Risk Management Flashcards
Who owns risk under JCT?
Apportioned between either client / contractor, will be influenced by contract selection and terms
Difference between a risk and an issue?
- Issue has already occurred / is certain to occur
- Risk is not certain to occur
Difference between a threat and an opportunity?
- Threat = negative risk
- Opportunity = positive risk
What are some risks associated with existing buildings?
- Asbestos
- Structural deterioration
- Poor workmanship
- Construction not meeting new regulations
What documents can be provided to inform contractor of risks associated with existing buildings?
- Asbestos register and management plan
- Structural survey
How can a project team reduce design risk for employer?
- Use trusted and experienced design team
- Transfer design risk in procurement (i.e. D&B, CDP)
- Effective, regular management of risk register
- Early contractor involvement (buildability input)
How do you monitor risks throughout the life cycle of your project?
- Identify, monitor cost element of risks, including planned responses and financial allowance
- Corrective action when risk materialises
- Monitor actions of risk owner to ensure mitigation strategy deployed
- Measure effectiveness of risk responses
Once project risks have been identified, how do you allocate risks to a specific ‘owner’?
- Individual / party best able to manage it
- Allocation clearly identified on risk register
What are the 4 risk categories identified in NRM for cost estimating purposes?
- Employer Change
- Employer Other (fund availability, acceleration, sequencing, special contractual arrangements)
- Design Development (change in scope, statutory/legal/planning requirements)
- Construction (access restrictions, existing buildings/conditions/surveys, statutory authority delays
What is a risk allowance?
Monetary allowance set aside on risk register to cover costs should risk be realised
How would you calculate risk allowances?
- Order of cost stage - simple % (unless detailed info available)
- Cost plan onwards - risk allowances assessed based on total cost of risk (should it be realised) and probability of occurrence
Techniques available to quantify risk?
Expected monetary value
Your client is concerned about entering into contract with preferred contractor, what can be done to alleviate cost risk through contractual mechanisms?
Retention bond, performance bond/PCG, advance payment bond, materials off site bond
How did you arrange a risk workshop on xxx project?
- Benchmarked initial risks from similar prev projects to populate risk register
- Liaised with wider design team to identify further risks
- Presented populated risk register at meeting, discuss likelihood and monetary impact to calculate expected monetary value
How did you monitor and quantify risk through design stages on one of your projects?
- Initially benchmarked risk %, comparing other projects, level of design, abnormals, procurement/tender route
- Review % at each RIBA design stage
- Produced risk register, continuously monitored throughout
- Drew down on contingencies when required
How do you calculate risk at RIBA stage 2?
- Benchmark against similar projects
- Assessed design accuracy, site abnormals, procurement and tendering strategy
What documents are included in the tender pack to inform the management of risk?
Pre-construction information (contains site location, operating hours, access route, evacuation plans, any asbestos surveys, contract details, permits required)
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 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.
What is 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.
Can you 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 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.
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 and control.
Can you give me some examples of risk in a construction project?
- 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.
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 an assessment of known variables that are available.
- Risk management workshops can facilitate team development and encourage communication.
Please provide an overview of Risk Management?
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.
Describe the format of the risk register?
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).
What role does the QS play in Risk Management?
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.
What are Risk Analysis techniques?
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).
Provide examples of Risk Analysis techniques?
- 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.
What forms of risk response are available?
- Avoidance
- Reduction
- Retention
- Transfer
What is risk avoidance?
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.
What is risk reduction?
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.
What is risk retention?
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
What is risk transfer?
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.
Can risk be calculated?
- 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.
What is Monte Carlo Simulation & what is it used for?
- 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.
What is Expected Monetary Value (EMV)?
- 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.
What happens during a risk workshop?
- 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:-
o 1) Identification of risk & generation of the risk register.
o 2) Identification of risk probability.
o 3) Identification of risk impact.
o 4) Allocation of risk items to the owner.
o 4) Agreement of upcoming actions which are usually design led.
o 5) Agreement of review dates for each risk item for the following workshops.
Are there any risks for client working on overseas projects?
- 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.
How does NEC deal with risk?
- NEC contracts promote a more collaborative approach to risk.
- NEC encourages open communication and proactive risk management.
- Generally seen as more “risk sharing”.
What are positive and negative risks?
“risk” doesn’t always mean something bad. It simply refers to an uncertain event that can have either a positive or negative impact on a project, often refered to as “opportunities”.
How do you decide on appropriate contingencies allowances?
- Risk Assessments
- Consider Project Complexity and Uncertainty
- Assess Market Conditions
- Historical Data
- Expert Judgment
How do Contractor Design Portions reduce risk?
What is “Employer Change” risk?
These risks arise from variations or changes initiated by the employer.
* Changes to the project brief.
* Modifications to the design.
* Alterations to materials or specifications.
What is “Employer Other” risk?
These risks are attributable to the employer but are not direct changes to the scope.
* Delays in providing necessary information.
* Failure to obtain required approvals.
* Financial instability of the employer.
What is “Design Development” risk?
These risks occur during the design phase as the project evolves.
* Unforeseen design complexities.
* Changes in statutory/legal/planning requirements.
* Inaccuracies in design information.
What is “Construction” risk?
These risks arise during the construction phase.
* Adverse weather conditions.
* Unexpected ground conditions.
* Material shortages.
* Labor issues.
