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Revision Notes > Management of Risk > Flashcards

Management of Risk Flashcards

1
Q

What is a risk?

A

an uncertain event or circumstance that, if it occurs, will affect the outcome of a programme/project

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2
Q

What is Risk Management?

A

a structured process integrated in to construction projects to manage risk throughout the project lifecycle

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3
Q

What is an issue?

A

events that are happening now or will almost certainly happen in the future, and therefore require more immediate action than risks.

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4
Q

Give some examples of issues.

A

Examples of issues include unmediated disputes, unaddressed concerns, unresolved decision-making or risks that have occurred which therefore become an issue.

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5
Q

How does NRM1 categorize risk?

A

Design development
Construction risk
Employer change
Employer other

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6
Q

What are some examples of design development risk?

A
  • Design development
  • changes in estimating data
  • Third party risks (planning requirements, environmental issues, legal agreements)
  • Statutory requirements
  • Procurement methodology
  • Tendering delays
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7
Q

What are some examples of construction risk?

A
  • site conditions (e.g. access, existing buildings)
  • ground conditions
  • existing services
  • delays by statutory undertakers.
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8
Q

What is employer change risk and give some examples?

A
  • Employer driven changes
  • Used during design and construction phases
  • Examples include changes in scope / specification, changes in quality, changes in time
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9
Q

What are some examples of employer other risk?

A
  • Early handover
  • Postponement
  • Acceleration
  • Availability of funds
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10
Q

What are the ways to deal with risk as outlined in NRM?

A
  • Risk avoidance
  • Risk reduction
  • Risk transfer
  • Risk sharing
  • Risk retention
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11
Q

Explain risk avoidance.

A

Where risks have serious consequences and are unacceptable, RA techniques may include re-design, review of employer’s brief, or project cancellation.

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12
Q

Explain risk reduction.

A

level of risk is unacceptable and steps taken to reduce this; further site investigation to improve information, using different materials/suppliers to avoid long lead times or using different construction methods.

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13
Q

Explain risk transfer.

A

Risk is transferred so it is dealt with more effectively. Accepting the risk would not provide the client with value for money. Premium to be paid (includes transferring to contractor or taking out insurance)

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14
Q

Explain risk sharing.

A

the risk is not wholly transferred to one party and some elements of the risk are retained by the employer; usually dealt with by provisional quantities (employer retains quantity risk, contractor takes on cost risk).

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15
Q

Explain risk retention.

A

the appropriate risk allowance identified in the cost plan will be reserved and managed by the employer.

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16
Q

Explain the General Risk Categories outlined in NRM.

A
  • Political and Business Risk
  • Benefit Risk
  • Consequential Risk
  • Project Risk
  • Programme Risk
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17
Q

Explain political and business risk.

A

The occurrence of one of the project, programme, consequential or benefit risks that breaks out into the public domain and has an adverse effect on the business as an ongoing concern e.g. drop in share price

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18
Q

Explain benefit risk.

A

The failure of the project to deliver the performance expected, leading to an undermining of the long-term business case

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19
Q

Explain consequential risk.

A

Risks that may occur as a result of other risk (knock-on effect) e.g. interruption of power supplies = delay to activities.

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20
Q

Explain project risk.

A

Risks that could affect the successful delivery of the project (considered in terms of time, cost & quality)

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21
Q

Explain programme risk.

A

Risks that impact on the programme as a whole, rather than individual projects e.g. funding

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22
Q

What risks a project team manage?

A

Normally the project team can only manage the project risks and some of the consequential risks directly, but it should be ensured that the client is informed of other risks to enable development of their contingency plans. The client is most concerned with business and benefit risks.

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23
Q

Why is it important to continually manage risk throughout the project lifecycle?

A

Risk exposure (i.e. the potential effect of risk) changes as the building project progresses: continually managing the risks is therefore essential. As the design evolves, more of the project requirements are defined, and a risk response can be decided.

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24
Q

What is the residual risk exposure?

A

The remaining risk retained by the employer

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25
Q

Explain the importance of understanding the interrelationships of risks on a project.

A

The risk manager should be able to communicate and liaise across the boundaries of risk interrelationships. Identifying, assessing and tracking down interrelationships of risks are essential parts of the risk management process.

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26
Q

Key items to consider when recommending a procurement route?

A
  • Funding (cost): the total costs for the delivery of
    the construction project and the client’s availability
    and accessibility of finance throughout the project
    life cycle.
  • Time: certainty of completion date and any flexibility
    in delivery date.
  • Performance (quality): the desired performance
    functionality and standards of quality.
27
Q

Determining a suitable construction procurement strategy will depend on a number of factors, such as:

A
  • client type (private / public, experience)
  • risk allocation
  • time available
  • cost certainty
  • design development
  • design responsibility
  • specialist input
  • complexity of project
  • change accommodation and
  • contract administration
28
Q

Name some risk quantification techniques.

A
  • Simple method of assessment (Expected monetary value)
  • Simple method of assessment
  • Probabilistic method
  • Monte Carlo Simulation
  • Percentage addition
  • Risk probability trees
  • Fault Tree Analysis
  • Event Tree Analysis
  • Sensitivity Analysis
  • Central Limit Theorem
29
Q

How do you quantify risk on your projects?

A

Multiplying the likelihood of the risk occurring by the size of the outcome (as monetised)

30
Q

What are the reasons for quantifying risk on a project?

A
  • to build a risk allowance (project contingency)
  • Where clients need to report upwards in their organisation or to a third party
  • Where a project forms part of a larger programme of projects
  • To motivate people with management actions
  • Clients insist as part of their procedures / capped funds
  • provide comfort to investors / third parties
31
Q

What is a probability tree?

A

A probability tree is a technique for determining the overall risk associated with a series of related risks.

32
Q

What is central limit theorem?

A

This is a mathematical technique used to provide a 90% confidence level for a project contingency fund.

33
Q

What is the monte carlo simulation?

A

This is a computer-generated simulation used to model outcomes.

34
Q

What is fault tree analysis?

A

Fault trees represent a deductive approach to determining the causes contributing to a designated negative outcome, beginning with the definition of a top (undesired) event, and branching backwards through intermediate events until the top event is defined in terms of basic events.

35
Q

What is event tree analysis?

A

The purpose of an event tree analysis is to find possible outcomes from an initial event, and in this way is the opposite of a fault tree analysis.

36
Q

What is percentage addition?

A

Percentage addition is based on a percentage of the cost plan and should only be used for preparing rough and initial order cost estimates.

37
Q

What is probabilistic method?

A

The probabilistic method is a more in-depth version of the simple method and sometimes called ‘3-point estimating’. It applies a meaningful, yet subjective, probability to each risk in the register over a range of assumptions, usually best, likely and worst case. The probabilities for all 3 should total 1 (100%). This generates an expected value per assumption that can be totalled to apply an expected value to each risk. All risks can then be totalled to give an overall risk allowance for a cost plan.

38
Q

What is sensitivity analysis?

A

A sensitivity analysis (sometimes called ‘what-if’ analysis) is a practical method of investigating risks on a building project by varying the values of key factors and measuring the outcome. This does not give a mathematical result but highlights the key factors that may affect the project outturn, should they be varied.

39
Q

Explain the risk management strategy on one of your projects.

A
  • Details of the client’s risk appetite
  • Who is responsible for risk management
  • Description of how risks will be identified, analysed, managed and reviewed
  • Set a frequency of risk review meetings
  • List what software tools / techniques to be used
  • Reporting forms / structures
40
Q

What is a risk breakdown structure?

A 
A RBS is a hierarchical representation of risks, starting from higher levels and going down to finer level risks. The RBS identifies potential risk generators in seven risk environments:
• natural
• economic
• government
• societal
• client
• construction 
• project
41
Q

What techniques can you use to identify risks on a project?

A
  • Brainstorming
  • Cause and effect diagrams
  • Checklists
  • Historical information
  • Team workshops
  • Lessons learnt
  • SWOT analysis
  • Interviews / questionnaires
  • Value management processes
42
Q

How do you go about pricing risk on one of your projects?

A
  • Set up risk workshop to identify risks at early stages
  • Produce risk register
  • Price the risk based on all project info to date (If info isnt available seek this from design team, otherwise flag unpriced risks due to lack of info to the project team)
  • Price the risks considering preliminaries too
  • Present the updated risk register to the project team
43
Q

How would you go about assessing the impact on programme a risk has?

A
  • Ask project manager to identify programme durations
  • Liaise with the in-house pre-construction / logistics team to check programme and construction methodology to provide added value
44
Q

How do you price risk on a project?

A

Depends on RIBA stage

  • Stage 5 - Contract Rates
  • Stage 4 - Tender rates
  • Stage 0-3 - Market test, benchmark data, pricing books
45
Q

Who was responsible for risk management on your projects?

A

Risk management was coordinated by the project manager however all project members were responsible for risk management

46
Q

What is qualitative analysis in risk management?

A

The purpose of qualitative analysis is to prioritise the risks in terms of importance, without quantifying (costing) them. This should be carried out during the first phases of the risk-management process. An assessment is made (either by an individual or a group) of the likelihood that the risk will occur and the magnitude of its potential impact.

47
Q

Qualitative analysis - how are likelihoods and impacts categorised and what scales are used?

A
  • Very low - 0% - 5%
  • Low - 5% - 25%
  • Medium - 25% - 50%
  • High - 50% - 75%
  • Very high - 75% - 99%
48
Q

How do you prioritise qualitative risks?

A

In qualitative analysis, values are typically allocated to the likelihood and impact to assist in ordering and prioritising risks.

Likelihood x impact = total risk rating

Risks with a very low likelihood but a very high impact (i.e. those potentially disastrous to the project) are rated higher than risks with a very high likelihood but a very low impact (i.e. those fairly inconsequential to the successful delivery of the project).

49
Q

What risks are prioritised when carrying out qualitative analysis?

A
  • Likelihood
  • Impact
  • Proximity (how soon)

Most attention should be focused on risks with
high likelihoods and impacts that will occur imminently.

However, it is at the risk manager’s discretion to also start managing distant risks with other implications.

50
Q

Explain a risk response on one of your projects

A

Project team agreed on the risk mitigation response and the actions for each specific category of risk

  • Unacceptable - immediate action to eliminate or transfer risk
  • Highly undesirable - Accept to manage, avoid or transfer risk & development of action plan
  • Manageable - Retain and manage risk closely
  • Negligible - Team to carry risk, actively managed
51
Q

How & why do you select risks for active management?

A

Impractical to actively manage all risks

Only those that represent the greatest threat to the project

Project team to agree a threshold severity rating above which they can actively manage risks (threshold may vary between projects and depends on project teams risk appetite).

Risks below the threshold still to be managed until residual risk is insignificant.

52
Q

How do you allocate management actions in relation to risk management?

A

For each risk it is necessary to consider who is
accountable should that risk occur. This person is normally called the risk owner, and will be a senior manager or board member. The project team must also decide on who can best take responsibility for the action to manage the Management of risk risk, either on their own or in collaboration with others.

53
Q

How was a risk owner assigned and how was this monitored?

A
  • Risk owner should be an individuals name and not a company (its clear, if they leave it can be passed on)
  • Project team to consider what the risk owner can undertake to implement a mitigation strategy
  • Decide the dates (specific date so no ambiguity) by which the action should be reviewed / completed.
  • It is the risk manager’s job to chase up the action owners to make sure that risks are being managed.
54
Q

Risk ownership & Traditional Procurement

A
  • Construction programme: Contractor
  • Design programme: Client
  • Cost certainty: Client / Contractor
  • Control of quality / design: Client
  • Performance of design team: Client
  • Performance of main contractor: Client
  • Performance of subcontractors: Contractor
  • Quality of construction: Contractor
55
Q

Risk ownership & Design and Build Procurement

A
  • Construction programme: Contractor
  • Design programme: Client / Contractor
  • Cost certainty: Contractor
  • Control of quality / design: Client / Contractor
  • Performance of design team: Client / Contractor
  • Performance of main contractor: Client
  • Performance of subcontractors: Contractor
  • Quality of construction: Contractor
56
Q

Risk ownership & Management Contracting Procurement

A
  • Construction programme: Contractor
  • Design programme: Client / Contractor
  • Cost certainty: Client
  • Control of quality / design: Client
  • Performance of design team: Client
  • Performance of main contractor: Client
  • Performance of trade contractors: Contractor
  • Quality of construction: Contractor / trade contractors
57
Q

Risk ownership & Construction Management Procurement

A
  • Construction programme: Client
  • Design programme: Client
  • Cost certainty: Client
  • Control of quality / design: Client
  • Performance of design team: Client
  • Performance of main contractor: Client
  • Performance of trade contractors: Client
  • Quality of construction: Trade contractors
58
Q

How do you advise on the associated risks of procurement routes?

A

When making my recommendation I identify the risks associated with each procurement route and use a qualitative risk assessment to establish the risk profile of each procurement route.

  • To recommend lowest risk option to the client
59
Q

How do you evaluate and advise on risk in tender returns?

A

The evaluation of tender returns should include the
identification of risks for each return and the use of
qualitative risk assessments to establish the risk profile of each option. The relative risk profiles of each of the tender returns should be used as a criterion in the evaluation process and should be assigned a weighting appropriate to the importance of the risk profile assessment in relation to the other evaluation criteria.

60
Q

What is the P80 risk allowance?

A
  • An alternative quantification technique which is increasingly used by many public bodies
  • Use the quantitative risk analysis to produce a risk allowance
  • Produces a figure based on a percentage confidence that the figure will not be exceeded (it is common to report on an 80% confidence level)
61
Q

What is risk modelling?

A

Risk modelling can be used to minimise the increasing risk exposure of a project and likewise a reduction on risk allowance. Should risk materialise, these should be drawn down through a formal change control process.

62
Q

What are some deliverables from a risk management process?

A
  • a risk-management plan
  • a risk register
  • risk ranking/critical risk identification
  • quantitative cost risk analysis results
  • quantitative schedule risk analysis results
  • a risk-response plan
  • risk-response progress reviews
  • risk-management reports
  • risk-management maturity assessments
  • procurement option reviews and
  • tender return risk reviews
63
Q

How was risk reported to the client?

A
  • Risk reduction meetings - minutes documented and saved
  • Once a baseline risk register has been prepared, this should be updated once a month
  • Monthly project cost reports should describe the most serious risks, their assessment and planned response
  • All risk documents to be saved centrally and accessed by all

Revision Notes (10 decks)

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