O - Risk Management

Question 1

What is a risk?

Answer 1

An uncertain event, which should it occur will have an effect on the achievement of the project objectives.

A risk can be measured in terms of its likelihood (probability) and consequence (impact)

Question 2

What is risk management?

Answer 2

The process of identifying, analysing and responding to risks associated with construction projects

Question 3

What is the purpose of risk management?

Answer 3

To recognise potential problems as early as possible so that the opportunity for taking effective action is maximised

Question 4

What are the benefits of risk management?

Answer 4

1) Increased confidence in achieving project objectives
2) Reduced cost / time overruns
3) Enable decision making based on known variables
4) Risk Management Workshop facilitates team development and encourages communication

Question 5

What is the hierarchy of risk?

Answer 5

• Avoidance
• Reduction
• Control
• Acceptance

Question 6

Who should own a risk?

Answer 6

Those best suited to manage and deal with the risk

Question 7

What are the aims of risk management?

Answer 7

1) To identify potential risks
2) To assess the probability and impact of each risk
3) To identify:
- Alternative actions to prevent the risk from happening (avoidance)
- If the risk does occur, what can be done to minimise the impact (reduction)
- A strategy to deal with the accepted consequences (acceptance)
3) Implement and monitor those actions
4) Provide feedback from experimental learning to improve risk management of future projects

Question 8

Is there any guidance available from the RICS in relation to risk management?

Answer 8

Guidance note - Management of Risk

Question 9

How do you carry out risk analysis and risk management?

Answer 9

• Produce a risk register
• All members of the design team come together and brainstorm as many elements of project risk as possible
• These risks are continually monitored throughout the project progress
• Identified risks can be used to flag, prepare for and reduce the possibilities of their occurrence

Question 10

What is a risk register?

Answer 10

A tool used in risk management to identify potential risks in a project

The register includes all information about each identified risk, such as nature of the risk, level of the risk, who owns it and what are the mitigation measures in place to respond to it

Question 11

How do you use a risk register?

Answer 11

Continually monitor risk items identified in initial register and make it a working document to identify project risks for the remainder of the project

Assign levels of likelihood to each risk identified in an attempt to iron out the possibility

Question 12

What is the Risk Assessment Process?

Answer 12

1) Risk Identification
2) Risk Analysis
3) Risk Response

Question 13

Can you expand on the process of risk identification?

Answer 13

Takes place after the project and its objectives have been well defined

A risk cannot be effectively managed before it has been identified

Should be done as early as possible

Question 14

What approaches can you use to identify risks?

Answer 14

1) Research - similar projects / neighbouring sites
2) Structured interviews / questionnaires - with the project team
3) Checklists / Prompt lists
4) Brainstorming in a workshop environment
5) Risk Register
6) Database of historic risk

Question 15

What is the purpose of a risk allowance on a project?

Answer 15

A risk sum is usually incorporated to allow for unforeseen items or project specific risks. Risk assessments can be used to provide an objective assessment of the contingency requirement, rather than relying on percentages which do not relate to project circumstance

Question 16

What is the aim of risk analysis?

Answer 16

It is concerned with trying to achieve a better understanding of the nature of the identified risks.

Risks have two dimensions that need to be analysed:

• Probability - likelihood of the risk occurring
• Impact - if the risk did occur, what effect could it have on the project objectives?

This allows you to determine which of the identified risks require detailed consideration (high probability with high impact) verses which only need a cursory glance.

Question 17

What is Qualitative Risk Analysis?

Answer 17

Probability and Impact are not numerically estimated. They are evaluated verbally using a pre-defined rating scale e.g. Low / Medium / High or numbering 1 to 5

Should be performed on all risks, for all projects

Quick and simple method

Question 18

What is Quantitative Risk Analysis?

Answer 18

It is a risk analysis technique that uses available relevant and verifiable data to produce a numerical value which is then used to predict the probability (and acceptability) of a risk event outcome.

A quantitative analysis:

• quantifies the possible outcomes for the project and assesses the probability of achieving specific project objectives
• provides a quantitative approach to making decisions when there is uncertainty
• creates realistic and achievable cost, schedule and scope targets

Question 19

What is the difference between Deterministic Risk and Probabilistic Risk?

Answer 19

Deterministic risk considers the impact of a single risk scenario.

Probabilistic risk considers all possible scenarios, their likelihood and associated impacts

Question 20

What is the use of probabilistic risk analysis?

Answer 20

It is a method of further evaluating a deterministic model using sets of random variables.

An example of probabilistic analysis includes the Monte Carlo Simulation

Question 21

What is Monte Carlo Simulation?

Answer 21

A quantitative (probabilistic) risk analysis method.
It is used to mdel the probability of different outcomes in a process that cannoy be easily predicted due to the intervention of random variables.

It is a technique used to understand the impact of risk and uncertainty in prediction and forecasting models.

It helps to visualise most or all of the potential outcomes to have a better idea regarding the risk of a decision.

It can be best understood by thinking about a person rolling dice. A novice playing craps for the first time will not have a clue what the odds are to roll a six in any combination (e.g. 2+4, 5+1, 3+3). Throwing the dice many times, ideally several million times, would provide a representative distribution of results which will tell us how likely a roll of six will be. Ideally we should run these tests efficiently and quickly, which is what Monte Carlo simulation does.

Question 22

What is the process of using Monte Carlo Simulation?

Answer 22

The first step in identifying any risk is to make assumptions on the probability and impact of the risk which will be based on either historical data, expert knowledge or past experience. Sometimes it will be based on guesswork.

Monte Carlo simulation takes the guess work out of predicting the probability and impact by randomly selecting a value within a range of uncertainty and calculating the likelihood of this value being the correct result. It does this by repeating the calculation many times (hundreds, thousands, millions of times) using other randomly selected values within the uncertainty range and comparing the results.

Monte carlo simulations can be used in situations where experience or expert knowledge is lacking to provide a statistically based value on the probability of a certain event occurring, or the probability of the outcome of that event

Question 23

What are the outputs of the Monte Carlo Simulation?

Answer 23

Monte Carlo simulation can be used to predict the most likely event and provide you with levels of confidence.

Question 24

What are the advantages of Monte Carlo Simulation?

Answer 24

1) Very flexible - virtually no limit to the analysis
2) Can generally be easily extended and developed as required
3) Outputs easily understood by non-mathematicians

Question 25

What are the disadvantages of Monte Carlo Simulation?

Answer 25

1) Usually requires a computer
2) Accuracy of the result depends largely on the accuracy of the input data
3) Complicated to produce