Risk Management Level 1

Question 1

What is the definition of risk?

Answer 1

There are varying definitions, however essentially a risk is an uncertain event or circumstance, that if it occurs, will impact the outcome of a project.

Question 2

What is the purpose of risk management?

Answer 2

It aims to minimise the impact of a risk to a project through 6 key stages:

1. Initiate
2. Identify
3. Analyse
4. Evaluate
5. Respond
6. Monitor

Question 3

What is a risk assessment?

Answer 3

An assessment of the risk to identify the likelihood and severity of the risk being released

Question 4

What is the difference between a quantitative and qualitative risk assessment?

Answer 4

Qualitative - assesses risk in terms of the impact / likelihood, describes / defines the risk without allocating a value to it

Quantitative - provides a quantitative approach to assessing risks in terms of possible cost or programme / schedule costs

Question 5

How is a qualitative risk assessment carried out?

Answer 5

An assessment is made of the likelihood that the risk will occur and the magnitude of its impact - each is scored

The simplest method is to multiply the 2 scores together to give an overall score

Sometimes the risks will be weighted for risks with greater influence

Question 6

How is a quantitative risk assessment carried out?

Answer 6

Scored / % of probability / likelihood

Likely cost or time impact

Multiply the two together to gain overall risk value

Can add all values of risks together to provide an overall risk allowance within costs

Question 7

What is a Monte Carlo simulation?

Answer 7

A computer generated simulation used to model outcomes

The probability value for each risk is inputted

Assessment of their impact is inputted (minimum, most likely and maximum)

Software then produces graphs to demonstrate:

• probabilities of completion at various costs
• distribution of out-turn cost outcomes
• identification of risks that have the most impact on outcome

Only as good as the information inputted

Question 8

What is a risk register?

Answer 8

A document listing all the risks identified for the project, explaining the nature qualitatively and quantitatively

Aim to capture and maintain key information on all identified risks and opportunities relating to the project

Question 9

How do you go about creating a risk register for a new project?

Answer 9

All members of the team come together and brainstorm as many elements of project risk as possible

Usually the PM will collate risks identified and add them to the register

Question 10

How do you use the risk register?

Answer 10

Continually monitor risk items identified in initial risk register and make it a working document to identify project risks for the remainder of the project

Assign ‘likelihood’ and ‘impact’ scores to each risk to give an overall risk score

Question 11

How do you report / monitor risks?

Answer 11

Using a risk register: Risks are logged, tracked through the life of the project

Log the threats / opportunities, likelihood / impacts, place in a category over who owns the risk

Needs regularly updating

Question 12

What are the risk mitigation strategies according to NRM?

Answer 12

avoidance

reduction

transfer to contractor

sharing by the employer and contractor

retention by the employer

Question 13

What is risk allocation?

Answer 13

To ensure risks are managed, each risk must be allocated to the party best able to deal with the risk - this owner should be noted on the risk register

Question 14

What is the role of the ‘owner’ of a particular risk on the risk register?

Answer 14

Analyses the risk and determines what actions / controls should be taken

Identifies level of resources that needs to be committed to the risk action plans

Prioritise which risks are most important at which stage

Question 15

What is risk allowance?

Answer 15

A sum included in the estimate to cover unknown expenses or unmitigated risks during the project

An estimate of the cost of dealing with an individual risk should it materialise

Question 16

What are the 4 risk categories according to NRM?

Answer 16

Design development risk

Construction risk

Employer’s change risk

Employers other risk

Question 17

How can the project team reduce design risk?

Answer 17

Use a trusted / experienced design team

Transfer the risk in procurement (Contactors Design Portion and D&B)

Effective management of the risk registers

Early contractor involvement (buildability input)

Question 18

How are risk allowances calculated?

Answer 18

OCE Stage - qualitative risk analysis

CP - quantitative following the compilation of a risk register

Question 19

What are the benefits of risk management?

Answer 19

increased confidence in achieving project objectives and success

Reduced cost / time overruns

Team understands the use and composition of contingencies

Enables decision to be made on an assessment of known variables available

Risk management workshops can facilitate team development and encourage communication

Question 20

Common methods of identifying risk?

Answer 20

Risk workshops / brain storming sessions

Design reviews and appraisals

Project documentation

PESTEL analysis

SWOT analysis

Question 21

What are common sources of risk?

Answer 21

Environmental / planning issues

Stakeholder interests

Finance and funding

Client leadership / management

Information quality

Question 22

What is meant by risk avoidance?

Answer 22

Where risks have such serious consequences that they are deemed totally unacceptable

Risk avoidance measures may include:

• review of the employers brief and reappraisal of the project
• may lead to an alternative design solution that eliminates the risk

Question 23

What is meant by risk reduction?

Answer 23

Where the level of risk is unacceptable and actions must be taken to reduce the chance of risk occurring or the impact should it occur

Actions to reduce risk many include:

• further investigation to improve information
• using different materials or suppliers to improve lead times
• using different construction methods

Question 24

What is meant by risk transfer to the contractor?

Answer 24

Risks which are believed to be better managed or controlled by another party

For example:

• transfer of design risk to the contractor by D&B Procurement

Question 25

What is meant by risk sharing by the employer and contractor?

Answer 25

When a risk is not transferred fully to one party and some elements of risk are retained by the employer

NRM states this is dealt with by:

• using provisional quantities
• pricing risk held by the contractor
• quantification risk being held by the employer

Question 26

What is meant be risk retention by the employer?

Answer 26

The risk is completely the responsibility of the employer

An appropriate risk allowance will need to be identified within the cost plan, this will be reserved for and managed by the employer

Question 27

What is meant by design development risk?

Answer 27

An allowance for use during the design process

Provides for risks associated with:

• design development
• changes in estimating data
• third party risks

Question 28

What is meant by construction risks?

Answer 28

An allowance for use during the construction process

Provides for risks associated with:

• site conditions
• ground conditions
• existing services

Question 29

What is meant by employer change risk?

Answer 29

An allowance for use during the design and construction process

Provides for the risks of employer driven changes

Question 30

What is meant by employer other risks?

Answer 30

An allowance for employer risks which are not employer change risks

such as:

• early handover
• postponement of the project

Question 31

Why would you quantify risk?

Answer 31

To build a risk allowance as part of the contingency
Where clients have capped funding
Where it is a request of the client for comfort
Where clients need to report to a third party

Question 32

What is a probability tree?

Answer 32

Technique for determining the overall risk associated with a series of related risks

Question 33

What is the central limit theorem in relation to risk?

Answer 33

Provides a 90% confidence level for a risk contingency

Question 34

What is a fault tree analysis?

Answer 34

Deductive approach to determining the cause of a risk

Risk at the top, then branches down to the cause, then the cause of the cause etc

Until risk can be defined in terms of basic events

Question 35

What is an event tree analysis?

Answer 35

Essentially opposite of a fault tree

Starts with an initial event and branches off into possible outcomes

Question 36

What is the percentage addition technique?

Answer 36

Just a % of construction costs to calculate the risk allowance

Question 37

What is the probabilistic method?

Answer 37

More in-depth version of the simple method

3-point estimating

Gives a cost in terms of best, likely and worst case, with the probabilities of all 3 totalling 1 or 100%

Question 38

What is a sensitivity analysis?

Answer 38

Changes a variable to demonstrate how it impacts the output

Highlights key factors which may impact the project outturn should they change

Question 39

What is a schedule quantitative risk analysis?

Answer 39

Essentially builds on the critical path method, whereby tasks in a programme are linked and if one delays it states whether it will impact the project completion date

Simulates possible outcomes