for such a matrix: