Risk Management Flashcards
What is a risk in the context of a construction project?
An uncertain event or set of circumstances that, should it occur, will have a negative effect on the project’s objectives.
What is a risk assessment?
An assessment of the risk to identify the likelihood and severity of the risk being realised.
What is a Monte Carlo simulation?
A Monte Carlo simulation is a complicated risk analysis tool applied to situations that are uncertain or variable. It is a mathematical way of predicting the outcomes of a situation or set of circumstances by giving a range of possible outcomes and assessing the risk impact of each.
What is a risk register?
- A risk register is a management document used to accumulate and track potential risks associated.
- The register is used to organise each risk, categorise them and assign team members who will address them. It also serves a place to include additional information about each risk, like the nature of the risk and how it will be handled.
How do you go about creating a risk register for a new project?
- The project team comes together early in the project lifecycle to brainstorm potential risks associated with the project (this is typically referred to as a risk workshop).
- Use risk checklists to ensure that the most common key areas of project risk are considered. They are particularly useful as ‘prompts’ to facilitate brainstorming.
- Usually, the project manager will collate the identified risks and add them to the register.
Once the team has brainstormed potential risks, what else is typically included on a risk register?
The risk register will show information including, but not limited to:
- Risk identification: A name or number ID to identify the risk
- Risk description: A brief explanation of the risk
- Probability risk rating: Probability is the likelihood of the risk occurring. Usually measured on a scale of 1 to 10.
- Impact risk rating: Impact, also referred to as severity or consequence, is the impact on the project should the risk be realised. Usually measured on a scale of 1 to 10.
- Risk score: The risk score is calculated by multiplying probability by impact. If the probability is 8 and the impact is 5, the risk score is 40.
- Risk response: Each risk needs a risk response to mitigate its effect on the project.
- Risk ownership: Each risk needs to be assigned to a team member (or party) who becomes the risk owner. The risk owner is responsible for deploying the appropriate mitigation measures and monitoring the development of the risk.
What are risk response strategies?
There are several options:
- Risk avoidance: Even though the project team can never eliminate all risk events, some specific risks may be avoided. For example, you may reduce scope to avoid high-risk activities, increase resources or time, or avoid an unknown subcontractor.
- Risk transfer: Shift the consequence of a risk to a third party. Transferring the risk does not eliminate the risk itself. Risk transfer nearly always involves payment of a risk premium to the party taking on the risk, for example, through insurance, performance bonds, warranties and guarantees.
- Mitigation: Reduce the probability or consequences of an adverse risk event to a satisfactory threshold. Taking early action is more effective than trying to repair the consequences. A risk mitigation strategy could include using less complex processes, conducting more seismic or engineering tests, or choosing a more stable supplier.
- Risk acceptance: The project team may decide not to change the project plan and deal with a risk or be unable to identify any other suitable response strategy. In this case, a contingency plan is required in case a risk occurs.
What are the key benefits of effective risk management?
- Increased confidence in achieving project objectives and success.
- Reduced cost and/or time overruns.
- The team understands and recognises the use and composition of contingencies
- The team will be in an informed position for effective decision
- Risk management workshops can facilitate team development and encourage communication
How can the project team reduce design risk for the employer?
- Use a trusted and experienced design team
- Transfer design risk in procurement, for example, CDP (Contractors Design Portion) and design & build contracts
- Effective and regular management of the risk register
Early contractor involvement (to benefit from buildability input)
How do you monitor risks throughout the lifecycle of your project?
As a project manager, I continually identify, analyse, and monitor risks at regular intervals and at significant project milestones. As environments, stakeholders, and even requirements change, the nature or risks and planned responses should change too. Risk monitoring involves:
- Identifying new risks
- Taking corrective action when a risk materialises
- Monitoring the actions of each risk owner to ensure the mitigation strategy is deployed
- Measuring the effectiveness of risk responses
Once project risks have been identified, how would you go about allocating them to a specific ‘owner’?
Risks are usually assigned to the individual or party best able to manage them. The allocation should be clearly identified on the risk register.
What are the four risk categories identified in NRM (New Rules of Measurements) for cost estimation purposes?
- Employer Change risk
- Employer Other risk
- Design Development Risk
- Construction risk
What is a risk allowance?
A monetary allowance set aside on the risk register to cover costs should the risk be realised.
How would you calculate your risk allowance?
- Order of cost estimate stage - At this stage, a simple percentage is likely to be allocated to each risk (unless detailed information is available)
- Cost plan stage - Each risk should be assessed based on the total cost of the risk (should it be realised) and the probability of it occurring
