Risk Management &
Contingency Estimation
Class Participation:
Students are to be prepared before the lecture by reading the posted material on the
course webpage and by answering the set of questions below. The students in their
assigned groups are to answer the questions, making use of the material posted on the
course webpage marked “C” (e.g. C.1, C.2, etc.). Members of each group (team) are
encourage to discuss the answers among themselves before submitting it.
Context:
Uncertainty gives rise to risk, which should be managed effectively for successful delivery
of EPC projects. There are different types of risk, which can be grouped in is three
categories according to D.H. Rumsfeld (past Secretary of Defense in the USA); known
knowns, known unknowns, and unknown unknowns. Risk management encompasses 4
main processes: risk identification, risk quantification, risk mitigation, and risk monitoring
and control. In this lecture, we will explain risk management and its essential processes
with a focus on risk associated with project cost. Different methods for estimating project
cost contingency will be described and their respective advantages and limitations will be
highlighted.
Questions:
The students in groups each will be requested to address the following questions:
a. What is the definition of risk?
b. Name 3 methods for estimating contingency.
c. How to conduct the risk identification process?
d. What are the important factors that need to consider when using Monte Carlo
simulation for estimating cost contingency?
A representative of each team shall submit the team answers to the above questions no
later than 9:00 a.m. on the day of the next lecture.
BLDG 7811 Prof. O. Moselhi, BCEE Department [Type here]