Risk Management

Question 1

How do you carry out risk analysis and risk management?

Answer 1

• If the project is being undertaken within a wider programme of similar projects, experienced clients may have access to risk registers from previous schemes that can be used as a starting point.
• A risk management workshop can also be organised with all members of the design team coming together to identity project specific risk items.
• The risk register can be updated during the meeting and will form the basis of risk management for the project.
• These risks will be continually monitored as the project progresses.
• Identified risks can either be removed or we can aim to reduce their probably of occurring and put in mitigation measures if they do occur.

Question 2

What is risk defined as?

Answer 2

• An uncertain event that will have an effect on the achievement of the project objectives should it occur.
• Risks are measured in terms of their likelihood (probability) and consequence (impact).

Question 3

What is risk management?

Answer 3

• A process for identifying, assessing and responding to risks associated with the delivery of an objective such as a construction project.
• Risk management establishes a set of procedures by which risks are managed.
• It comprises an intuitive approach where project teams look to manage risk in a more proactive manner.

Question 4

Can you expand on the Identify, Assess, Respond approach?

Answer 4

• Identification takes place after the project and its objectives have been well defined.
• A risk cannot be effectively managed before it has been identified.
• Risk identification should be carried out as early as possible.
• Assessment can be carried out to determine the probability and impact of each risk item and its effect on cost, time and performance of the project. A qualitative approach can also be undertaken to describe the risk and effect on project performance.
• Response actions aim to reduce the probability of the risk arising or to mitigate its impact should the risk arise.

Question 5

What is a Risk Event?

Answer 5

An event that can be predicted to at least some degree, generally based on historical data or experience and making a decision according to the probability of a particular event occurring.

Question 6

What is an uncertain or unforeseen event?

Answer 6

A random event that defies prediction.

Question 7

Why is risk management needed in construction?

Answer 7

• Projects are typically complex, all have time, cost and quality targets which must be met.
• Risk is present in all projects and surveyors are routinely involved in making decisions which have a major impact on risk.
• Risk management cannot eliminate risk, but techniques can be used to reduce the impact of events that may cause failure to reach the desired targets.

Question 8

What are the stages of Risk Management?

Answer 8

• Identification.
• Analysis.
• Response.
• Monitor and control.

Question 9

Can you give me some examples of risk in a construction project?

Answer 9

• External risks for example include economic uncertainty, legislation changes and changes in
  government policy.
• Financial risks for example include exchange rate changes or the increased cost of borrowing.
• Site risks such as restricted access, planning difficulties and environmental issues can also be considered as further examples.
• Client risks may include a lack of experience, a multi-headed client and the likelihood of post contract changes.
• Design risks including an inappropriate consultant team, poor team ethos, an incomplete design or lack of design co-ordination.
• Construction and delivery risks may include adverse weather, H&S and availability of resources.

Question 10

What is Risk Allocation?

Answer 10

• Risks should be allocated to those who are best able to manage it, in a manner likely to optimise project performance.
• Financial allocation of risk should be achieved through the contract documents.

Question 11

What are the benefits of risk management?

Answer 11

• Increased confidence in achieving project objectives and success.
• Reduced likelihood of cost and time overruns.
• The team understands and recognises the use and composition of contingencies.
• It enables decision making to be made on an assessment of known variables that are available.
• Risk management workshops can facilitate team development and encourage communication.

Question 12

Please provide an overview of Risk Management?

Answer 12

• Risk Management involves a set of procedures to mitigate risk.
• There are 4 stages: Identify, Analyse, Respond, Review:-
  1) The identification stage involves identifying & prioritising those uncertainties that may have an adverse effect on the project. This can be achieved through workshops, experience and use of risk registers.

2) The analysis stage involves assessing the impact of those identified risks and those most critical to the project in terms of time & cost. This can be achieved through judgement, probability matrix, monte carlo analysis and decision trees.

3) The response stage involves implementing effective strategies to mitigate the impact of each risk. This could include acceptance, monitor, reduce, transfer and avoid via a change of design. In order to effectively manage those risks that cannot ultimately be avoided it must be allocated to the party best able to manage it.

4) Regular reviews can be carried out to identify new risks & monitor existing risks up to
completion.

Question 13

Describe the format of the risk register?

Answer 13

A risk register format will typically include:-
1) A description of the risk.
2) The risk owner.
3) A probability of occurrence.
4) The impact of its occurrence (£/wks).
5) Risk factors (probability x impact).
6) Actions required.
7) Review date.
8) Status (open or closed).

Question 14

What role does the QS play in Risk Management?

Answer 14

Part of the whole Cost Management Process is to:-
1) Assist in setting & managing contingency funds appropriately.
2) Undertake risk analysis to ensure accuracy of funds available & manage their release when no longer required.
3) Assist in the decision making process by providing estimates with a degree of certainty & carry out simulations to determine the level of risk.
4) Provide advice when bidding for work on the level of risk & financial exposure to the company with understanding of market conditions & impact on the project & rates.

Question 15

What are Risk Analysis techniques?

Answer 15

• Risk analysis sets out to achieve a better understanding of the risks identified & quantify their effects in terms of probability (likelihood of the risk occurring as a percentage) & impact (the effect if the risk occurs either in cost impact or programme delays).
• Methods of risk analysis available include:-
  1) Subjective probability where a persons confidence within a specific risk is assessed by a
  number of professionals independently to avoid bias.
  2) Decision Analysis where risk exposure and attitudes are assessed in addition to consideration of alternative options and outcomes (Decision Trees).
  3) Sensitivity Analysis where the adjustment of a single input variable is made to determine acceptable parameters & identify those variables most sensitive to change.
  4) Monte Carlo Simulation where variables are changed simultaneously. This uses triangular distribution & repeating the analysis 1,000 times to ensure there is no bias & to generate an appropriate contingency fund for the project.
  5) Intuition & Experience where risks are identified and impact on time & cost are assessed through professional judgement.

Question 16

What forms of risk response are available?

Answer 16

• Risk avoidance where the approach is changed in order to avoid the risk completely. For example plotting an alternative excavation route in order to avoid underground cabling.
• Reduction where the probability or impact of the risk occurring is reduced. This could include staff training, employing security, placement of early material orders and scheduling an earlier start on site.
• Retention where the risk is considered and retained by a particular party who is best placed to manage the risk. For example it may be best managed by the employer if it is an internal risk with a sufficient contingency being put in place.
• Transfer is when the risk is considered and transferred from one party to another who is considered to be in a better position to manage the risk. This can be achieved through contracts & insurances. Clients should note the importance of paying risk premiums and comparing these against the potential financial impact of the risk.

Question 17

Can risk be calculated?

Answer 17

• Risk can be calculated to an extent with suitable provision being made for the risk however it cannot be calculated exactly otherwise it would not be classified as a risk.
• Risk involves the probability of something occurring & its potential impact in the event that it does occur.
• Risk can be assessed via a number of methods, the method I have most experience with is through using risk registers and workshop using the team’s intuition and professional judgement to identify risk & assess their impact in terms of cost & programme.

Question 18

What is Monte Carlo Simulation & what is it used for?

Answer 18

• Most RM techniques only work based on only one given variable, such as Sensitivity Analysis, changing at a point in time.
• Monte Carlo simulation is a form of probabilistic risk analysis meaning it assesses the probability of achieving certain targets.
• It uses random sampling to assess variables that change simultaneously.
• The simulation is based on information generated by the project team who will identify a triangular distribution for each risk (optimistic / likely / pessimistic).
• Arithmetical mean is multiplied by the probability & fed into programmes such as ‘@ Risk’, which generates a series of random numbers. The Programme is run 1,000 times to ensure no bias occurs.
• This method works on a triangular distribution of minimum, maximum and mean probabilities and therefore requires some professional judgement to be used.

Question 19

What is Expected Monetary Value (EMV)?

Answer 19

• EMV is the probability of the risk occurring multiplied by its impact.
• This produces an aggregate result and can be used to establish the overall monetary value of risks within the project.
• The probability is usually expressed as a fraction or percentage while the impact is usually a positive or negative monetary value.

Question 20

What happens during a risk workshop?

Answer 20

• A project team will be formed prior to the workshop and a facilitator being appointed.
• The workshop facilitator will brief the team by issuing appropriate information about the scheme and the purpose and objectives of the workshop to allow preparation to occur prior to the workshop.
• The key operations of the workshops I have attended include:-
  1) Identification of risk & generation of the risk register.
  2) Identification of risk probability.
  3) Identification of risk impact.
  4) Allocation of risk items to the owner.
  5) Agreement of upcoming actions which are usually design led.
  6) Agreement of review dates for each risk item for the following workshops.

Question 21

Are there any risks for client working on overseas projects?

Answer 21

• Conditions of contract could be unfamiliar.
• Legislation may be different from the UK.
• Exchange rates may fluctuate causing price uncertainty.
• Cultural ways of the workforce may be different resulting in different working hours.
• Foreign contractors may not fully understand the terms of contract.