Risk Management Flashcards
What is a risk?
An event or circumstances that, if happened, would have a negative impact 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.
How do you quantify risk using NRM1?
Risk is quantified based on actual probability and impact to the project, not as a % under NRM.
What are the 4 risk categories in NRM?
- Employer change risk (Changes to Spec, Employer variations)
- Employer other risk (Inflation, Funding)
- Design development risk (Prov Sums)
- Construction risk (Contamination, archaeological remains)
What sort of risks are covered by insurance?
- Design Risk - Professional Indemnity (PI)
- Construction Risk - Contractors All Risk
- Social Risk - Public Liability
What are the 5 techniques to managing a risk?
Shrink
Accept
Distribute (make sure it’s to the right person - capable & competent)
Eliminate
Monitor
(SADEM)
How does risk vary between different forms of procurement?
- Traditional - design risk with client, often lump sum so commercial risk with contractor
- D&B - design risk with contractor, if lump sum cost risk with contractor
- Approx. quantities - cost risk with client
How would you cost a risk?
Only cost the red risks, include pre-mitigation figure in the risk register and subsequent cost plan.
Cost the outcome as if the risk occurred & the probability of it occurring - so don’t include the full cost, only the Expected Monetary Value (EMV)
What is Expected Monetary Value (EMV)?
Quantitative way to assess risk. Multiply the monetary impact by the probability of the risk occurring.
What other Risk calculation methods could you use?
Monte Carlo simulation - technique that predicts the probability of multiple scenarios (uses computer software)
What is a risk register?
Management document used to accumulate and track potential risks associated with a project.
What should be included in a risk register?
- Risk reference / identification
- Risk description
- Probability risk rating (usually scale of 1 to 10, T&T 1 to 5)
- Impact risk rating (severity/consequence - usually scale of 1 to 10, T&T 1 to 5)
- Risk score (probability) = prob x impact
- Risk response - how to mitigate its effect on the project
- Risk owner - assigned to team member. Responsible for deploying mitigation measures and monitoring
- Revised probability/impact/score
- Risk status (Open / closed)
- Cost impact, if any
- Response
- RAG Rating
- Date
What is the purpose of a risk workshop?
Where all members of the project team come together to identify, analyse, and prioritise risks.
PM collates and adds to a Risk Register
How would score a risk?
Based on likelihood and impact.
Set parameters for each (1 -5) and multiply together.
Cost range and programme range.
How would you decide on whether it’s a 1 or a 5?
1 being the least likely and have the least impact; 5 being the most
Who provides the bands?
Client. Depends on their attitude to risk
What other methods are there of calculating a risk?
Monte Carlo Simulation
Can you explain how the Monte Carlo simulation works?
Uses computer software to do multiple tests on the likelihood of a risk taking place, using its data.
What is the difference between a quantitative and qualitative risk assessment?
Quantitative - based on verified and specific data.
Qualitative - based on speculative data or someone’s perception.
Can you explain some quantitative and qualitative techniques to assess risk on a project?
Quantitative - Expected Monetary Value - calculates the average outcome of a number of scenarios to give a risk %.
Qualitative - Monte Carlo simulation - predicts the probability of multiple scenarios
How do you calculate a project contingency?
Use the total Expected Monetary Value cost of your risk register.
Early estimates might be a percentage but as the risk register and design is developed, it should be a properly considered assessment.
What is the process of Risk Management? (workshop)
Identify
Analyse
Respond
Manage
What are the key benefits to risk management?
- Team in informed position for effective decision making
- RM workshops can facilitate team development and encourage communication
- Team understands the use of contingencies
- Increased confidence in achieving project objectives and success
- Reduced cost and/or time overruns
What is optimism bias?
When individuals tend to be overly optimistic about the outcomes of their actions, often underestimating costs and overestimating benefits.
Can lead to unrealistic project plans and budgets.
What is the cost/impact ratio in relation to optimism bias?
Involves assessing how optimism bias affects project costs and impacts.
Underestimation of Costs: Due to optimism bias, project planners might underestimate the actual costs involved, leading to budget overruns.
Overestimation of Benefits: Similarly, the expected benefits or positive impacts of the project might be overestimated, resulting in unmet expectations.
Mitigation Strategies: To counteract optimism bias, techniques such as reference class forecasting and contingency planning are often used. These methods involve using historical data from similar projects to create more realistic estimates
How would I monitor risks throughout the lifecycle of my project?
Continually identify, analyse and monitor risks at regular intervals / project milestones.
What are the RICS risk categories?
- Strategic
- Operational
- Financial
- Compliance
- Reputational
What sort of risks are covered by insurance?
Design Risk (PI)
Construction Risk (Contract All Risk)
Social Risk (Public Liability)
Can you provide an example of a project where you successfully managed a significant risk?
Benwell - where I identified the crib wall was a health & safety risk in a family garden.
Covered it with mesh, making it anti-climb.
What role does communication play in effective risk management?
Communication is crucial in effective risk management for several reasons:
Risk Identification: Open communication channels help in identifying risks early by encouraging team members and stakeholders to share their insights and concerns.
Transparency: Clear communication ensures that everyone involved understands the risks, their potential impacts, and the strategies in place to manage them.
Stakeholder Engagement: Keeping stakeholders informed and involved fosters trust and collaboration, which is essential for effective risk management.
Decision-Making: Effective communication provides the necessary information for making informed decisions about risk responses and mitigation strategies.
Monitoring and Reporting: Regular updates and reports on risk status help in tracking progress and making adjustments as needed.
Crisis Management: In the event of a risk materializing, clear and timely communication is vital for managing the situation and minimizing negative impacts.
Good communication practices ensure that risks are managed proactively and that everyone is aligned in their understanding and approach.
How do you capture commercial risks and relay these to the Client?
These would highlighted in the project risk register. Any red risk would be costed using their EMV and added to the cost reports and cost plans.
As a cost manager, what input would you have into the risk register?
I would use my knowledge and experience to contribute to the items in the risk register and cost the risks where I had sufficient information to do so.
Can you provide an example of a risk you have encountered through your experience that you were able to quantify?
BNG credits - we knew the maximum was £650k and we had accounted for an amount in the cost plan. We added the remainder to the risk register
Discrepancies between the landlord and tenant specifications (these were mainly reductions)
PCSA fee (if we switched to the 2-stage) - approx???
How would you look to manage the risk of inflation within the current market place?
Include allowances for tender & construction inflation in NRM1’s section 13 the cost plan, and update if there are any delays to the programme or I am made aware of any specific changes in the market
Ideally place orders ASAP
Under a D&B form of contract how would you certify the drawdown of the contractors risk pot through the interim valuations?
As a % of programme complete (like prelims)
