Lecture 12: Risk Management

Question 1

What is a risk?

Answer 1

Risk is a combination of:

• the chance of an event happening and
• the outcome that event occur

Question 2

Give some examples of risks encountered in construction.

Answer 2

• ground conditions
• productivity of labour
• work to be carried out (client’s requirements)
• weather conditions
• environmental protests
• ‘acts of god’ (e.g. earthquakes)

Question 3

Some notes on risk:

Answer 3

• risk management has been done informally as part of management for a very long time
• risk can almost all be reduced to money and invariably are
• as an engineer you may not like this

Question 4

When is there the greatest uncertainty in a project?

Answer 4

There is uncertanties throughout every project, but the greatest uncertainty is at the start of a project.

Question 5

When can (risk) management action have the greatest impact on a project?

Answer 5

At the start of the project. There is most money to be spent at this time.
Most important time to apply risk management is at ‘project sanction’.

Question 6

What are the fundemental steps in the risk management process?

Answer 6

• Identification
• Analysis
• Response

Question 7

Explain the Identification step in the risk management process.

Answer 7

Identify all the risks which might affect the project. Often uses a hierarchy of risks.

(This is perhaps the most important and most difficult step. If we cannot identify the risks we cannot hope to take any action.)

Question 8

Explain the Analysis step in the risk management process.

Answer 8

The ‘evaluation’ of:

• all the individual risks
• all the risks together

Question 9

What must be determined to analyse the individual risks?

Answer 9

• the chance of the event occuring
• the effect should the event occur

This might be represented by a probablity distribution for any given variable. These distributions can be almost any shape and might not be continuous.

Question 10

What must be determined to analyse all the risk together - overall project risk?

Answer 10

• find a method of combining all the risk events and their effects
  (taking all worst/best outcomes and making decisions based on this will be too pessimistic or optimistic)
• develop mechanisms for understanding how these risks might combine

Question 11

What are two techniques used for analysing the overall project risk?

Answer 11

one ‘old’ technique - PERT

one rather newer technique - MonteCarlo Simulation
(4 x most likely + optimistic + pessimistic)/6
however this relies heavily on experience and similarity of work

Question 12

Explain the response step in the risk management process.

Answer 12

• involves making a decision on how to act and actually taking some action
  (the essential management step)

Question 13

Further risk management process:

Answer 13

• typical responses
• investigate further
• avoid (change design, construction method)
• share
• insure (CAR)

Question 14

Explain the method for risk management.

Answer 14

1. identify, characterise threats
2. assess the vulnerability of critical assets to specific threats
3. determine the risk (i.e. the expected likelihood and consequences of specific types of attacks on specific assets
4. identify ways to reduce those risks (mitigation)
5. prioritise risk reduction measures based on a strategy

Question 15

Explain qualitative risk analysis?

Answer 15

The probability and impact of occurrence for each identified risk will be assessed by the project manager, with input from the project team using the following approach:

• High - >70% probability of occurrence
• Medium - 30%-70%
• Low -

Question 16

What is the impact of high probability of occurence?

Answer 16

Risk has the potential to greatly impact project cost, schedule or performance.

Question 17

What is the impact of medium probability of occurence?

Answer 17

Risk has the potential to slightly impact project cost, schedule or performance.

Question 18

What is the impact of low probability of occurence?

Answer 18

Risk has relatively little impact on project cost, schedule or performance.

Question 19

Explain the response for risks that fall within the red and yellow zones for qualitative risk analysis.

Answer 19

Response planning may include both a risk mitigation and a risk contingency plan

Question 20

Explain the steps of qualitative risk analysis.

Answer 20

• risk events prioritised using the qualitative risk analysis process
• event affect on project activities estimated
• numerical rating applied to each risk based on analysis
• documented in the risk management plan

Question 21

What are risk mitigation strategies/ handling options based on?

Answer 21

• the assessed combination of the probability of occurence

- severity of the consequence for an identified risk

Question 22

How is the expected cost of risk calculated?

Answer 22

expected cost of risk = 
sum of ( probability of risk event x cost of occurence of all risks)

Question 23

What are some risk mitigation handling options?

Answer 23

• Assume/Accept
• Avoid
• Control
• Transfer
• Accept

Question 24

Explain the Assume/Accept risk mitigation handling option.

Answer 24

Acknowledge the existence of a particular risk, and make a deliberate decision to accept it without engaging in special efforts to control it. (Requires approval of project/program leaders)

Question 25

Explain the risk mitigation handling option - avoid.

Answer 25

Adjust the program requirements or constraints to eliminate or reduce the risk.
The adjustment could be accommodated by a change in funding schedule, or technical requirements.

Question 26

Explain the risk mitigation handling option - control .

Answer 26

Implement actions to minimise the impact or likelihood of the risk.

Question 27

Explain the risk mitigation handling option - transfer .

Answer 27

Reassign organisational accountability, responsibility, and authority to another stakeholder willing to accept the risk.

Question 28

Explain the risk mitigation handling option - accept .

Answer 28

Monitior the environment for changes that affect the nature and/ or impact of the risk.