Risk Management Flashcards
How do you carry out risk analysis and risk management?
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 to identify 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 probability of occurring and put in mitigation measures if they do occur
What is a risk defined as?
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).
What is risk management?
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.
Expand on the Identify, Assess, Respond approach.
Identification takes place after the project and its objectives have been well defined.
A risk cannot be effectively managed until 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 aims to reduce the probability of the risk arising or to mitigate its impact should the risk arise.
What is a risk event?
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.
What is an uncertain or unforeseen event?
A random event that defies prediction.
Why is risk management needed in construction?
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.
What are the stages of Risk Management?
Identification
Analysis
Response
Monitor & Control
Examples of risk in a construction project.
External risks - e.g. economic uncertainty, legislation changes and changes in government policy
Financial risks - e.g. exchange rate changes or increased cost of borrowing
Site risks - e.g. restricted access, planning difficulties and environmental issues
Client risks - e.g. lack of experience, multi-headed client, and the likelihood of post contract changes
Design risks - e.g. inappropriate consultant team, poor team ethos, an incomplete design or lack of design coordination
What is risk allocation?
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.
What are the benefits of risk management?
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 assessment of known variables that are available.
Risk management workshops can facilitate team development and encourage communication.
Describe the format of the risk register.
Includes:
- A description of the risk
- The risk owner
- Probability of occurrence
- The impact of its occurrence (£/wks)
- Risk factors (probability x impact)
- Actions required
- Review date
- Status (open/closed)
What role does the QS play in Risk Management?
- Assist in setting & managing contingency funds appropriately
- Undertake risk analysis to ensure accuracy of funds available and manage their release when no longer required.
- Assist in the decision making process by providing estimates with a degree of certainty and carry out simulations to determine the level of risk.
- 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.
What are risk analysis techniques?
- Subjective probability where a persons confidence within a specific risk is assessed by a number of professionals independently to avoid bias.
- Decision analysis where risk exposure and attitudes are assessed in addition to consideration of alternative options and outcomes (Decision Trees)
- Sensitivity analysis where the adjustment of a single input variable is made to determine acceptable parameters and identify those variables most sensitive to change.
- Monte Carlo simulation where variables are changed simultaneously. This uses triangular distribution and repeating the analysis 1,000 times to ensure there is no bias and to generate an appropriate contingency fund for the project.
- Intuition & Experience where risks are identified and impact on time and cost are assessed through professional judgement.
What forms of risk response are available?
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 ordering
Retention - where the risk is considered and retained by a particular party who is best placed to manage the risk. E.g. employer putting a sufficient contingency in place for an internal 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 potential financial impact of the risk.
