Risk Management
Commercial Department Risk Management – A 360-Degree Approach
Identifying, Mitigating, and Controlling Financial, Contractual, and Procurement Risks in Mega Construction Projects
1. Introduction
The Commercial Department at BEC Arabia is responsible for managing financial, contractual, and procurement risks that could impact project cost efficiency, compliance, and profitability. Risk management in the commercial domain focuses on:
Preventing cost overruns and financial mismanagement
Ensuring contract compliance and mitigating legal risks
Managing procurement and supply chain risks to prevent project delays
Reducing financial exposure due to claims, disputes, and unforeseen expenses
Ensuring compliance with Saudi financial regulations, FIDIC contracts, and taxation laws
A 360-degree risk management approach integrates:
Risk Identification and Classification – Detecting financial and contractual risks before they escalate
Risk Analysis and Mitigation Strategies – Proactively managing financial exposure and disputes
Compliance and Regulatory Risk Control – Ensuring adherence to Saudi financial laws, FIDIC standards, and procurement regulations
Digital Risk Monitoring and Financial Analytics – Using SAP ERP, Aconex, Power BI, and Primavera P6 for real-time financial and contract risk tracking
This structured risk management approach ensures financial and contractual stability while minimizing liabilities.
2. Risk Governance and Responsibilities
2.1 Commercial Risk Governance Structure
Risk Level
Responsible Stakeholders
Key Risk Oversight Areas
Strategic Risks
CEO, CFO, Commercial Director
Financial sustainability, contract liabilities, compliance risks
Operational and Financial Risks
Commercial Managers, Finance Team
Budget overruns, cost tracking, supplier payment risks
Contractual and Legal Risks
Legal Team, Contracts Administration
Dispute resolution, claims, contract non-compliance
Procurement and Supplier Risks
Procurement Team, Vendor Managers
Supplier non-performance, procurement fraud prevention
Benchmark: All financial, contractual, and procurement risks must be identified, categorized, and assessed before contract execution and procurement transactions.
3. Risk Identification and Classification in Commercial Operations
3.1 Key Risk Categories in Commercial Management
Risk Type
Potential Threats
Impact Area
Mitigation Strategies
Cost Overrun Risks
Underestimated project costs, material price fluctuations
Budget control, profitability
Implement cost tracking and contingency budgeting
Contractual and Legal Risks
Incomplete contracts, liability issues, dispute escalation
Legal compliance, contract performance
Ensure FIDIC compliance and enforce risk-adjusted contract terms
Procurement and Supply Chain Risks
Vendor delays, supplier bankruptcy, material shortages
Project delivery timelines
Prequalify suppliers and diversify sourcing strategies
Claims and Dispute Risks
Late claims submission, inaccurate variations, contract disputes
Legal penalties, financial losses
Strengthen claims documentation and legal oversight
Taxation and Compliance Risks
VAT miscalculations, late tax filings
Regulatory penalties, financial reporting
Ensure financial audits and tax compliance tracking
Benchmark: 80% of commercial risks must be mitigated through preventive measures rather than reactive solutions.
4. Risk Analysis and Mitigation Strategies
4.1 Risk Probability and Impact Analysis
BEC Arabia follows qualitative and quantitative risk analysis methods to assess commercial risks:
Probability-Impact Matrix (PIM) – Categorizes risks into Low, Medium, High, and Critical based on potential financial loss and probability of occurrence.
Contractual Failure Mode and Effect Analysis (FMEA) – Identifies financial vulnerabilities in contracts and procurement agreements.
Supplier and Vendor Risk Assessment – Evaluates supplier reliability and procurement risks before engagement.
Benchmark: All high-impact financial and contractual risks must have mitigation plans before project execution.
4.2 Risk Mitigation Strategies in Commercial Management
Mitigation Type
Strategy
Application in Commercial Risk Management
Avoidance
Remove risk sources
Prevent contracts with high legal liability exposure
Reduction
Minimize impact and likelihood
Implement strict cost control measures and financial audits
Transfer
Shift risk responsibility
Require subcontractors to carry insurance and risk coverage
Acceptance
Plan for risk occurrence
Allocate contingency budgets for unexpected financial risks
Benchmark: At least 90% of financial and procurement risks should be mitigated before contract execution.
5. Compliance and Regulatory Risk Control
5.1 Compliance with FIDIC and NEC Contract Standards
Ensures contracts follow FIDIC/NEC frameworks for dispute resolution, payment terms, and risk allocation.
Reduces legal risks by including force majeure, indemnity, and liability clauses.
Implements contract audit processes to prevent compliance violations.
Key Compliance Deliverables:
Contract Compliance Audit Reports
Dispute Resolution Case Studies
Legal Risk Mitigation Logs
Benchmark: Zero high-risk contract violations leading to financial penalties.
5.2 Procurement and Financial Compliance Risk Control
Ensures procurement follows Etimad e-Procurement System requirements for government contracts.
Tracks VAT compliance to prevent tax penalties and financial irregularities.
Implements supplier prequalification to avoid vendor risks.
Key Compliance Deliverables:
Procurement Compliance Audits
VAT Audit Reports
Supplier Risk Assessment Logs
Benchmark: 95% compliance with procurement and taxation laws.
6. Digital Risk Monitoring and Financial Analytics
6.1 Integration of Digital Risk Tracking
Technology
Functionality
Application in Risk Management
SAP ERP
Cost Control, Budget Forecasting
Tracks financial risks, cost overruns, and budget deviations
Aconex
Contract Risk and Compliance Tracking
Ensures contract documentation and dispute resolution
Power BI Dashboards
Financial Risk Analytics
Monitors financial risk trends and compliance metrics
Primavera P6
Procurement Risk Monitoring
Aligns procurement schedules with contract requirements
Benchmark: 100% of financial and procurement risks must be digitally tracked and managed.
7. Key Risk-Based Performance Indicators (KPIs)
KPI Name
Definition
Target Benchmark
Cost Overrun Risk Exposure
Percentage of budget affected by financial risks
Below 5%
Contractual Risk Compliance Rate
Percentage of contracts reviewed for legal compliance
100% Compliance
Procurement Risk Assessment Rate
Percentage of suppliers passing prequalification checks
95% Compliance
Claims Settlement Time
Average time taken to resolve disputes and claims
Within 30 Days
Taxation Compliance Rate
Percentage of invoices compliant with VAT regulations
100% Compliance
Benchmark: All risk-based KPIs must be reviewed quarterly for continuous improvement.
8. Conclusion
The Commercial Department at BEC Arabia ensures:
Strategic risk mitigation in financial, contractual, and procurement operations
Strict compliance with FIDIC, Etimad, and Saudi financial regulations
Effective dispute resolution and claims management to prevent financial losses
Digital risk tracking for enhanced commercial oversight and financial security
By implementing structured risk management frameworks, BEC Arabia ensures financially secure, legally compliant, and risk-controlled commercial operations.
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