16.1.2 Phase Two: Structured risk quantification workshop
Guidance Notes - Structured risk quantification workshop | |||
The quantification of risk should be attempted only after the reference project and Raw PSC costing exercise have been completed. In the first instance, risks can be usefully quantified using workshop techniques after the risk experts have been given sufficient time to consider the likely impacts for the risks and probabilities. (Note that the key participants should attend all the risk workshops to ensure consistency in the estimates provided.) | |||
There has been considerable analysis of the psychological factors at work in group dynamics, both in and out of workshop situations. Some of the dynamics to be considered when quantifying risks in a workshop situation include: | |||
• Conformity: When a group of people estimate a risk, they tend to gain unwarranted confidence from each other's estimates and give a narrower range of estimates than if they worked on the issue independently. | |||
• Bias: The more senior individual at the session is likely to influence the others merely by their presence. Most people will have a bias in a particular direction, but with a dominant person present, the biases will tend to converge. | |||
• Personality: This is the usual issue of the loudest voice dominating, and the quietest not being heard. | |||
To avoid some of the issues raised above, the preferred technique is to present preliminary analysis data to experts before the risk quantification workshop and use the session to discuss the level and logical structure of the uncertainty and correlations for the risks. | |||
Simple and advanced valuation techniques | |||
The most simple risk valuation technique is a subjective assessment of probability for each risk. Subjective assessments should, where possible, be based on past experience, current best practice, and likely improvements in the future, supported by reliable information where available. One of these techniques is the point estimate approach. | |||
Those risks identified in the phase one workshops as 'material risks' should be discussed by the participants to provide an agreed assessment using either the simple or advanced valuation technique. | |||
Simple valuation technique | Advanced valuation technique | ||
Probability of occurrence | Probability of occurrence | ||
Likely cost impact of various outcomes | Likely cost impact | ||
Maximum and minimum cost impacts | |||
Quantifying risks in a workshop To assist in quantifying risks, it may be useful to set some parameters around subjective descriptions of probability and impact as in this table. | |||
Boundary | High | Medium | Low | ||
Probability of occurrence | Greater than 60% | From 30% to 60% | Less than 30% | ||
Impact on capital cost | Greater than $0.5m+ | $0.25m to $0.5m | Less than $0.25m | ||
Impact on recurrent cost | Greater than $50 000 | $25 000 to $50 000 | Less than $25 000 |
The risk workshop facilitator should ensure that every participant in the group is able to contribute to the discussion. Various techniques can be employed to ensure that each individual opinion is given equal consideration. The real output of this workshop is the understanding of the risks and a general indication of where the risk would lie, i.e. the high, medium, low category. Participants at the workshop are only required to agree whether the risk should be classified as high, medium or low in terms of probability and cost impact and whether the cost impact is on capital expenditure, recurrent expenditure or both. This provides a useful guide for the risk experts who carry out the actual risk quantification in the following phase. This roundtable discussion brings together participants who will assess the risk based on their own expertise, e.g. engineering, architecture, core service operations, finance etc. This aids in a better understanding of the risks for those involved in the project and it acts as a guide for the risk expert. The risk expert then looks more closely at the risk and places a probability on the risk, usually within the boundaries of the classifications of high, medium or low as assessed during the workshop. The risk expert nominated in the workshop also assigns a three-point distribution to the risk. If the risk eventuates, this three-point estimate represents the 'best case', 'most likely case', and 'worst case' scenario. Risks that are difficult to quantify due to the high level of uncertainty of variables or the inherent nature of the risk, for example risk due to changes in the private party key personnel, should be classified and recorded as unquantifiable and qualitative in nature. |
Phase two workshop (example)
The phase two workshop (structured risk quantification risk workshop) was held at [ ] on [insert date] with the following representatives [usually the same participants as the phase one workshop] attending from their respective departments and organisations:
Department/Organisation | Attendees (participants) at the risk workshop |
the Procuring Agency | [list names of participants] |
[list names of participants] | |
[name of clinical operator] | [list names of participants] |
[insert name of technical adviser] | [list names of participants] |
[insert names of financial advisers] | [list names of participants] |
The primary purpose of the risk workshop was to categorise the identified risks as high, medium or low as follows:
Boundary | High | Medium | Low |
Probability of occurrence | Greater than 60% | From 30% to 60% | Less than 30% |
Impact on capital cost | Greater than $0.5m | $0.25m to $0.5m | Less than $0.25m |
Impact on recurrent cost | Greater than $50 000 | $25 000 to $50 000 | Less than $25 000 |
Each risk was also analysed for correlations with any other risks.