Managing Risk and Uncertainty Flashcards
Define Risk
‘The likelihood of an event or failure occurring and its consequences or impact’ RICS
Elements of risk
- The source of the event
- The possible consequences of the event
- The probability of the event occurring and its severity
- The length of time vulnerable to the event and its consequences
Known Knowns
Probable events and reflects the availability of full knowledge
A reliable dataset of similar past events is available, from which objective probabilities of known future events are statistically estimable
Known-Knowns are uncertainties that are known to us, and that we have a plan for.
Known Unknowns
Known-Unknowns are uncertainties that we know exist, but don’t have a plan for.
For example, we may not know if our company will be acquired by another, or if our product will be discontinued.
Unknown Knowns
Unknown-Knowns are uncertainties that we’re not aware of, but that others may be.
For example, we may not know that our company is about to go bankrupt, but our employees might.
Often occur as a result of poor communication
Must be dealt with reactively
Unknown Unknowns
Unknowns-Unknowns are uncertainties that no one knows about.
For example, a new technology may be developed that makes our product obsolete.
complete lack of data
future events and their probabilities are unknown and inherently unknowable
Standard risk management process
Risk Identification
Risk analysis
Risk Response
Risk Review
Typical risk categories
o Design development risks
o Construction risks
o Employer change risks
o Employer other risks
What is involved in risk identification
- Risk Register and Risk Management meetings
- Brainstorming sessions are important to get key stakeholders to identify and prioritise risks
What is involved in risk analysis
- Categorise risks by the likelihood and severity of impact
- Estimate the size of the risk
- Provide information for decisions
- Provide information on how to reduce risks
Qualitative Risk Analysis
- Brief description
- Stages of project it may occur at
- Elements of project it could affect
- Factors that influence its occurrence
- Relationship with other risks
- Likelihood of occurrence
- Impact on project
Quantitative Risk Analysis
- Probability of occurrence is central to decision making
- Possible consequences are quantified in terms of
o Increased cost
o Increased time
o Reduced quality and performance - Impact scales and distributions (normal, triangular, uniform) have to be developed
- Analysed using sensitivity and probability analysis
Risk Response
- Avoid or eliminate
- Reduce probability
- Reduce consequence
- Transfer or share
o Insurance, suretyship, indemnification
o Subcontracting
o Procurement method
o Payment mechanism- target cost contract - Retain and Plan
- Risk allowances included in bids and project cost estimates
