Risk Managment

Question 1

Examples of risk in a construction site

Answer 1

External risks - economic incertainty, inflation rates, legislation changes.
Financial Risk - excahnge rate changes, increased cost of borrowing
Site Risks - restricted access, planning difficulties, environmental issues.
Client Risks - lack of expereince,
Design Risks - inappropriate consultant team, poor team ethos.
Construction and delivery risks - adverse weather, asbestos, availablity of materials

Question 2

Define Risk

Answer 2

Risk is defined as an uncertain event or circumstance that, if it occurs, will affect the outcome of a programme/project.

Question 3

Define Opportunity

Answer 3

An uncertain event which should it occur will have a positive effect on the achievement of the construction project

Question 4

Define an ‘Issue’

Answer 4

An event that has occurred and has impacted on a construction project OR an uncertain event that is no longer able to be controlled by the project (and requires escalation)

Question 5

What is risk management?

Answer 5

Risk Management is the process of identifying, assessing, responding and reviewing risks associated with the delivery of an objective e.g. construction project.

Risk Management establishes a set of procedures by which risks are managed.

Question 6

Please Provide an overview of Risk Management

Answer 6

I A R M

Risk Identification
Risk Assessment / analyses
Risk Response
Monitor and Control/review

Question 7

Why is Risk Management Important? What are the benefits of risk management?

Answer 7

Construction projects in their nature are inherently risky, they are unique, constrained and complex. All have time, cost and quality targets that must be met. Risk management reduces likelihood of cost and time overruns

Enables decision making to be made and an assessment of known variables that are available. Assigns contingency to reduce delays in getting paid.

Question 8

What are the mitigation strategies for risk?

Answer 8

STARR
Risk Sharing – client and contractor share the risk. E.g. provisional sum (JCT).
Risk Transfer – transfer risk to the contractor
Risk Avoidance – try to avoid the risk e.g. don’t build on terrible ground conditions, Alternative design solution.
Risk Reduction – where level or risk is unacceptable – risks are mitigated to reduce risk e.g. conduct a site investigation.
Risk Retention – appropriate risk allowance identified in the cost plan to be reserved and managed by the employer.

Question 9

How does the NRM deal with risk?

Answer 9

Risk management
- needs to be identified, assessed, monitored and controlled appropriately and effectively.

At the time of prepating a BoQ there will still be several risks to be managed by the client and thier team. This is called Employer’s residual risk exposure (aka residual risks).

The risk response will be either:
Risk transfer to the contractor
risk sharing by both employer and contractor
risk retention by the employer

Risk that can be designed out or avoided should have been addressed by this stage of the design development proces. If this is unacheivable, they will be dealy with using one of the above strategies.

It is recommended that separate allowances be made for each of the following:
Design development risks, Construction risks, Employer change risks, Employer other risks:

Question 10

Describe the format of a risk register?

Answer 10

Typically include:
* Description of the risk
* The risk owner
* Probability of occurrence
* Impact of its occurrence
* Risk factors (probability x impact)
* Actions required
* Review date
* Status (open/closed)

Question 11

What is a Risk Event?

Answer 11

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 12

What is an uncertain or unforeseen event?

Answer 12

A random event that defies predictions

Question 13

What are the stages of risk management?

Answer 13

• Identification
• Analyses
• Response
• Monitor and control

Question 14

What is Quantitative Risk Assessment?

Answer 14

• Quantitative analysis: probability and impact are given a value and multiplied to produce an objective score.

Question 15

What is Qualitative risk assessment?

Answer 15

• Qualitative analysis: describes and understands each risk to assess its likelihood and consequences.
• The purpose of qualitative analysis is to prioritise the risks in terms of importance, without quantifying (costing) them. This should be carried out during the first phases of the risk-management process.

Question 16

What is the difference between Quantitative and Qualitative risk assessment?

Answer 16

Qualitative describes and understands risk in relation to likelihood and impact in a range from very high to very low, whereas Quantitative is probability and impact given as a value.

Question 17

How risk is managed post contract?

Answer 17

Risk is managed in NEC ECC through early warning register, implementing change control and reviewing and updating risk allowance.

Question 18

What is a risk management workshop and how is it undertaken?

Answer 18

Risk workshops are conducted to identify, assess and analyse the risks associated with the strategic brief. The following steps are undertaken.
1. Prepare the workshop – objectives, scope and agenda, participants, roles and responsibilities and logistics (venue, date, time & equipment).
2. Conduct the workshop – follow agenda and use various techniques to identify risk (brainstorming and SWOT).
3. Document the risk – in a risk register. Add description, probability and owner of risk.
4. Analyse the risk – determine their significance & implications through qualitative and quantitative analysis.
5. Plan the response – on how to address them STARR or acceptance of the risk.
6. Review the response – communicate workshop response and monitor and control.

Question 19

In you initial cost estimate how much contingency did you hold? [amend]

Answer 19

At Initial cost estimates I provide a % against contruction risk and design risk, as these are unknown at this stage. For training facility this was at 5% using a previous similiar project to help decide on this %.

Employer risks are included in a risk register and are typical risks that can be quanitified (be it at a 3 point estimate and a larger range between min, ml and max).

• The amount included should reflect the risks and unknowns specific to the project.
• During early estimates when little information is available it is common to include a %
• This should reduce as more information becomes available and the unknowns decrease % will differ based on the type of project

Question 20

How do you determine a risk allowance?

Answer 20

At early stages I can provide an early stage allowance. For example, for Armoury cost plan there was a 5% allowance of the total CAPEX cost for design development risk and construction risk.

This was determined by looking at previous similiar projects. In this case a armoury at RAF Lakenheath.

The Employer change and employer other risk was quantified from the risk register, at around 20-25%. This is then inputted into the Monte Carlo to produce an overall risk allowance.

Question 21

What is the difference between risk allowance and contingency?

Answer 21

• Contingency is a sum of money for a future event or circumstance which is possible but cannot be predicted with certainty and is effectively an unknown outside of the risk register
• Risk allowances can be quantified and estimated via a risk register and the risk pot is drawn down from if and when the risk occur.

Question 22

Please provide an example of risks associated with your area of business

Answer 22

For my role specifically there is optimism bias.

A typically risk for a construction project is asbestos being found, this is high probabiltiy because the buidings that are being refurbed were built before asbestos was banned in 1999.

Another example is risk of UXOs,

Both asbestos and UXOs can be mitigated, by conducting surveys. This does not reduce the risk, but makes an unforseen a certainty. The removal of asbestos and UXOs can be managed by including in the programme and a specialist subcontractor brought in to remove these.

There is however a chance that undetected asbestos and UXOs could be found, expecially in non-intrusive site investigations take place, as well as excavations uncovering UXOs therefore a risk allowance should still be included for these. The risk probability can be reduced as the project progresses and this will happen during risk workshops, as the probability of finding furhter asbestos and UXOs decrease as the project progresses.

Question 23

What are the stages of risk management?

Answer 23

IARM

• Identification
• Analyses
• Response
• Monitor and control

Question 24

How do you carry out risk analysis and risk management?

Answer 24

• Experienced clients may have access to a risk register from previous schemes that can be used as a starting pint if the project is being undertaken within a wider programme of similar projects.
• A risk management workshop can be organised with the design tram coming together and identifying risk items.
• The risk register can be updated during the meeting and will form the basis of risk management for the project.
• There risks will be continuously 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 25

What role does the QS play in Risk Management?
(each RIBA) 

Answer 25

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

Question 26

What are Risk Analysis Techniques?

Answer 26

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 %) Methods of risk analysis include:
1. Subjective probability- persons confidence within a specific risk is assessed by several professionals to avoid bias.
2. Decision analysis - risk exposure & attitudes are assessed, and consideration of alternative options and outcomes (decision tree)
3. Sensitivity Analysis - adjustment of a single input variable is made to identify most sensitive variables to change.
4. Monte Carlo Simulation - variables are changed simultaneously to generate an appropriate contingency fund.
5. Intuition & experience – risks are identified and impact on time & cost are assessed through professional judgement

Question 27

What is Monte Carlo Simulation?

Answer 27

Computer generated simulation used to model outcomes. Variables are changed simultaneously to generate a contingency fund.

Question 28

What Forms of Risk Response are available?

Answer 28

• Risk Share – share the cost of potential risk. E.g. prov sum
• Risk Transfer – to contractor.
• Risk avoidance
• Risk Reduction – e.g. undertake site investigation
• Risk Retention – keep the risk

Question 29

On one of your projects how is risk managed post contract?

Answer 29

Risk management post-contract in a project using the NEC ECC (New Engineering Contract Engineering and Construction Contract) can be managed in the following ways:

1. Risk Register Updates: As you mentioned, the risk register is continuously updated with emerging risks and closed risks as the project progresses. This includes updating the risk allowance, the amount spent, and the forecast spend against the risk allowance. This helps in tracking the risks and their impact on the project.
2. Regular Risk Reviews: Regular risk review meetings are held with the project team to discuss the status of the identified risks, their mitigation plans, and any new risks that have emerged. This ensures that all team members are aware of the project risks and their roles in managing them.
3. Risk Mitigation Actions: For each identified risk, a risk mitigation action is defined. This could be a change in the project plan, additional resources, or a contingency plan. The effectiveness of these actions is monitored and adjusted as necessary.
4. Communication: Effective communication about risks to all stakeholders is crucial. This includes the project team, the client, and any third parties affected by the risks. Clear communication ensures that everyone understands the risks and their potential impact on the project.
5. Contractual Clauses: The NEC ECC contract includes clauses for managing risks such as compensation events, which are events that affect the completion date or total cost of the project. These clauses define the process for dealing with these events, including notification, quotation, and assessment.
6. Early Warning Mechanism: The NEC ECC contract has an early warning mechanism where either party can notify the other of any matter which could affect the total cost, completion date, or quality. This allows for proactive management of risks.

Question 30

Can Risk be calculated?

Answer 30

Risk can be calculated to an extent with suitable provisions 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 and its potential impact in that event that it does occur.

Risk can be assessed via several methods, the method I have most experience with is risk register and risk workshops.  

Question 31

What is Expected Monetary Value (EMV)?

Answer 31

A PM metric used in Risk Analysis for determining the overall contingency reserve required for a project plan.

Question 32

Are there any risks for client working on oversees projects?

Answer 32

Conditions of contract may 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.

Question 33

What is the purpose of Contingency on a project?

Answer 33

The contingency sum is usually incorporated to allow for unforeseen items and/or project specific risks. Risk assessment can be used to provide an objective assessment of the contingency requirement, rather than relying on percentages which do not relate to project circumstance.

Question 34

How would you price a risk register?

Answer 34

A risk register workshop would have been completed and risk register filled in with risk items, risk owner, cause and effect as well as probability and impact calculated post and pre mitigation.

I would then provide costs for the prolongation costs (e.g. prelims and professional fees while everyone is standing down) nb. that all will endevaour to resource out to other projects to reduce prolongation costs.

I would then determine additional costs associated with the risk, e.g. removal asbestos

and mitigation strategy costs if applicable, e.g. asbestos survey. This will then allow the client to decide whether to undertake the mitigation strategy.

I will update the risk register as the project progresses, for example remove mitigation strategy if say a survey was conducted, this is now has been expended and probablity can be updated. I will also provide costs for new risk items or update risk items costs if narrative changes.

Question 35

How do the various Procurement Routes deal with risk?

Answer 35

Traditional – Client with the design and contractor with the construction

Design and Build – mainly with the Contractor.
Employer responsible for everything in the EP and the contractor for the CP.

Design and Dump – employer fully design everything. Contractor risk price everything to cover for any variations post contract.

Management Contracting - The client carries a large portion of the risk because they pay the actual cost of construction. The management contractor’s risk is limited to the provision of management services for a fee.

Construction management – Similar to management contracting, the client carries most of the risk as they contract directly with the trade contractors.

Question 36

What are the risks that NRM identify?

Answer 36

Design Development Risk
Employer Change Risk
Employer Other Risk
Construction Risk

11a. DESIGN DEVELOPMENT RISK * An allowance for use in the design process for risk associated with uncertainties surrounding design development, statutory requirements, procurement, tendering and third party risks (planning requirements, legal agreements and environmental issues).
11b CONSTRUCTION RISK * An allowance for use during the construction process for risk associated with site conditions (waterproofing, access restrictions, existing buildings, existing tenants), ground conditions (asbestos surveys), existing services (dead leg pipework) and delays by statutory undertakers.
11c EMPLOYER CHANGE RISK * An allowance for use during both design and construction to provide for the risk of employer driven changes to scope of works, quality, time and cost.
11d EMPLOYER OTHER RISK * An allowance for any other employer risks such as early handover, acceleration, availability of funds, liquidated damages, unconventional tender action and special contract arrangements)