CEC Risk Management & Contingencies Flashcards

Which contract type transfers the most cost risk to the contractor?

Answer: Lump sum (fixed price)

A lump sum contract fixes the contract price, making the contractor responsible for all cost overruns beyond the agreed amount.

Escalation risk in a multi-year construction project is best managed by the estimator through:

Answer: Applying published escalation indices and including escalation allowances in the estimate

Published escalation indices (e.g., ENR cost indices) provide a data-backed basis for projecting future material and labor price increases, which should be built into the estimate.

In risk management, the expected monetary value (EMV) of a risk event is calculated as:

Answer: Probability × Impact cost

EMV equals the probability of a risk occurring multiplied by its financial impact, giving a dollar-weighted measure for comparing and prioritizing risks.

A 'risk register' in construction estimating serves primarily to:

Answer: Document identified risks, their likelihood, impact, and assigned owners for the project

A risk register is a structured log of project risks including probability, potential cost impact, mitigation strategies, and the party responsible for each risk.

Which of the following is a risk transfer mechanism commonly used in construction contracts?

Answer: Requiring subcontractors to carry and name the GC as additional insured on their insurance policies

Requiring subcontractors to name the general contractor as an additional insured transfers a portion of liability risk from the GC to the subcontractor's insurance.

What is the primary difference between a risk allowance and a contingency in an estimate?

Answer: A risk allowance is tied to a specific identified uncertainty; contingency is a general reserve for undefined unknowns

A risk allowance addresses a specific, identified risk item with a quantified potential cost, while contingency is a broader reserve for collectively unidentified uncertainties.