Republic of the Philippines

Polytechnic University of the Philippines

Open University System
Sta. Mesa, Manila

CLASS ASSIGNMENT NO. 3

MSCM604 Construction Quality Risk Management

Dr. Manuel Muhi

ENGR. NATHANNIEL P. GONZALES

Master of Science in Construction Management

July 14, 2023

 Republic of the Philippines
Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila

1. What does a sensitivity analysis calculate? Explain briefly.

Sensitivity analysis determines how different values of an independent variable

affect a particular dependent variable under a given set of assumptions. In other words,

sensitivity analyses study how various sources of uncertainty in a mathematical model

contribute to the model's overall uncertainty. This helps to determine which individual

project risk or other sources of uncertainty have the most potential impact on the project

outcomes.

Sensitivity analysis is important because it helps you identify and measure the

sources and magnitude of project risk. Project risk is the uncertainty about the actual

cash flows and returns of a project. By using sensitivity analysis, you can see how

sensitive the project is to different scenarios and assumptions.

To perform sensitivity analysis, you must first identify the key variables that affect

the project cash flows and returns, such as internal production costs or external market

demand and interest rates. Assign a base case value and a range of possible values for

each variable, with the base case representing the most likely or expected value and the

range representing the uncertainty or variability of the variable. Calculate the NPV or

IRR of the project using the base case values of all variables to create a benchmark or

reference point for comparison. Then, change one variable at a time and recalculate the

NPV or IRR of the project using the new value, recording all results in a table or graph.

Finally, analyze the results and draw conclusions about the project risk and profitability.

2. Which of the following is an example of the quantitative risk analysis output?

a. Risk impact: high c. Risk impact: - P100,000

Risk probability: medium Risk probability: medium
b. Risk impact: high d. Risk impact: - P100,000
Risk probability: 50% Risk probability: 50%
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Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila

Option D is an example of a quantitative risk analysis output. This is because

the outputs which are the risk impact (₱100,000) and risk probability (50%) applies

numerical values and uses verifiable data. The effect of risk was also represented by a

monetary value (cost) and the risk is also represented in percentages and indicates the

probability of the risk occurring or of it causing a specific negative effect on project

objectives.

3. What is the monetary value of project threats in the expected monetary value

analysis? Explain briefly your answer.

a. Negative c. Can be both negative and positive

b. Positive d. Equal to zero

The expected monetary value of project threats can both be negative or positive.

Depending on the numerical signs that are set for the impact cost before the calculation,

the EMV of project threats can both be positive or negative as long as the impact cost

of project opportunities are set to an opposite sign based from the assigned numerical

sign to project threats in order to assess the gain or loss of a particular risk in a project.

4. What is the main focus of qualitative risk analysis?

Qualitative risk analysis tends to be more subjective. It focuses on identifying

risks to measure both the likelihood of a specific risk event occurring during the project

life cycle and the impact it will have on the overall schedule should it hit. It prioritizes

risks according to probability and impact, identifies the main areas of risk exposure and

improves the understanding of project risks.

 Republic of the Philippines
Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila

5. Which risk analysis approach takes more time to carry out?

Quantitative Risk Analysis takes more time to carry out and accomplish due to

its more complex analysis and has more detail, contingency reserves and a go/no go

decisions. Quantitative risk analysis is also often applied to larger projects and more

complex projects which uses numerical values and mathematical calculations to assess

the effect of risk and probability of occurrence.

6. Which risk characteristics are evaluated during a qualitative risk analysis?

Risk Likelihood or Probability - the possibility of a potential risk occurring,

interpreted using qualitative values such as low, medium, or high. This is in comparison

with quantitative assessments, which use data and numbers.

Risk Severity or Impact - the extent of the damage to the institution, its people, and

its goals and objectives resulting from a risk event occurring. It is the expected harm or

adverse effect that may occur due to exposure to the Risk. In other words, it measures

how bad things could get if a particular Risk materializes.

Risk Tolerance - the degree, volume or amount of risk that an organization can

withstand. It indicates how sensitive organizations, stakeholders, and people are

towards risks.

Risk Appetite - the level of uncertainty an organization or stakeholder is willing to take

on with the anticipation of reward at the end. The risk appetite of an organization

indicates how much it is willing to take risks to grow itself.

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Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila
Risk Categories - made up of risk causes that fall into common groups. These groups

can include risks such as technical risks, internal risks, external risks, group risks,

organizational risks, and or, environmental risks.

7. Which of the following is NOT an input required for the qualitative risk analysis?

Explain briefly your answer.

a. Project scope statement c. Project budget

b. Risk management plan d. Risk register

The inputs of the Qualitative Risk Analysis are the risk register, project scope

statement, risk management plan and organizational process assets.

Risk Register - the source of all of the known risks that are to be analyzed.

Risk management plan - affect a risk management strategy document for the project,

it will clarify the overall approach that needs to be taken to risk management on this

particular project as well as stating how much risk is acceptable and who should be

involved in carrying out the qualitative risk analysis of the project risks.

Project scope statement - this key document describes both the project and product

deliverables along with the objectives of the project and to the requirements, along

with the constraints and assumptions. When it was first created within the define

scope process, it also included all the identified risks known at that time, and these

will be used along with the other information within this document for qualitative risk

analysis.
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Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila

Organizational process assets - these will include aspects such as tools to help carry

out qualitative risk analysis, policies, procedures and guidelines for risk management,

and historical information including lessons learned from previous similar projects.

8. Which technique ensures that available risk information is reliable?

a. Risk data quality assessment c. Risk urgency assessment

b. Risk categorization d. Expert judgment

Risk data quality assessment – a qualitative risk analysis that requires accurate

and unbiased data if it is to be credible. Analysis of the quality of risk data is a

technique to evaluate the degree to which the data about risks are useful for risk

management. It involves examining the degree to which the risk is understood and the

accuracy, quality, reliability, and integrity of the data regarding the risk. If data

quality is unacceptable, it may be necessary to gather higher-quality data.

9. What role does risk tolerance play in quantitative risk analysis?

a. Risk tolerance is used in determining risks that should go through quantitative

risk analysis, specifically risks above the risk tolerance

b. Risk tolerance is used in determining risks that should go through quantitative

risk analysis, specifically risks below the risk tolerance

c. Risk tolerance is used along with quantitative risk analysis to determine which

risks need to go through qualitative risk analysis

d. Risk tolerance is unrelated to quantitative risk analysis

Risk Tolerance is the degree, amount, or volume of risk that an organization or

individual will withstand. Organizations perceive risk as the effect of uncertainty on

their project and organizational objectives. Organizations and stakeholders are willing
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Polytechnic University of the Philippines
Open University System
Sta. Mesa, Manila
to accept varying degrees of risk. Risks that are threats to the project may be accepted

if the risks are within tolerances and are in balance with the rewards that may be

gained by taking the risks.

10. You are presented with the following table:

RISK EVENT PROBABILITY IMPACT

COST/BENEFIT
1 0.20 -4,000
2 0.50 5,000
3 0.45 -300
4 0.22 500
5 0.35 -4,500
6

What would RISK EVENT 6 be based on the following information: Engr. Martin

is 60% certain that he can get the facility needed for P45,000, which is P 7,000 less

than what was planned for. Explain your answer.

0.60, 7,000, 4,200. Marty is 60 percent certain he can save the project

$7000. The $4200 represents the 60-percent certainty of the savings.