CIVE5233M/CIVE5235M Risk Management Mock Exam 1
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CIVE5233M/CIVE5235M
Risk Management
January 2022
Question 1 [33 marks]
Tunnel Co. is a multinational project-based organisation specialising in underground tunnels. The capitalisation of Company X is small compared with the average size of its projects. Hence, monitoring the portfolio of risks arising from the different projects is essential for Tunnel Co. An internal investigation showed that about 60% of the risk identification is based on subjective assessments of risk. Furthermore, very similar risks have been identified and evaluated differently s in different projects, so that a homogenous assessment of project risks is not meaningful at the moment. You have been called to resolve this issue by the board of directors:
1. What instruments and solutions would you introduce to reduce the subjectivity in the risk identification? [9 marks]
2. What instruments and solutions would you introduce to reduce the subjectivity in the risk evaluation? [9 marks]
3. What additional remedies would you consider to reduce the overall risks affecting Tunnel Co. [7 marks]
4. Why is the systemic analysis at the portfolio-level useful for Tunnel Co., and how it can be used? [8 marks]
Question 2 [33 marks]
Company X is performing a Montecarlo analysis on a construction project in order to understand the value of a set of mitigation actions. The Probability distributions resulting for the Montecarlo is shown in the following table, presenting the cost of four scenarios.
|
Cost M£ |
Unmitigated |
Mitigated 1 |
Mitigated 2 |
Mitigated 3 |
|
100 |
0 |
0 |
8% |
0 |
|
110 |
0 |
0 |
8% |
0 |
|
120 |
0 |
0 |
8% |
25% |
|
130 |
0 |
5% |
8% |
50% |
|
140 |
0 |
20% |
8% |
25% |
|
150 |
0 |
50% |
20% |
0% |
|
160 |
10% |
20% |
8% |
0% |
|
170 |
15% |
5% |
8% |
0 |
|
180 |
20% |
0 |
8% |
0 |
|
190 |
30% |
0 |
8% |
0 |
|
200 |
25% |
0 |
8% |
0 |
1. Calculate the expected value and standard deviation of each scenario considered. [4 marks]
2. How much would you pay for implementing the mitigations measure in the first case? To answer this question, consider the scenario “mitigated 1” . Make explicit your assumption. [4 marks]
3. How much would you pay for implementing the mitigation measures in the second case? To answer this question, consider the scenario “mitigated 2” . Make explicit your assumption. [4 marks]
4. How much would you pay for implementing the mitigation measures in the third case? To answer this question, consider the scenario “mitigated 3” . Make explicit your assumption. [4 marks]
5. Calculate the contingency on project cost for the four scenarios assuming coverage of 80% of the cost. [8 marks]
6. Assume that you want to have a mark-up equal to 10%. What final price would you propose to your client during the bidding phase, assuming that you want to have 80% confidence that you will realise the expected profit? In answering this question, consider that the cost of the mitigations is:
• Mitigation 1=M£ 35
• Mitigation 2=M£ 20
• Mitigation 3=M£ 70 [9 marks]
Question 3 [34 marks]
A project is affected by six risks characterised by the following probability distributions.
R1: Normal Gauss Distribution, mean= k£ 100, Standard Deviation= k£ 7
R2: PERT Beta, Minimum= k£ 80, Mode= k£ 100, Maximum= k£ 120
R3: PERT Beta, Minimum= k£ 30, Mode= k£ 100, Maximum= k£ 170
R4: The following table expresses the probability distribution
|
Impact [k£] |
Probability |
|
70 |
20% |
|
100 |
50% |
|
120 |
30% |
R5: Probability of occurrence = 40%, Impact = k£ 250
R6: Probability of occurrence = 50%, Impact = k£ 100
1. Rank the risks according to their maximum impact on the project budget. Make the necessary assumptions explicitly if required. [6 marks]
2. Rank the risks according to their standard deviation. [7 marks]
3. Approximate the compound effect of the six risks with a probability distribution. Declare the necessary assumptions explicitly. [7 marks]
4. What is the probability that the total cost resulting from the six risks is more expensive than k£ 800? [7 marks]
5. What is the probability that the total cost resulting from the six risks is between k£ 500 and k£ 400? [7 marks]
2023-01-18