Risk Management Flashcards
How does the suite of contracts have an impact on risk in construction?
NEC contract cater for risk sharing with the likes of target cost and cost reimbursable contracts whereas JCT doesn’t yet.
How does the procurement route have an impact on risk in construction?
Traditional, construction management and management contracting contracts give the employer the design risk and the contractor the construction risk. Whereas a design and build contract transfers the full risk (design and construction) with the contractor.
What is the definition of risk?
An uncertain event that may or may not occur, if it does occur it would have a negative impact on the project.
What stage of a project would you expect to have the most risk and why?
The beginning, as this is when there is the least design and certainty.
Other than design, could you please name three types of risks with examples?
1) Inflation risk - The risk of cost of good increasing leaving the contractor short
2) Productivity risk - The risk of output dropping which could be as a result of labour shortages
3) Workmanship risk - Risk of contractors carrying out their works below the reasonable standard required, creating defects and leading to delays.
4) Disputes - The risk of relationship breakdowns which would have financial repercussions, potential delays and reduced morale.
5) Financial - Risk of contractor/subcontractor insolvency
What is the monte carlo model?
A risk analysis tool applied to uncertain events, where predictions are made on the outcome by giving a range of possible outcomes and assessing the risk impact of each.
You mention risk reduction meeting, what would prompt one of these?
Good practice is to participate in risk reduction meeting on a biweekly basis to keep on top of all open early on the risk register.
A risk is added to the risk register when either party issues an early warning.
What is an early warning and what is the process?
An early warning notice is an NEC contractual obligation for all parties (Employer, contractor and subcontractor), where either party notifies the other of any risks which could materialise.
1) Either party must notify the other as soon as they become aware of any matter than would increase cost, delay completion, constitute a defect etc.
2) The early warning should state whether it needs to be dealt with immediately or in the next risk reduction
3) In the RRM both parties discuss the open risks, understand the facts and set actions and owners to mitigate. This is all recorded, signed by both parties, and logged on the risk/early warning register.
4) The early warnings is then discussed at each meeting until resolved, or the risk has passed.
Can you give me an example of a time where you successfully used the early warning procedure to prevent a risk from materialising?
On the NLE, myself and the package manager noticed some of the screed installed by the flooring contractor had cracked. As the contractor, we believed it was down to the subcontractor to resolve free of charge, whereas the subcontractor did not accept this and wanted payment to remediate.
I identified that there was a risk that the costs would increase and issued an early warning and an immediate risk reduction meeting. Given we could not agree on who the liability of remediating the cracks lied with, it was agreed that we would introduce crack inducing joint at 6m intervals to reduce cracking. In doing this, we mitigated the risk of further cracking and potential disputes.
Can you give me three examples of risks that were included on the the risk register and mitigation actions taken on the residential project you worked on?
1) Further water ingress damage to finished works - mitigate by investigating vulnerable locations and taking action to waterproof
2) Scope gaps to high value packages - Carrying out in depth scope checks
3) Programme delay due to low productivity - Increase labour numbers, streamline works, co-ordination between the subcontractors, weekend working
Can you give me three examples of opportunities that were included on the the risk register?
1) Successful final account negotiations below EFC.
2) Underspending on defects allowance made
3) Potential bonus for early completion
What action would you take to value a risk?
I would quantify the cost of the risk materalising in the first instance, and then with that figure i would multiply it by the probability and severity factor.
How does the value of the risk register apply to your final cost report?
The risk contingency is reported as part of the final costs in contract review.
How is risk reviewed on your project on a monthly basis?
What is the difference between allocated and unallocated contingencies?
Allocated - known risks that have been identified but cannot be costed. They are instead forecasted and allowed for based on the severity and likelihood of them happening which forms a contingency pot.
Unallocated - This is a contingency for unknown events occurring which is usually based on a % of the final cost figure.
