Risk Management

Question 1

What is risk in the context of a construction project?

Answer 1

• Uncertain event / set of circumstances that, should it occur, could have a negative effect on the project’s objectives
• Can be predicted to a degree, but it is known whether actuality will have positive/negative effect on budget / programme
• Risk measured in terms of likelihood (probability) and consequence (impact)

Question 2

What is an uncertain / unforeseen event?

Answer 2

Random event defying prediction

Question 3

What is a Risk Event?

Answer 3

Event predicted to some degree, based on historical data / experience and making decision according to probability of event occurring

Question 4

What is a risk assessment?

Answer 4

Identifies likelihood and severity of risk being realised

Question 5

Examples of risks in construction projects?

Answer 5

• External factors - economic uncertainty, legislation / policy change
• Financial risks - exchange rates, cost of borrowing
• Site - restricted access, planning difficulties, environmental isues
• Client - lack of experience, muulti-headed client, likelihood of post contract changes
• Design - inapt consultant team, poor team ethos, incomplete design, lack of design coordination
• Construction / delivery - adverse weather, H&S, resource availability

Question 6

What is a Monte Carlo simulation?

Answer 6

• Assesses probability of achieving certain targets
• Computational risk analysis tool applied to situations- uncertain or variable
• Mathematical way of predicting outcomes of a situation / set of circumstances by giving a range of possible outcomes and assessing risk impact of each

Question 7

What are risk analysis techniques?

Answer 7

• Set out to achieve better understanding of risks identified, quantify effects in terms of probability and impact

Methods:
- Subjective probability
- Decision analysis
- Sensitivity analysis
- Monte Carlo Simulation
- Intuition and experience

Question 8

How do you carry out risk analysis and risk management?

Answer 8

• Risk management workshop organised with all design team members to identify project specific risk items
• Risk register updated during meeting, basis of risk management throughout project
• Risks continually monitored as project progresses
• Identified risks either removed / mitigation measures / risk transferred etc

Question 9

What risks are there for clients working on overseas projects?

Answer 9

• Potential unfamiliar contract conditions / legislation (from both sides)
• Exchange rates may fluctuate - pricing uncertainty
• Different cultures - potential different working hours

Question 10

Who owns risk under JCT?

Answer 10

Apportioned between either client / contractor

Question 11

Difference between a risk and an issue?

Answer 11

• Issue has already occurred / is certain to occur
• Risk is not certain to occur

Question 12

Difference between a threat and an opportunity?

Answer 12

• Threat = negative risk
• Opportunity = positive risk

Question 13

How might you develop a threat into an opportunity?

Answer 13

i.e. if identifying a risk and the contractor offers commercially attractive offer to take on risk (La Plata - offering adding in more plots)

Question 14

Quantitative vs qualitative risk analysis?

Answer 14

• Quantitative - more detailed evaluation, provides basis for pricing, programming, forming management strategy
• Qualitative - more basic, for initial prioritisation

Question 15

Risks associated with existing buildings?

Answer 15

• Asbestos
• Structural
• Extent of foundations

Question 16

What documents can be provided to inform contractor of this risk?

Answer 16

• Asbestos register and management plan
• Structural survey

Question 17

What is a risk register?

Answer 17

• Management document used to accumulate and track potential risks within project
• Used to organise each risk, categorise and assign team members who will address
• Serves as a place to include additional info about each risk, i.e. nature of risk and how it will be handled

Question 18

How do you create a risk register for a new project?

Answer 18

• Project team come together early in project life cycle and brainstorm potential risks associated with project
• Risk checklists ensuring most common areas of project risk are considered - useful as ‘prompts’ to facilitate brainstorming
• Usually PM collates risks and adds them to risk register

Question 19

Once potential risks have been brainstormed, what is typically included on a risk register?

Answer 19

May include:
- Risk identification number
- Description
- Probability risk rating (likelihood of occurring)
- Impact risk rating (severity / consequence)
- Risk score (probability x impact)
- Actions required- to mitigate effect
- Risk ownership - assigned to team member/party
- Review date
- Status

Question 20

What is risk management?

Answer 20

• Process for identifying, assessing and responding to risks associated with delivering construction project
• Establishes set of procedures by which risks are managed
• Project teams look to manage risk in more proactive manner

Question 21

Why is risk management needed in construction?

Answer 21

• Projects typically complex, with time/cost/quality targets to be met
• Risk present in all project, surveyors can be involved in making decisions having impact on risk
• Risk can’t always be eliminated, but techniques can reduce impact of events that may cause failure of reaching desired targets
• More informed decision making
• Reduce uncertainty

Question 22

Benefits of risk management?

Answer 22

• Increased confidence achieving project objectives - success
• Reduced likelihood of cost and time overruns
• Team understands and recognise use and composition of contingencies
• Enables decision making to be made on assessment of known variables available
• Workshops can facilitate team development and encourage communication

Question 23

What happens during a risk workshop?

Answer 23

• Project team formed prior, facilitator appointed
• Facilitator briefs team, issues apt info about scheme and purpose and objectives of workshop- allows prep to occur prior to workshop

Operations:
- Identify risk, generate risk register
- Identify risk probability and impact
- Allocate risk items to owner
- Agree upcoming actions
- Agree dates for following workshops

Question 24

Stages of risk management?

Answer 24

• Identification
• Analysis
• Response
• Monitor and control

Question 25

What are risk response strategies?

Answer 25

- Avoidance (reduce scope or omit completely) - Transfer (shift consequence to third party, usually involves payment premium - guarantee, performance bond) - Mitigation (reduce probability i.e. use less complex processes, more testing, more stable supplier) - Acceptance / retention (don't change current plan- contingency plan required in case risk occurs)

Question 26

What is risk allocation?

Answer 26

- Risks generally allocated to those best able to manage, in manner likely to optimise performance - Financial allocation - achieved through contract documents

Question 27

What is the Identify, Assess, Respond approach?

Answer 27

- Identification occurs after project and objectives have been well defined - risks can't be effectively managed before identified, so risk identification ASAP - Assessment carried out to determine probability and impact of each item- qualitative approach can be undertaken - Response actions aims to reduce / mitigate risk impact

Question 28

How can a project team reduce design risk for employer?

Answer 28

- 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)

Question 29

How do you monitor risks throughout the life cycle of your project?

Answer 29

- 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

Question 30

Once project risks have been identified, how do you allocate risks to a specific 'owner'?

Answer 30

- Individual / party best able to manage it - Allocation clearly identified on risk register

Question 31

What role does the QS play in risk management?

Answer 31

Within cost management: - Managing contingency - analysing funds available and managing release when no longer required - Provide estimates determining level of risk - aid decision making process - Advice when bidding for work- level of risk and financial exposure to company (understand market conditions, impact of project and rates)

Question 32

What are the 4 risk categories identified in NRM for cost estimating purposes?

Answer 32

- 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

Question 33

What is a risk allowance?

Answer 33

Monetary allowance set aside on risk register to cover costs should risk be realised

Question 34

Can risk be calculated?

Answer 34

- To an extent- suitable provision can be made but it can't be calculated exactly - Risk involves probability of something occurring and potential impact - Can be assessed via a number of methods - I have most experience using risk registers in workshops to identify and assess impact on cost and programme

Question 35

How would you calculate risk allowances?

Answer 35

- 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

Question 36

Techniques available to quantify risk?

Answer 36

Expected monetary value, monte carlo

Question 37

What is Expected Monetary Value (EMV)?

Answer 37

- Probability x impact - Used to establish overall monetary value of risks within project - Probability - fraction / % - Impact - Positive/negative monetary value

Question 38

Your client wants to use a D&B contract with GMP, what are the risks?

Answer 38

- Client will pay premium for contractor taking on cost risk - Any deviation from original specification can result in costly changes

Question 39

Your client is concerned about entering into contract with preferred contractor, what can be done to alleviate cost risk through contractual mechanisms?

Answer 39

Retention bond, performance bond/PCG, advance payment bond, materials off site bond

Question 40

How did you arrange a risk workshop on xxx project?

Answer 40

- 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

Question 41

How did you monitor and quantify risk through design stages on one of your projects?

Answer 41

- 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

Question 42

How do you calculate risk at RIBA stage 2?

Answer 42

- Benchmark against similar projects - Assessed design accuracy, site abnormals, procurement and tendering strategy

Question 43

What documents are included in the tender pack to inform the management of risk?

Answer 43

Pre-construction information (contains site location, operating hours, access route, evacuation plans, any asbestos surveys, contract details, permits required)

Question 44

How might you allocate risk in an NEC contract?

Answer 44

- Clause 60.1 (compensation events) - Clause 80.1 (Employers other risk ) - Optional X clauses - Bespoke Z clause amendments