Risk Management Flashcards
What is risk in the context of a construction project?
- Uncertain event / set of circumstances that, should it occur, could have a negative effect on the project’s objectives
- Can be predicted to a degree, but it is known whether actuality will have positive/negative effect on budget / programme
- Risk measured in terms of likelihood (probability) and consequence (impact)
What is an uncertain / unforeseen event?
Random event defying prediction
What is a Risk Event?
Event predicted to some degree, based on historical data / experience and making decision according to probability of event occurring
What is a risk assessment?
Identifies likelihood and severity of risk being realised
Examples of risks in construction projects?
- External factors - economic uncertainty, legislation / policy change
- Financial risks - exchange rates, cost of borrowing
- Site - restricted access, planning difficulties, environmental isues
- Client - lack of experience, muulti-headed client, likelihood of post contract changes
- Design - inapt consultant team, poor team ethos, incomplete design, lack of design coordination
- Construction / delivery - adverse weather, H&S, resource availability
What is a Monte Carlo simulation?
- Assesses probability of achieving certain targets
- Computational risk analysis tool applied to situations- uncertain or variable
- Mathematical way of predicting outcomes of a situation / set of circumstances by giving a range of possible outcomes and assessing risk impact of each
What are risk analysis techniques?
- Set out to achieve better understanding of risks identified, quantify effects in terms of probability and impact
Methods:
- Subjective probability
- Decision analysis
- Sensitivity analysis
- Monte Carlo Simulation
- Intuition and experience
How do you carry out risk analysis and risk management?
- Risk management workshop organised with all design team members to identify project specific risk items
- Risk register updated during meeting, basis of risk management throughout project
- Risks continually monitored as project progresses
- Identified risks either removed / mitigation measures / risk transferred etc
What risks are there for clients working on overseas projects?
- Potential unfamiliar contract conditions / legislation (from both sides)
- Exchange rates may fluctuate - pricing uncertainty
- Different cultures - potential different working hours
Who owns risk under JCT?
Apportioned between either client / contractor
Difference between a risk and an issue?
- Issue has already occurred / is certain to occur
- Risk is not certain to occur
Difference between a threat and an opportunity?
- Threat = negative risk
- Opportunity = positive risk
How might you develop a threat into an opportunity?
i.e. if identifying a risk and the contractor offers commercially attractive offer to take on risk (La Plata - offering adding in more plots)
Quantitative vs qualitative risk analysis?
- Quantitative - more detailed evaluation, provides basis for pricing, programming, forming management strategy
- Qualitative - more basic, for initial prioritisation
Risks associated with existing buildings?
- Asbestos
- Structural
- Extent of foundations
What documents can be provided to inform contractor of this risk?
- Asbestos register and management plan
- Structural survey
What is a risk register?
- Management document used to accumulate and track potential risks within project
- Used to organise each risk, categorise and assign team members who will address
- Serves as a place to include additional info about each risk, i.e. nature of risk and how it will be handled
How do you create a risk register for a new project?
- Project team come together early in project life cycle and brainstorm potential risks associated with project
- Risk checklists ensuring most common areas of project risk are considered - useful as ‘prompts’ to facilitate brainstorming
- Usually PM collates risks and adds them to risk register
Once potential risks have been brainstormed, what is typically included on a risk register?
May include:
- Risk identification number
- Description
- Probability risk rating (likelihood of occurring)
- Impact risk rating (severity / consequence)
- Risk score (probability x impact)
- Actions required- to mitigate effect
- Risk ownership - assigned to team member/party
- Review date
- Status
What is risk management?
- Process for identifying, assessing and responding to risks associated with delivering construction project
- Establishes set of procedures by which risks are managed
- Project teams look to manage risk in more proactive manner
Why is risk management needed in construction?
- Projects typically complex, with time/cost/quality targets to be met
- Risk present in all project, surveyors can be involved in making decisions having impact on risk
- Risk can’t always be eliminated, but techniques can reduce impact of events that may cause failure of reaching desired targets
- More informed decision making
- Reduce uncertainty
Benefits of risk management?
- Increased confidence achieving project objectives - success
- Reduced likelihood of cost and time overruns
- Team understands and recognise use and composition of contingencies
- Enables decision making to be made on assessment of known variables available
- Workshops can facilitate team development and encourage communication
What happens during a risk workshop?
- Project team formed prior, facilitator appointed
- Facilitator briefs team, issues apt info about scheme and purpose and objectives of workshop- allows prep to occur prior to workshop
Operations:
- Identify risk, generate risk register
- Identify risk probability and impact
- Allocate risk items to owner
- Agree upcoming actions
- Agree dates for following workshops
Stages of risk management?
- Identification
- Analysis
- Response
- Monitor and control
What are risk response strategies?
- Avoidance (reduce scope or omit completely)
- Transfer (shift consequence to third party, usually involves payment premium - guarantee, performance bond)
- Mitigation (reduce probability i.e. use less complex processes, more testing, more stable supplier)
- Acceptance / retention (don’t change current plan- contingency plan required in case risk occurs)
What is risk allocation?
- Risks generally allocated to those best able to manage, in manner likely to optimise performance
- Financial allocation - achieved through contract documents
What is the Identify, Assess, Respond approach?
- Identification occurs after project and objectives have been well defined - risks can’t be effectively managed before identified, so risk identification ASAP
- Assessment carried out to determine probability and impact of each item- qualitative approach can be undertaken
- Response actions aims to reduce / mitigate risk impact
How can a project team reduce design risk for employer?
- Use trusted and experienced design team
- Transfer design risk in procurement (i.e. D&B, CDP)
- Effective, regular management of risk register
- Early contractor involvement (buildability input)
How do you monitor risks throughout the life cycle of your project?
- Identify, monitor cost element of risks, including planned responses and financial allowance
- Corrective action when risk materialises
- Monitor actions of risk owner to ensure mitigation strategy deployed
- Measure effectiveness of risk responses
Once project risks have been identified, how do you allocate risks to a specific ‘owner’?
- Individual / party best able to manage it
- Allocation clearly identified on risk register
What role does the QS play in risk management?
Within cost management:
- Managing contingency - analysing funds available and managing release when no longer required
- Provide estimates determining level of risk - aid decision making process
- Advice when bidding for work- level of risk and financial exposure to company (understand market conditions, impact of project and rates)
What are the 4 risk categories identified in NRM for cost estimating purposes?
- Employer Change
- Employer Other (fund availability, acceleration, sequencing, special contractual arrangements)
- Design Development (change in scope, statutory/legal/planning requirements)
- Construction (access restrictions, existing buildings/conditions/surveys, statutory authority delays
What is a risk allowance?
Monetary allowance set aside on risk register to cover costs should risk be realised
Can risk be calculated?
- To an extent- suitable provision can be made but it can’t be calculated exactly
- Risk involves probability of something occurring and potential impact
- Can be assessed via a number of methods - I have most experience using risk registers in workshops to identify and assess impact on cost and programme
How would you calculate risk allowances?
- Order of cost stage - simple % (unless detailed info available)
- Cost plan onwards - risk allowances assessed based on total cost of risk (should it be realised) and probability of occurrence
Techniques available to quantify risk?
Expected monetary value, monte carlo
What is Expected Monetary Value (EMV)?
- Probability x impact
- Used to establish overall monetary value of risks within project
- Probability - fraction / %
- Impact - Positive/negative monetary value
Your client wants to use a D&B contract with GMP, what are the risks?
- Client will pay premium for contractor taking on cost risk
- Any deviation from original specification can result in costly changes
Your client is concerned about entering into contract with preferred contractor, what can be done to alleviate cost risk through contractual mechanisms?
Retention bond, performance bond/PCG, advance payment bond, materials off site bond
How did you arrange a risk workshop on xxx project?
- Benchmarked initial risks from similar prev projects to populate risk register
- Liaised with wider design team to identify further risks
- Presented populated risk register at meeting, discuss likelihood and monetary impact to calculate expected monetary value
How did you monitor and quantify risk through design stages on one of your projects?
- Initially benchmarked risk %, comparing other projects, level of design, abnormals, procurement/tender route
- Review % at each RIBA design stage
- Produced risk register, continuously monitored throughout
- Drew down on contingencies when required
How do you calculate risk at RIBA stage 2?
- Benchmark against similar projects
- Assessed design accuracy, site abnormals, procurement and tendering strategy
What documents are included in the tender pack to inform the management of risk?
Pre-construction information (contains site location, operating hours, access route, evacuation plans, any asbestos surveys, contract details, permits required)
How might you allocate risk in an NEC contract?
- Clause 60.1 (compensation events)
- Clause 80.1 (Employers other risk )
- Optional X clauses
- Bespoke Z clause amendments
