Management of Risk GN

Question 1

What is risk?

Answer 1

GN defines as ‘Uncertain event or circumstance, that if it ours, will affect the outcome of the project’

NRM 1 ‘Likelihood of an event or failure occurring and its consequences or impact’

Question 2

What is an issue?

Answer 2

GN defines as ‘ classified as events, that are happening now or will almost certainly happen’

Require more immediate action than risks. Examples are risks that have occurred, unmediated disputes etc.

Should be managed in a similar term as risk with response plans, accountability and agreed action dates

Question 3

How des NRM define risks as being apportioned?

Answer 3

Risk avoidance
- Risks have such serious consequences on the project outcome, they are unacceptable
- Design review for elimination or even project cancellation

Risk reduction
- Level of risk is unacceptable and actions are taken to reduce the chance of occurrence or impact of the risk
- Further investigation, using different construction methods or different suppliers

Transfer to the contractor
- Transferred to another party who can control it more effectively

Risk sharing
- Not wholly transferred to one party
- Usually dealt with using provisional quantities, with the pricing risk being with the contractor and the quantification of risk being the employers

Retention
- Holding an appropriate risk allowance

Question 4

What are the general risk categories as defined by the Management of Risk GN?

Answer 4

Political & business
- Risk occurring and breaking out in to the public domain which impacts business
- E.g. severe delay in moving office, reduced organisational efficiency and reduces share price
- Client management board should have appropriate measures in place

Benefit risks
- Failure to deliver the performance expected, undermining the long term business case
- E.g. planning requirements do not allow the size of scheme, reducing net lettable areas
- Client should undertake a sensitivity analysis

Consequential
- Occur as a result of other risks
- E.g. knock on affect of the client’s operations due to interruption of power supplies
- Project team should identify root cause and interdependencies to manage
- Client team should put contingency measures in place

Project risks
- Something that may go wrong during execution that could affect the successful delivery of the project
- Time, cost and quality

Programme risks
- Wider programme rather than individual projects
- E.g. funding, quality, business continuity

Question 5

What are the NRM 1 risk categories?

Answer 5

Design development
- Allowance for use during design to provide for the risks associated with design development, changes in estimating data, procurement method

Construction risks
- Allowance for during the construction process to provide for risks associated with site conditions, ground conditions, existing services

Employer change
- During design and construction for employer driven changes

Employer other
- Allowance for other risks such as early handover, acceleration, availability f funds, postponement

Question 6

How are risk management profiles reviewed?

Answer 6

• Review monthly the current risk profile and identify changes in risk probabilities
• Monitor monthly the implementation of risk responses and implement any necessary changes
• Update quarterly the risk register with any new risks and associated responses based on changes in project scope, progress and changing risk generators
• Review quarterly the level of project risk management maturity of each project in the programme

Question 7

How should risk be considered in procurement?

Answer 7

Cost - total cost and clients availability of funds throughout the project
Time - Certainty of completion date and any flexibility
Quality - desired performance functionality and standards of quality

Question 8

Why would you quantify the cost of risk?

Answer 8

• To build a risk allowance that could be part of a contingency
• Clients may need to report upwards in their organisation / third party
• Where project forms part of a larger programme of projects
• To motivate people to follow through on management actions
• Where clients have capped funds
• Where it is desirable to link risk to contingency
  Where it is required or provides comfort to third parties / funders

Question 9

What is contingency?

Answer 9

An allowance set aside or a plan as a precaution against future need

Question 10

What methods of quantifying risk are you aware of?

Answer 10

“Probability trees - used to assess overall risk associated with a series of related risks

Central limit theorem - Mathematical technique to provide a 90% confidence level for a project contingency fund

Monte Carlo - computer generated simulation to model outcomes . Input probability values and assessment of their impact

Fault tree analysis - Deductive approach to determining the causes contributing to a designated negative outcome. Begins with the top undesired event and branches back through the intermediate events until the top event is defined in terms of basic events

Event tree analysis - find possible outcomes after an initial event - opposite to fault tree

Percentage addition - % of cost plan, early OCE’s

Simple method of assessment - Quantitative method, provides a likely cost assigned to all risks in the register along with probability of occurrence. Cost multiplied by prob to give an expected value

Probabilistic - 3 point estimating Applies probability to risk register over a range of assumptions. Probabilities of all 3 should total 100% generating an expected value per assumption that can be totalled to apply an expected value of each risk

Question 11

What is a sensitivity analysis?

Answer 11

What if

Practical method of investigating risks on a building project by varying the values of key factors and measuring the outcome.
Not a mathematical but highlights the key factors that may affect the project outturn

Question 12

What is a schedule quantitative risk analysis?

Answer 12

Builds on the Critical Path method
Reviews the effect of risk on programme
Considers estimates for duration and simulates possible outcomes to provide confidence level surrounding possible completion dates

Allows confidence in project programme and identification of areas where risk mitigation may be required

Question 13

What would a risk management strategy cover?

Answer 13

• Details of client risk appetite
• Definition of who is responsible for risk management
• Description of how risks will be identified, analysed, managed and reviewed
• Frequency of risk review meetings
• Software tools and techniques that will be used
• Reporting forms and structures
• Identification and reporting of trends providing appropriate mitigation actions

Question 14

What needs to be considered when applying a risk management approach?

Answer 14

• Understand the link between corporate and project requirements
• Identify the current maturity level and any gaps
• Develop risk approach that may include training and tools
• Implementation of the risk management process
• How to improve the process and monitor its effectiveness

Question 15

What are the 7 risk environments of the Risk Breakdown Structure?

Answer 15

• Natural
• Economic
• Government
• Societal
• Client
• Project
• Construction

Question 16

How would you deal with external, uncontrollable risks?

Answer 16

• Risks that occur outside of project control
• Provide contingencies to cater for the impact in the event it should occur

Question 17

How would you deal with external, influenceable risks?

Answer 17

• Occurs due to circumstances outside of project control
• Project / client team have a degree of influence over the probability & its impact
• Plan actions to influence the probability of occurrence
• Provide contingencies to cater for residual impact if it occurs

Question 18

How would you deal with internal, client operations risks?

Answer 18

• Occurs due to actions by client organisation
• Client has control, project team does not
• Project team draws client attention to the ramifications,
• Project team plans actions to reduce the impact of the event
• Project team defines contingencies to cater for the residual impact should it occur

Question 19

How would you deal with internal, user requirements risks?

Answer 19

• Event occurs due to actions taken by the client & project team
• Joint control over the provability of the event occurring
• Client has control over the impact
• Plan actions for client & project team to implement to reduce the probability
• Provide contingencies for residual impact

Question 20

How would you deal with internal, project processes risks?

Answer 20

• Occurs due to action taken by project team
• Project team has control over probability and impact of event
• Plan actions for project team to implement to reduce probability & impact
• Provide contingencies for the residual impact of the event should it occur

Question 21

What techniques can be used as a team to identify risks?

Answer 21

• Brainstorming
• Cause & effect diagrams
• Historical information
• Industry knowledge
• Influence
• Lessons learned
• Interviews
• Questionnaire
• Work shops

Question 22

What is qualitative risk assessment?

Answer 22

Prioritising risks in terms of importance without quantifying
Severity rating is reached by multiplying the likelihood of occurrence with the qualitative impact

E.g. High likelihood (3) x high impact (3) = total risk rating (9)

Can then be shown in a heat map

Question 23

Are all risks to be managed?

Answer 23

In early design stages this is not a realistic method, those that have the biggest impact should be considered first
The risk manager should appoint the relevant personnel to manage the risks
All risks should be considered and those with a higher impact or probability should be managed and reduced

Question 24

How does risk influence procurement?

Answer 24

Different procurement pathways have different risk profiles for the allocation of risk between parties

Tender returns should be should evaluate risk profiles and assigned weighting

Question 25

How could you report to a confidence level?

Answer 25

Using software simulations I could report on a confidence level of perhaps 80% stating that there is an 80% confidence level that costs will not be exceed by this level

Question 26

What are the primary deliverables from the risk management process?

Answer 26

• Risk management plan
• Risk register
• Risk ranking
• Quantitative cost risk analysis results
• Risk management reports

Question 27

What headers would you find in a risk register?

Answer 27

• Title
• Category
• Status
• details of the risk
• Cause of the risk
• Likelihood value
• Impact value (time, cost, h&s etc)
• Risk owner

Question 28

How should risks be reported?

Answer 28

• Agendas and minutes of meetings should be given document references and saved in project document control management system
• Risk registers should be saved monthly
• Monthly project reports should describe the most serious risks and their assessment and planned responses
• Risk communiques are short documents that are circulated to highlight an issue in a short, formal communication

Question 29

As a QS, what is your role in managing risk?

Answer 29

• Identify risks and opportunities
• Provide cost plan including cost spreads reflecting estimating uncertainty
• Determine how contingency will be determined
• Reviews risk response proposals
• Highlights new risks
• Participate in the evaluation of risks
• Attend risk workshops

Question 30

How do you quantify risk?

Answer 30

Early on in the project risk will generally be quantified on a high level basis by adding a percentage onto the contract sum, it can also be identified using a Monte Carlo scenario. As the project progresses and more information is readily available the disk team will hold risk works and update a risk register with BRAG sheet scoring to identify the likelihood of a risk occurring and the impact it may have on the project.

Question 31

What’s on a risk register?

Answer 31

• Each project related risk identified risk workshop (each risk will generally have its own reference)
• Clear description of the risk also identifying the cause and the effect it will have on the project
• Assessment of risk (Likelihood of occurrence multiplied by Impact if the risk occurs)
• Mitigation strategy to prevent
• Action owner and due date for actions
• Re-assessment of risk (Likelihood of occurrence multiplied by Impact if the risk occurs)
• Risk owner
• Risk cost

Question 32

What are the five different ways to deal with risk on a project?

Answer 32

• Avoid
• Transfer
• Reduce
• Share
• Retain

Question 33

What is EMV?

Answer 33

Expected Monitory value, calculation of probability times impact on a risk occurring on a project

Question 34

Are you familiar with the Monte Carlo Simulation?

Answer 34

Monte Carlo simulation, or probability simulation, is a technique used to understand the impact of risk and uncertainty

In a Monte Carlo simulation, a random value is selected for each of the tasks, based on the range of estimates. The model is calculated based on this random value. The result of the model is recorded, and the process is repeated. A typical Monte Carlo simulation calculates the model hundreds or thousands of times, each time using different randomly-selected values.

When the simulation is complete, we have a large number of results from the model, each based on random input values. These results are used to describe the likelihood, or probability, of reaching various results in the model.

Question 35

How could you capture the cost for unknown risk?

Answer 35

Through allowing a suitable percentage of the project cost in the early stages of the project.

Question 36

If you feel that the project is high risk and required a large percentage is required for unknowns, but the client states they have limited funding what would you advise them?

Answer 36

I would give them my professional opinion and explain the logic behind my decision, if they wish to carry out the project on a limited budget I would suggest implementing a robust change control procedure to ensure that the project budget was under firm scrutiny.

Question 37

How do you use the risk register to set your contingency budget?

Answer 37

We use a rag sheet system to identify the likelihood of a risk occurring and the impact it will have on a project. If medium or high the team will propose a mitigation strategy to reduce the overall impact it will have on the project and evaluate by focusing on the effect it will have on programme, i.e. additional preliminaries, any changes to work methodology or materials that will effect costs and any out of hours work that will be charged at an additional premium.