Risk Management

Question 1

What is a risk the context of a construction project?

Answer 1

An uncertain event or set of circumstances that, should it occur, will have a negative effect on the project’s objectives.

Question 2

What is a risk assessment?

Answer 2

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

Question 3

What is the difference between a quantified and qualified risk assessment?

Answer 3

• Qualitative Risk assessment provides a qualitative approach for assessing risk in terms of their relative likelihood/impact.
• Quantitative Risk assessment provides a quantitative approach for assessing risks in terms of possible money/scheduling costs.

Question 4

What is a Monte Carlo simulation?

Answer 4

Uses computer software to predict risk.

Question 5

What is a risk register?

Answer 5

A document listing all the risks identified for the project, explaining the nature of each risk qualitatively and quantitatively.

Question 6

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

Answer 6

• 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 7

How do you use the risk register?

Answer 7

• 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 a “likelihood” and “impact” scores for each risk to give an overall score.

Question 8

What is risk allocation?

Answer 8

Risks should be allocated to those best able to manage it, in a manner likely to optimize project performance. The allocation should be clearly identified to a “owner” on the risk register.

Question 9

What are the risk management strategies?

Answer 9

• Avoidance - action needs to be taken to ensure risk does not occur, e.g. remove or alternative solution considered.
• Reduction - if such a risk does occur the impact will be reduced as much as possible.
• Transfer - transfer the risk through to another party or insurance.
• Retention - Nothing and keeping the risk and controlling it. Must ensure dedicated manpower and budget are dedicated to monitor and control it.

Question 10

What are the benefits of risk management?

Answer 10

• Increased confidence in achieving project objectives and successes.
• Reduced cost/time overruns.
• Team understands and recognizes the use and composition of contingencies.
• Enable decision making to be made on an assessment of known variables available.
• Risk management workshops can facilitate team development and encourage communication.

Question 11

Why is risk management needed in construction?

Answer 11

• 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.

Question 12

What is the purpose of risk management?

Answer 12

• Risk events can be managed, uncertain events cannot. Fundamental rule of risk is to reduce uncertainties to a minimum.
• Events have a likelihood of occurring (probability) and a consequence (impact).
• Impossible to manage uncertainties, usual way to manage them is to include programme float and/or contingency.

Question 13

How do you report/monitor risks?

Answer 13

• Using a risk register: Risks are logged, tracked through the life of the project.
• Item: Threats/Opportunities likelihood/impact. Placed in a category e.g. client control, share.
• Needs regularly updating.

Question 14

What is risk allowance?

Answer 14

• 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 materialize.

Question 15

What are the 4 main risk allowance categories?

Answer 15

• Design development risk.
• Construction risk.
• Employer’s change risk.
• Employer’s other risk.

Question 16

How can the project team reduce design risk?

Answer 16

• Use a trusted/experienced design team.
• Transfer the risk in procurement (Contractors Design Portion and D&B).
• Effective management of the risk register.
• Early contractor involvement (buildability report).

Question 17

Who owns specific risks?

Answer 17

This should be the most appropriate party in the construction project that can deal with the risk.

Question 18

How would you calculate your risk allowances?

Answer 18

On order of cost estimates this is likely to be a percentage, however in cost plans risk allowances would be applied after compiling a risk register, you should use risk analysis to identify the value of risks and chance of them occurring to work out what cost to allow for, not just based on percentages once more information is available.

Question 19

What are the problems to the QS regarding cost control with piling? Whose risk is the piling?

Answer 19

The end depth of the piles are never a certainty and the procurement route used determines who takes the risk.

Question 20

What is a three-point estimate?

Answer 20

The three-point estimation technique is used in management and information systems applications for the construction of an approximate probability distribution representing the outcome of future events, based on very limited information.

In three-point estimation, three figures are produced initially for every distribution that is required, based on prior experience or best-guesses:

a = the best-case estimate
m = the most likely estimate
b = the worst-case estimate

These are then combined to yield either a full probability distribution, for later combination with distributions obtained similarly for other variables, or summary descriptors of the distribution, such as the mean, standard deviation or percentage points of the distribution.