Managing Risk and Uncertainty

Question 1

Define Risk

Answer 1

‘The likelihood of an event or failure occurring and its consequences or impact’ RICS

Question 2

Elements of risk

Answer 2

• The source of the event
• The possible consequences of the event
• The probability of the event occurring and its severity
• The length of time vulnerable to the event and its consequences

Question 3

Known Knowns

Answer 3

Probable events and reflects the availability of full knowledge

A reliable dataset of similar past events is available, from which objective probabilities of known future events are statistically estimable

Known-Knowns are uncertainties that are known to us, and that we have a plan for.

Question 4

Known Unknowns

Answer 4

Known-Unknowns are uncertainties that we know exist, but don’t have a plan for.

For example, we may not know if our company will be acquired by another, or if our product will be discontinued.

Question 5

Unknown Knowns

Answer 5

Unknown-Knowns are uncertainties that we’re not aware of, but that others may be.

For example, we may not know that our company is about to go bankrupt, but our employees might.

Often occur as a result of poor communication

Must be dealt with reactively

Question 6

Unknown Unknowns

Answer 6

Unknowns-Unknowns are uncertainties that no one knows about.

For example, a new technology may be developed that makes our product obsolete.

complete lack of data

future events and their probabilities are unknown and inherently unknowable

Question 7

Standard risk management process

Answer 7

Risk Identification

Risk analysis

Risk Response

Risk Review

Question 8

Typical risk categories

Answer 8

o Design development risks

o Construction risks

o Employer change risks

o Employer other risks

Question 9

What is involved in risk identification

Answer 9

• Risk Register and Risk Management meetings
• Brainstorming sessions are important to get key stakeholders to identify and prioritise risks

Question 10

What is involved in risk analysis

Answer 10

• Categorise risks by the likelihood and severity of impact
• Estimate the size of the risk
• Provide information for decisions
• Provide information on how to reduce risks

Question 11

Qualitative Risk Analysis

Answer 11

• Brief description
• Stages of project it may occur at
• Elements of project it could affect
• Factors that influence its occurrence
• Relationship with other risks
• Likelihood of occurrence
• Impact on project

Question 12

Quantitative Risk Analysis

Answer 12

• Probability of occurrence is central to decision making
• Possible consequences are quantified in terms of
  o Increased cost
  o Increased time
  o Reduced quality and performance
• Impact scales and distributions (normal, triangular, uniform) have to be developed
• Analysed using sensitivity and probability analysis

Question 13

Risk Response

Answer 13

• Avoid or eliminate
• Reduce probability
• Reduce consequence
• Transfer or share
  o Insurance, suretyship, indemnification
  o Subcontracting
  o Procurement method
  o Payment mechanism- target cost contract
• Retain and Plan
• Risk allowances included in bids and project cost estimates