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Hotel Building Project: Value and Risk Management


Many people do not understand the complexities associated with hotel development projects (Kirkland 2015). The progression from concept to the drawing board and final handover is a lengthy process. It is full of risks and uncertainties that continually threaten the successful execution of the project (Kirkland 2015). Construction projects are more than just simply delivering buildings and structures. They are required to reflect the long term business needs of those who commission them. At the same time, they are expected to deliver the expected benefits. Effective delivery requires players in the industry to clearly understand the long term needs of the client. The needs are then delivered efficiently and economically (Eyster 2003).

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In the past, cost was the most important factor in the construction industry. It was the yardstick by which success of a project was measured. However, in more recent times, newer concepts have emerged. For instance, value and risk management has largely been incorporated into recent construction projects (Eyster 2003). Jensen (2001) provides a working definition of value. According to Jensen (2001), it is defined as a measure of customer satisfaction relative to the level of effort to achieve that gratification. Value management clearly articulates what represents worth in terms of the benefits of the project. It links this to the most cost effective design solutions (Kirkland 2015). Value management complements efficient delivery by ensuring that efforts are made to deliver the right buildings. Risk, on the other hand, is the uncertainty that is inherent in plans (Dempster 2002).

It is the possibility that something that may affect the prospects of achieving the business or project goals may happen. Risk management deals with the identification of the causes of these uncertainties. It also entails putting in place measures aimed at minimising their adverse impact on the project. To achieve this, projects are monitored from the onset to ensure that the right conditions for a successful delivery are provided. Value management and risk management complement each other in that. To this end, the latter can reduce risk, while the former provides opportunities to increase value (Dionne 2013). Value needs to be clearly articulated from the onset and later delivered in the finished product. Unless this is done, its maximisation is not possible. On the other hand, if risk is not identified and its consequences controlled, value may be destroyed (Dionne 2013).

RIBA Plan of Work is ‘a bedrock’ document for architects and other players in the construction industry. It provides a shared framework for the organisation and management of building projects (Sinclair 2013). It is widely used as a process map and a management tool. The document avails important work stage reference points used in a wide range of contractual and appointment documents (Sinclair 2013). The RIBA Plan of Work 2013 consists of eight stages. The phases are identified by the numbers 0-7. Generally, the stages follow each other in sequence. However, in certain projects, some aspects of design make it necessary to create an overlap between specified steps (Sinclair 2013).

In this paper, the author will articulate the concepts of value and risk management in the construction of a luxurious hotel using the different stages outlined in RIBA Plan of Work 2013.

RIBA Plan of Work Stage 0: Strategic Project Overview

According to RIBA, stage 0 requires a project to be strategically appraised and defined before a detailed brief is prepared (Sinclair 2013). It is especially important when it comes to sustainability. In this case, renovation or restoration of an existing structure is more preferable than construction from scratch. In this stage, the consultancy firm found it more prudent to integrate the six categories of value identified in the CABE value driver categorisation.

Value 1: Maximisation of Business effectiveness

According to the value, the facility to be built should deliver the benefits associated with five star hotels in an efficient, economic, and effective way (Huang 2011). In the proposed hotel project, the luxury and comfort of guests is of essence. The building should typify luxury across all areas of its operations. To achieve this, the firm proposes that the building should be fitted with such facilities as spas, cinemas, high end restaurants and casinos, swimming pools, and accommodation facilities only found in 5 star hotels.

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The facilities should display excellent design quality and great attention to detail. As such, the patrons will have access to a wide range of amenities. In addition, the management will be able to provide them with customised services. The building should also be fitted with the latest advancements in technology. It is mainly because the new technological trends in the hospitality industry will play a key role in delivering a personalised experience to the guests. They will also improve management operations, leading to increased efficiency and reduced costs.

Value 2: Effective Project Management and Delivery

The value relates to the management process used and the selection of an integrated team working throughout the supply chain (Eyster 2003). Effective project management can only be achieved by a specialised team conversant with the needs of the hotel industry. The value is of great importance to the current project since its effective implementation provides opportunities to maximise value and minimise waste at every stage of the procurement and construction process. According to this concept, the project team should be comprised of highly skilled and experienced personnel in the industry. As such, their advice and decisions will provide the required technical competence to produce a well-constructed and designed hotel. In addition, the design team should exhibit a high level of integration, coordination, and communication to cover all aspects of the project. Outside expertise should also be sought for newer and better designs.

Value 3: Financial Performance

According to this value driver, any project should be affordable (Eyster 2003). As such, all the resources set aside for the undertaking should be used to optimise the benefits of the organisation that will use the hotel. The Dubai project is required to deliver a 5 star hotel. It will have a total of four hundred rooms on a 25000 square meter land. The AED500 million project is expected to have state-of-the-art facilities, such as theatres and a variety of world class restaurants, all under one roof. The trees and vegetation from the previous occupant will be retained at the site. They will be complemented by an extensive landscaping scheme and a wildlife garden. The outer appearance of the building should outdo all other 5 star hotels in the locality. Landscaping the area around the hotel will give it an edge over other facilities since only a few of them have enough space for outdoor activities.

Value 4: Positive Impact on the Locality

The driver describes the impact of the building on the surrounding area and the people who will use or visit it (Huang 2011). The hotel will be the first to have a freshwater aquatic wildlife garden for recreational purposes. As such, the facility will impact positively on the environment. It will also greatly impact on the overall appearance of the community. The hotel is set to be used as a benchmark for the quality of buildings that will be put up in the city in the future. Its lighting and architecture will bring about the feeling of a safe and inspiring neighbourhood. As such, the designers are requested to come up with a building that has ample external lighting. The external design of the building should make the hotel an important landmark in the locality. From the perspective of this value, the project will create a place that positively contributes to the environment. It will avoid creating an isolated building (Huang 2011). In addition, countless jobs will be created for the local community.

Value 5: Minimise Environmental Impact and Operation and Maintenance Costs

The value covers the impacts of the building on the natural environment (Kirkland 2015). As such, the project management team is advised to ensure that all issues of environmental sustainability are addressed. It is important to note that the value does not refer only to the external environment. On the contrary, it also addresses the internal surroundings. According to this driver, the area within and around the project should be cleaned regularly. As such, the designers and other workers should have enough time to make changes to finishes, layout structure, and other engineering systems while the building is still ongoing.

The hotel should also be able to accommodate future physical and natural environmental changes. Consequently, the building’s finishes and components should be durable enough to resist wear and tear. To conserve energy, the design team is required to fit the building with solar panels. The aim is to reduce energy consumed by external sources. Large glass displays in all rooms will also significantly reduce the need for artificial lighting during the day.

Value 6: Compliance with Third Party Requirements

The above value driver is concerned with the relationship between the building and the stakeholders (Rosalind & Karanikola 2014). It is also largely concerned with the compliance of the project with the appropriate legislations. Every building project in the United Arab Emirates is required to comply with stringent legislations throughout the project lifecycle (Schnapper & Rollins 2014). In this project, stakeholders who form a large portion of the third party will also be extensively consulted throughout the construction process. Elaborate feedback mechanisms will also be put in place to enhance ongoing consultations with stakeholders. Assessment tools, such as Design Value Indicators, will also be used to assess how well the requirements of the stakeholders are met. Health and safety agents will also be engaged to ensure that the building attains the standards required by law.

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RIBA Plan of Work Stage 1: The Project Budget

A budget is one of the most important tools in the business and construction sector (Baumgartner 2006). To designers and developers, it indicates how much time should be spent on specific areas of the design. It is used by the management to analyse the progress of the undertaking. The project’s budget is a detailed estimate of all the costs that will be incurred in completing the project (Baumgartner 2006). It contains more information compared to the high-level financial plan generated in the earlier phases of the undertaking. A conventional budget highlights various items. They include expenses on wages and raw materials. It is important to note that a financial plan should be regarded as an estimate of expenditure.

The label should remain until it receives approval. The aim is to manage expectations and prevent miscommunications (Baumgartner 2006). Cost models play a role in the preparation of a budget. They are mathematical algorithms or parametric equations used to estimate the costs of a product or a project (Munns & Al-Haikus 2015). The results of the models are used to obtain the approval needed to proceed with the undertaking. They are factored into the business plans and budgets. The model provides a consolidated construction cost image of a proposed development type (Raftery 2015). However, each cost model has to be normalised and index-linked.

Cost models are the basis of benchmarking. Benchmarking is an essential tool used to predict the cost of construction at the inception stage of projects (Tsang & Chen 2013). In this undertaking, the cost model of a successful 5 star hotel project in the United Arab Emirates will act as the foundation on which benchmarking will be carried out. The specific hotel was chosen for its close resemblance to the proposed project. It is also located within the city centre and is not an ocean front property as is common with most 5 star hotels in Dubai (refer to appendix 1).

Data from the benchmark hotel cost model indicates that the unit cost of a 4-star and 5-star hotel in Dubai ranges from AED30, 000 to AED40, 000 per sq.m of construction floor area respectively. The figures are set at the 3rd quarter 2014 price level (Tsang & Chen 2013). The variance in unit cost is mainly due to variations in area proportions among BOH, food and beverages, recreation, guestrooms, and the sophistication of external facade and hotel interiors. The cost model used in this paper is based solely on the benchmark framework. It is also important to note that some items were omitted in the current cost model. They include operating equipment, such as kitchen utensils and trolleys, and room amenities, such as curtains, external work, and landscaping outside the building. Design and consultancy fees and legal and marketing expenses are also excluded (see appendix 2).

As stated earlier in this paper, most 4-star and 5-star hotel projects in Dubai cost from AED30,000 to AED40,000 per sq.m of construction floor area. As such, the rates in the cost model for the current project may seem extravagant and exaggerated. However, it is important to note that building costs have increased significantly in the 2015 financial year (Munns & Al-Haikus 2015). It is also important to ensure that the hotel is able to rival and competitively compete with other 5-star facilities in Dubai. As such, the cost model allocates more money to design and detail.

RIBA Plan of Work Stage 3: Developing the Design

Justification of Costs

The entire building project is expected to cover a total area of 20000m2 of the 25000m2 plot. By providing an analysis of cost by area and function, the firm was able to ensure that expenses were allocated to those parts of the hotel that would deliver the best returns on investment over the shortest period of time. As such, more attention was given to the outside appearance of the building. The money allocated to wall finishes would allow for the application of skim coat plaster and paint to corridor and bedroom walls. It would also allow for enhanced finishes to bedrooms and bedroom corridor areas. Bathrooms, toilets, and spa areas will also be fitted with stylish stone tiles. The main aim will be to create a lasting impression to all guests in the hotel.

Financing of floor finishes is expected to cover for such activities as advanced tile carpeting at the front of the building, ceramic tiling at the back of the house, mat well at the entrance, and vinyl flooring and skirting at the back of the building. Money allocated to external walls, windows, and doors will allow for special construction designs, such as secondary glazing to windows on the front elevation and Storley height glazed screen wall to ground floor entrance with motorised entrance and slide pass doors. It will also provide for a glazed canopy at the entrance.

The money allocated to ceiling finishes will allow for painted plasterboard ceilings for bedrooms and corridors, including access panels and bulkheads. Public areas will also be fitted with suspended plasterboards with a paint finish. Special ceiling tile design will be installed in the kitchen areas in compliance with the hygiene standards of 5 star hotels. Installation of five different lifts and a staircase will allow for easy movement of guests and staff within the building. The lifts will include a public escalator for use by guests, a service and fire fighting lift, for emergency response purposes, a luggage lift, and a platform lift. Special attention was also given to communication installations. Money allocated to the sector will cater for the installation of fire alarm and smoke detection systems, telephone and data cabling, audio and television distribution network, CCTV and access control systems, and bedroom door access cabling.

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Report on how to Obtain a 10% Budget Cut from the Design Team

Money is a limited resource in spite of the fact that it is the main driving force behind any project (Raftery 2015). Financial difficulties encountered during an ongoing process can have adverse and critical effects on the project. However, this can be avoided by cutting the budget cost and by making minor adjustments to the design of a building. However, before the design changes are made, value engineering has to be done (Rhee & Yang 2015). Value engineering study is an organised system of investigation using trained multi-disciplined teams to analyse the requirements of a project.

It is used for the purposes of achieving the essential functions of the undertaking at the lowest total cost (Schnapper & Rollins 2014). To achieve this goal, contractors and specialists have to retain and develop the specified function, reliability, quality, and safety. In addition, they should reduce the total cost of the project by eliminating any unnecessary costs in applied construction method and equipment material service and process (Schnapper & Rollins 2014). In this section of the paper, the consultancy firm suggests different areas that can be targeted to effectively lower the budget by 10% for a value engineering study.

To start with, a lot of money would be saved by reducing the square footing of the entire building. Decreasing square footage of a building is known to dramatically reduce building costs by up to 10 percent. However, for the current project, lowering the square footage would adversely affect the size of the hotel rooms. In addition, in the United Arab Emirates, large rooms translate to increased luxury. The situation is different in the United States where small is seen as cosy and efficient. The issue can be remedied by building more storey floors and reducing outward construction. The strategy is seen in a ranch design (Patterson & Neailey 2002).

Targeting reduction of the square footage of the building is likely to help in achieving the envisaged savings. At the same time, it will minimise the negative impacts on the quality and integrity of the project. The reason is that each meter square of space saved would reduce the cost by AED44,964. What this means is that reducing the total space by 1000m2 would save a total of AED44,964,000. The money allocated for the roof design would also be significantly reduced by use of cheaper but equally luxurious covering plans. Construction of expensive and high design roofs and ceilings also requires expensive and highly experienced labour force, which is costly. Highly complicated roof and ceiling systems are visually interesting.

However, the value engineering study should come up with less expensive but equally luxurious designs. Such redesign strategies can also reduce the costs of air conditioning systems. For instance, decreasing the duct size, A/C units, and furnace units of an air conditioning system can reduce costs while still maintain the same operating efficiencies. Reduction of the labour force can also significantly decrease the overall budget. In the project, labour costs account for over 20% of the total project expenditure. Going forward, a 10% decrease in labour force would swing building costs by approximately 3%.

RIBA Plan of Work Stage 0

Strategic Risk Assessment

Strategic risk assessment is essential as it minimises expenses while maximising profits. Its management has a huge impact on any project given that it ensures the undertaking is completed within the stipulated parameters (Huang 2011). It is categorised into two. The two include internal and external risk assessment. The first is usually easier to identify and manage. The reason is that it is within the firm’s reach. However, the second is more elusive as it is beyond the reach of the organisation (Huang 2011).

Internal risk assessment

It is normally carried out by the project team, contractors, and other partners. Financial solvency of the partners is one of the major internal risks facing the project (Huang 2011). A huge capital outlay will be required to implement the plan. Furthermore, capital reserves have to be readily available for allocation in such large scale projects. It is mainly because at times, these resources may be needed at a short notice due to an emergency or an unplanned additional phase that may require huge capital injections. As a result, it is of great importance for the partners to be able to cater for any additional charges in the construction phase. Alternatively, the partners should be able and willing to access other sources of revenue, such as bank loans, to ensure that the project does not stall.

The wellbeing of the personnel is also an important internal issue (Huang 2011). Issues to do with the members of staff may have a huge impact on the investment. The reason is that these stakeholders are the ones who primarily carry out the relevant activities. In case of an illness or unprecedented termination of a key member, the project may be adversely affected. Finding a replacement for a highly experienced and skilled employee is an uphill task and may lead to delays in the project. Infrastructural problems also pose a risk to the undertaking (Eyster 2003). They mainly involve staff and equipment accommodative structures. A huge project like the current one requires equipment that is technologically advanced. It will include software, hardware, and servers. The firm should be able to meet the accommodation requirements for the yet to be installed equipment and the resting area for the workers (Dionne 2013).

External risk assessment

The threat is hard to identify, analyse, and manage. It is mainly because it involves factors that are usually out of the control of the parties involved (Dionne 2013). External factors pose a major threat to any building project. As such, there is need for regular evaluation to identify and deal with these external factors at an early stage. Below are some of the major peripheral risks that could potentially affect the project:

Volatility of raw materials in the markets

The prices of most commodities have risen in the recent past (Dempster 2002). However, the cost of other items, such as oil, has dropped drastically. Such changes adversely affect the purchase of raw materials. The reason is that their predictability is reduced. A rise in prices would lead to an increase in the cost of the project. On its part, a reduction in expenses would have a positive impact on the undertaking.

The global economy

It is another major risk that could cripple the project. It involves the exchange of goods and services at the international market (Dempster 2002). It affects the acquisition of items from anywhere around the world. If an economic recession or sanction was introduced in Dubai by a country that is a main supplier of raw materials or important building commodities, the project may come to a standstill. The sourcing of the materials or labour from other places may be extremely difficult. The reason is that economic sanctions originate from one country and spread to other economies.

Product imitations

It could also affect the project. Considering that it is a luxurious hotel, the client may require the inclusion of unique features. Custom made designs in furniture and architecture are a common occurrence in the construction of luxurious hotels (Eyster 2003). It is mainly because most owners want visitors to have experiences that can only be enjoyed in their facilities. Duplication of the design during the construction phase may lower the value of the project in the market (Marwa & Zairi 2008).

Disruptions in the supply chain

In the construction industry, the supply chain is involved with the production and distribution of products (Eyster 2003). It is a complex process since the demand for materials is always high. A reliable supply chain would increase the efficiency of the project. On the other hand, such unfavourable factors as bad climate and bankruptcy of supply firms may disrupt the flow of products, leading to delays in the project. As a result, the undertaking would be negatively affected. The client should consider sourcing their raw materials from convenient and reliable regions (Jensen 2001).


After evaluating and analysing the internal and external risks facing the client, the consultancy firm concludes that the threats involved can be properly managed. They do not pose a major hazard to the completion of the project. The client should proceed with their investment in the project. However, they should properly screen the potential future partners to attain more information on their financial capabilities and their level of skill and commitment (Woodcock 2003). The personnel should also be properly evaluated and assurance sought from their specific firms for replacements in case of uncertainties (Carmona 2001).

A close monitoring and analysis of global financial situations should also be done. In addition, the companies involved should sign contracts that will ensure that they continue to supply materials even during an economic recession. The firm also recommends that the client should register all their patents and trademarks to avoid brand imitation. Lastly, volatile prices could be hedged out through agreements with the supplier (Rutherford 2005). Such a move would help to introduce a standard price for the product over the agreed period of the contract.

RIBA Plan of Work Stage 5: Risk Control and Construction

During this stage, actual construction of the project will begin on the site in accordance with the program. Risk control will also be carried out during this period. In construction, risk management is designed to plan, monitor, and control those measures needed to prevent exposure to threats (Smith & Jobling 2006). To achieve this objective, it is important to identify the risks, assess their extent, and put in place measures to control and manage them (Smith & Jobling 2006). The project will be a client-led design and build. As such, most of the risks will be addressed by the customer.

A risk register is a management tool commonly used in the control of threats. It is also used for regulatory compliance purposes (Patterson & Neailey 2002). It acts as a central repository for all risks identified by the organisation. For each of the threats identified, the portfolio provides information on its source, nature, and recommended countermeasures. It is also commonly referred to as a risk log in the construction sector. Construction projects use registers that are similar to those in other industries. However, they may assess the impacts of time and cost without controls. In addition, they may include actions to be taken on residual risks (Patterson & Neailey 2002). In this project, the register will look at generic risks that have occurred in previous undertakings. It will also focus on threats that are specific to the project and those that will persist in spite of the controls put in place (refer to appendix 3).


Different factors affect the various phases of a project. As seen in this paper, a RIBA Plan of Work provides a framework for the organisation and management of building projects. By following the guidelines highlighted in the document, the consultancy firm was able to provide a sound design and monetary advice to the client. In addition, the framework provided information regarding the different factors that come into play when designing a building. It is also clear that risk and value management play a critical role in construction investments. Strategic risk management would allow the client to anticipate uncertainties and be ready to deal with them. As a result, the project will be completed successfully.


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Appendix 1

Benchmark model: Cost model for one tower of the Grosvenor House, Dubai

AED/m2 gross internal floor area
Function Cost in AED AED/m2
Building clearance 8,834,000 883.4
Frame and upper floors 200,183,000 20018.3
Roof 10,000,000 1000.00
Internal walls and partitions 28,259,000 2825.9
Internal doors 20,900,000 2090
Wall finishes 28,980,000 2898
Stairs 10,739,000 1073.9
External walls, windows and doors 45,621,000 4562.1
Floor finishes 18,202,900 1820.29
Wall finishes 14,758,960 1475.89
Ceiling finishes 25,273,000 2527.3
Furniture and fittings 50.984,000 5098.4
Sanitary fittings 15,374,000 1537.4
Services equipment 20,000,000 2000
Disposal installations 15,000,000 1500
Hot and cold water installations 16,260,700 1626.07
Space heating and ventilation 30,300,000 30,300,000
Gas instalments 6,000,000 600
Lift installations 20,234,000 2023.4
Protective installations 10,210,000 1021
Communication installation 4,939,400 493.94
Electrical installations 15,208,000 1520.8
Preliminaries 18,900,800 1890.08
Specialist installations 3,000,000 300
Labour 40,000,000 4000
Total 627,177,760 62,717.8

Source: Tsang and Chen (2013)

Appendix 2

Cost model for the proposed project

AED/m2 gross internal floor area
Function Cost in AED AED/m2
Building clearance 5,779,000 578.9
Frame and upper floors 129,262,000 12,926.2
Roof 8,000,000 800.00
Internal walls and partitions 18,749,900 18,749.9
Internal doors 13,937,000 1393.7
Wall finishes 15,839,900 1583.99
Stairs 9,739,000 973.9
External walls, windows and doors 37,923,000 3792.3
Floor finishes 14,782,900 14,782.9
Wall finishes 14,758,960 1475.89
Ceiling finishes 15,939,500 1593.95
Furniture and fittings 50.984,000 5098.4
Sanitary fittings 10,783,000 1078.3
Services equipment 20,000,000 2000
Disposal installations 10,874,000 1087.4
Hot and cold water installations 16,260,700 1626.07
Space heating and ventilation 21,384,000 2138.4
Gas instalments 3,000,000 300
Lift installations 20,234,000 2023.4
Protective installations 6,209,000 620.9
Communication installation 4,939,400 493.94
Electrical installations 10,345,000 1034.5
Preliminaries 13,900,800 1390.08
Specialist installations 3,000,000 300
Labour 23,000,000 2300
Total 449,641,060 44,964.1

Appendix 3

Risk register

Risk Title Description of risk Owner Impact Probability% Cost impact (H-M-L) Schedule Impact
Cost Impact Description Mitigation Probability after mitigation Cost of mitigation
Financial solvency of the client Financial capability to effectively deal with the unprecedented and variable needs periodically and in varied amounts. Client High 60% H H Capital deficiency may lead to accrued interest on borrowed capital, accumulated land rent and rates. Close monitoring of financial need and availability. Also interest rate on the 40% Financial institutional partner $786,000
Volatility in raw material prices Drastic rise in their price would lead to immediate depletion of capital due to increase in expenses. Client High 55% H H Increase in raw materials could lead to increase in the overall cost of the project. It may result in delays as prices get anticipated to fall. Agreement with the supplier for earlier purchases of products for the project at an average market friendly price. Also pledge of loyalty to the supplier for the entire period of the project till completion. 34% Production partner 3,000,000
Global economy Fluctuations in foreign exchange rates leading to change in monetary value. Client High 48% H H Varying foreign exchange rates would lead to over spending on factor cost. Increase in administrational costs on wages and salaries. Analysis and recommendations on the overall global economic situation. Close monitoring of the currency rates to establish the best currency at the moment to hold and trade with. 20% Consultation and advisory partner $1,200,000
Personnel issues Unavailability of the employee/s during the project would jeopardise the continuity of the project. Client Medium 36% M H Slow development of the project due to lack of enough manpower. Stalling of the project in case of a unique employee skills hard to come by. Consultation of a human resource firm with specialist in the industry. Network in the industry to get a replacement quickly. Getting the best available personnel for the various task. 14% Human resource partner — $ 80,000
Infrastructure Servers, software and IT personnel efficiency. Storage facilities. Labourer’s rest and safety section. client Medium 30% M L Incurred costs in case of faulty IT infrastructure. Delay in laying of critical structures and frames in the project. Poor conditions for labourers may lead to slow progress due to low motivation and potential injuries. Hiring of structures for labour workers. Outsourcing of IT solutions to a viable partner with high quality technological infrastructure and expertise. 5% Temporary structure partner $50,000

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