Risk Management

Question 1

What guidance is available in relation to the Management of Risk on a Construction project?

Answer 1

RICS guidance note called management of risk 1st edn 2016

Question 2

Have you been involved in the preparation of a Risk Register?

Answer 2

Yes - I have on several projects, working with whole design teams to amalgamate a list of risks, the level of threat they pose to the project and potential mitigations. I have then had experience costing these risks.

Question 3

What does the RICS Guidance Note say in relation to the allocation of Risk?

Answer 3

It defines it as how the responsibility for risk is split between the contracted parties
That it is dependent on the procurement route being used

Question 4

What are the 4 categories of Risk identified under NRM 1?

Answer 4

Design development
Construction
Employer change
Employer Other

Question 5

Can you give me an example of a Risk Quantification Technique?

Answer 5

Percentage addition
Percentage addition is based on a percentage of the cost
plan and should only be used for preparing rough and
initial order cost estimates.
A percentage risk for all elements of the project where risk is expected is derived,
multiplied by the cost of that element and then totalled to
give an overall risk allowance.
For example, 5% x
£100,000 construction costs (£5,000) + 10% x £10,000
design team cost (£1,000) gives a risk allowance of
£6,000.

Question 6

Have you heard of the Term a ‘Monte Carlo’ Simulation? What does this relate to in relation to the Management of Risk, and associated Costing?

Answer 6

This is a computer-generated simulation used to model outcomes.
The inputs for a quantitative risk analysis (QRA) are typically the probability values for each risk and an assessment of their impact; for example, a minimum cost
impact of £10,000, a most likely cost impact of £15,000 and a maximum cost impact of £30,000.
Computer-based analysis software can generate graphs
that show the following:
* probabilities of project completion at various costs, for example, 90% certainty of completion for less than £xxx
* distribution of out-turn cost outcomes, for example most likely cost outcome and
* identification of the risks that have the most impact on the project outcome.
* other statistical information
Note that Predict! RA or @Risk may also be used to prepare cost plans; these build in the estimated uncertainties for quantities and rates
The results of the QRA will only be as good as the information on which it is based. Since most uncertainty
estimates will be subjective, the accuracy of the results will only be approximate.

Question 7

You have mentioned that you used a Defined Provisional Sum for the Laboratory Benching at UoL Adrian Decant Refurbishment. What do you mean by the Term Defined Provisional Sum? How were the Works defined? What are the Risk associated with a Defined Provisional Sum? What other type of Provisional Sums exist? What is the difference?

Answer 7

Defined Prov Sum - the full spec of the
benching had not been designed by the but the quantity was known so a reasonable sum could be included to allow for this.
This had been noted as a risk however as the benching had not been designed or ordered which posed risk to procurement/construction time
Also the spec could end up more expensive than allowed for in the contract sum.
There are also undefined provisional sum - less information is known so the contractor cannot be expected to make allowance for these in their programming or preliminaries.

Question 8

You have stated that you chaired a Risk Workshop at Le Gros Clark refurbishment project. What was the purpose of this? What were your anticipated outcomes?

Answer 8

Purpose of a risk workshop was to bring the design team together to gather all members perspective on potential risks to the project. I used this meeting to compile the risk register which was then used to discuss level of risk posed, level of impact, probability of occurring and possible mitigations. The aim was to have a full risk register at the outcome to present to the client which I could then cost and incorporate into my cost plan, which also helps the client have a fuller understanding of how the risk allowance included has been reached as they have been involved in the process.

Question 9

What is a Monte Carlo analysis?

Answer 9

A mathematical approach to calculating risk-based outcomes and the probability they will occur.

Question 10

What software is mentioned for Monte Carlo analysis?

Answer 10

@risk online software

Question 11

What input have you had in a Risk Register?

Answer 11

Allocated costs to risk items on the dental hospital demolition project.

Question 12

How did you manage the risk register during the UoB NCDH?

Answer 12

Continually reviewed the register monthly as part of the cost reporting process and chaired risk management workshops.

Question 13

When were risks reviewed in the risk management workshops?

Answer 13

Risks were reviewed for mitigation status and new probability calculations based on progress.

Question 14

What was a specific risk in the UoB NCDH project?

Answer 14

Risk of asbestos being found in the demolition.

Question 15

How was the asbestos risk mitigated?

Answer 15

Through consistent reporting and testing throughout the project.

Question 16

What was another risk identified during the demolition?

Answer 16

Risk of dust and projectiles damaging a nearby carpark.

Question 17

How was the risk of dust and projectiles mitigated?

Answer 17

With water cannons and netting during high volume demolition activities.

Question 18

How do you calculate risk when compiling a cost plan?

Answer 18

By producing an itemised and calculated risk register added to the total.

Question 19

What method is used to calculate the cost of the risk?

Answer 19

Worst case estimated cost multiplied by the probability of that risk materialising.

Question 20

Who reviews and inputs the calculated risk cost?

Answer 20

The client and design team.

Question 21

What is risk defined as?

Answer 21

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 22

How do you carry out risk analysis and risk management?

Answer 22

• If the project is being undertaken within a wider programme of similar projects, experienced clients may have access to previous scheme’s risk registers 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 identify project specific risk terms
• 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 probability of occurring and put in mitigation measures if they do occur.

Question 23

What is risk management?

Answer 23

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 24

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

Answer 24

• 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.
• Response aims to reduce the probability of the risk arising or to mitigate its impact should the risk arise.

Question 25

What is a risk event?

Answer 25

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 26

What is an uncertain or unforeseen event?

Answer 26

A random event that defies prediction.

Question 27

Why is risk management needed in construction?

Answer 27

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 fully but techniques can be used to reduce the impact of effects that may cause failure to reach the desired targets.

Question 28

What are the stages of risk management?

Answer 28

1. Identification
2. Analysis
3. Response
4. Monitor and control

Question 29

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

Answer 29

External risks: economic uncertainty, legislation changes, changes in government policy
Financial risks: exchange rate changes, increased borrowing costs
Site risks: restricted access, planning difficulties and environmental issues
Client risks: lack of experience, multi-headed client, likelihood of post contract changes
Design risks: inappropriate consultant team, poor team ethos, incomplete design/lack of design co-ordination

Question 30

What is risk allocation?

Answer 30

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 31

What are the benefits of risk management?

Answer 31

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 32

Describe the format of a risk register?

Answer 32

1. Description of the risk
2. Risk owner
3. Probability of occurrence
4. The impact of its occurrence
5. Risk factors (probability x impact)
6. Actions required
7. Review date
8. Status (open/closed)

Question 33

What role does the QS play in risk management?

Answer 33

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

Question 34

What are the risk analysis techniques?

Answer 34

Risk analysis sets out to achieve a better understanding of the risks identified and quantify their effects in terms of probability and impact
METHODS OF RISK ANALYSIS INCLUDE:
1- Subjective probability where a persons confidence within a specified 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 and identify those variables most sensitive to change.
4. Monte Carlo simulation where variables are changed simultaneously. This uses triangular distribution and repeating the analysis 1000 times to ensure no bias and to generate an appropriate contingency fund for the project.
5. Intuition and experience where risks are identified and impact on time and cost are assessed through professional judgement.

Question 35

What forms of risk response are available?

Answer 35

Risk avoidance - where the approach is changed in order to avoid the risk completely.
Risk reduction - where the probability or impact of the risk occurring is reduced.
Risk retention - where the risk is considered and retained by a particular party who is best placed to manage the risk.
Risk Transfer - 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 and insurances. Clients should note the importance of paying risk premiums and comparing these against the financial impact of the risk.

Question 36

Can risk be calculated?

Answer 36

Risk can be calculated to an extent with suitable provision being made for the risk however it cannot be calculated exactly as otherwise it would not be classified as a risk.
Risk involves the probability of something occurring and 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 using risk registers, risk workshop and use of professional judgement to identify risk and assess their impact in terms of cost and programme.

Question 37

What is a monte carlo simulation and what is it used for?

Answer 37

Most RM techniques only work based on one variable
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 factor for each risk (optimistic/likely/pessimistic)
Arithmetical mean is multiplied by the probability and fed into programmes such as @risk which generates a series of random numbers, it is run 1000 times to ensure no bias occurs.
- This method works on a triangular distribution of minimum, maximum and mean probabilities therefore requires some professional judgement to be used (from experience I use 50%)

Question 38

What is expected monetary value (EMV)

Answer 38

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 expresses as a fraction or percentage while the impact is usually a positive or negative monetary value.

Question 39

Are there any risks for client working on overseas projects?

Answer 39

• 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 terms of contract