This week we are covering Level 2 for Risk Management. Here is the link to the Level 1 post if you missed it: Risk Management - Level 1.
DISCLAIMER: The following is not an exhaustive set of notes, but it's an attempt to help those who, like me at the beginning, did not know where to start! Please feel free to let me know if I have said anything incorrect or out of date!
So what is a Level 2 Risk Management?
The RICS pathway guide suggests that to effectively demonstrate your competence at this level you must show the ability to:
Apply your knowledge to carry out risk assessments taking into account all relevant factors. Understand the application of the various methods and techniques used to measure risk.
Contributing towards the identification of risk
As a QS on a Project, you should work with the project team to identify potential risks. As we discussed in part 1, a risk is an impending event that could cost the project time or money. We need to identify potential risks as early as possible in order to prepare and plan strategies against them.
So how do you contribute? You may think you may not have done anything for this but you probably have!
For example, let’s say you are working on a project where foundations are to be constructed, but you notice that in the works information or the design info there is no survey information. You notice that there is nothing anywhere to suggest that the foundations being proposed by the engineer will be adequate. You then find out that the engineer only utilised these foundations because The client refused to undertake a survey.
As a QS you know that if the ground conditions are poor, you may need to use piles that can be expensive. This is a risk of additional cost which you have identified!
That’s just one basic example, but just think through your role and you will see that you exercise this competency more than you realise.
Identifying who owns the risk in relation to the chosen procurement route on your project
You should be able to broadly identify the risk relationships for the four main procurement routes.
Pick a project you are working on and identify the procurement route, go through the scope of work and identify whether it’s client risk or contractor risk.
The question you’re probably asking is how can you tell the difference?
The starting point is obviously the intended procurement route, and then you have to look at the level of information disseminated between the parties.
In a traditional route, the risk generally lies with the client. They have provided the designs and the quantities (assuming a BQ is used), the contractor will rely upon the given info to construct the asset. The only risk they have is not building it to spec, the client however has the risk of getting the design/spec wrong!
Contributing towards strategies to mitigate risk
There are 5 methods of dealing with any risk:
If we take the example from the first bullet point (foundations) and use the above mitigation framework to assess our options, you will see that the optimal strategy is relative to the risk I.e. it’s not a one strategy fits all type approach.
If we AVOID the foundation problem, it may mean choosing a different site that we know has good ground conditions. But this may result in sunk costs and additional further costs for obtaining a new site.
If we REDUCE the risk of the foundation problem, it may involve undertaking a survey of the ground conditions. This is a good course of action, and relatively inexpensive (when you consider the alternative costs).
If we SHARE the risk of the foundation problem, it may involve negotiating with the contractor to share the cost of the potential risk. If this is a traditional procurement route, this may be fine via a provisional for foundations but this is probably unwise. In my view, provisional sums should not be used for something so pivotal for a construction project.
If we RETAIN the risk of the foundation problem, it involves us ignoring the risk and hoping to God almighty that the ground conditions are decent. This is probably the worst course of action.
If we TRANSFER the risk, it may involve negotiating a price with the contractor for them to undertake the surveys and design (and later construct) the assets. This is akin to something like a Contractor’s Design Portion from a JCT contract. I don’t think this is the best course of action as there will be premiums for the contractor to go ahead undertake the survey and design. Why doesn’t the client just do it themselves?
As you can see from the above, you can work through the risk mitigation framework and see what works for you!
Contributing data towards the quantification of risk
As a QS one of our duties with respect to the risk management process is to help quantify the cost of certain scenarios. In the foundation scenario, we may have to estimate the costs if the ground conditions do end up being poor resulting in us having to estimate the cost of piles. This will be a high-level estimate as there probably won’t be a design for the alternative scenario.
Another method of quantification is using something called a sensitivity analysis. This type of analysis is often used for large scale projects often by construction informed clients. The point of the analysis is to identify best-case and worst-case scenario. So there’s the base estimate you then have a percentage applied to every item in the estimate to indicate a best-case scenario cost and then another estimate would be run and a worst-case scenario percentage would be applied. Essentially what we are doing here is saying that in the best case scenario the estimate may decrease in cost by x % and vice versa. The percentage that is applied in either case is dependent on a number of assumptions agreed by the project team.
To learn more about this please check the RICS Risk Management Guidance Note.
Considering the effect of risk on programme and management cost specific to your project.
In some instances, projects will have a lot of risk situations that will require time and resources to deal with the workload.
A prime current example is HS2. If you haven’t heard of that project, please Google it. It’s one of the biggest infrastructure investments in the UK but it’s one of those projects where costs seem like it’s always increasing. A programme like that has so much risk you need full-time risk managers to undertake scenario planning and other tools to ensure costs are managed and kept under control.
That’s it for this post folks, as always give me a shout if you have any questions or comments!