School of Environment & Technology

Semester 1 Examination 2020/21

BE616

CONSTRUCTION RISK & FINANCIAL ANALYSIS

Instructions to Candidates: –

Time allowed: FORTY-EIGHT hours

Answer ALL questions
Question 1 (40 marks)
Questions 2 and 3 (30 marks each)

This paper is expected to take no more than TWO hours to complete.
Word count for question 1 is 600 words; questions 2 and 3 are 500 words each (total word count is 1600 words).

You do not need to complete this exam in one sitting. You can work on it for as long or as little as you like within the above stated duration.

YOU MAY REFER TO TEXTBOOKS AND NOTES
You are expected to work independently on your answers to ALL assessed work. Students who do not meet these expectations will be subject to the processes described in GEAR Section F for academic misconduct.

Declaration: By submitting your answers, you are agreeing to the following statements:

I confirm that I have answered the questions using only the published books, journal and conference proceedings, material provided by the university academic staff, and my own notes and have referenced these appropriately.
I confirm that all the answers are my own work, and that I have not received any assistance during the examination from any other sources or individuals.
I confirm that I have not given assistance in any shape or form to other candidates submitting for this open book examination.

Question 1 (40 marks)

Financial Risk is a perception of the decision maker and it refers to expected events where the outcome is either to the benefit or detriment of the decision maker. In this context, decision makers in construction businesses could be classified as: risk-averse or risk-neutral or risk-seeking.

Explain the differences between risk-averse, risk-neutral, and risk-seeking types of decision makers.
marks)

Explain, using examples, when decision makers in construction organisations often shift from one classification to another.
(10 marks)

Discuss with 5 examples each of the differences between ‘health and safety risk’ and ‘financial risk’? Provide mitigating measures for each of the identified (examples) risks.

(20 marks)

Question 2 (30 marks)

Construction managers use various project management systems to help achieve project objectives in an efficient and effective manner.

One of these systems, which its application in construction industry has been recently criticised by experts such as Dame Judith Hackitt, is the value management system (VMS).

Explain what you understand by ‘Value in Construction Projects’.
marks)

Critically discuss the application of ‘The VM Continuum’.
(20 marks)

Question 3 (30 marks)

Association of Project Managers (APM) defines project risk as an uncertain event or set of circumstances that, should it occur, will have an effect on the achievement of the project’s objectives.

In construction, project managers / quantity surveyors often advise clients to mitigate certain types of project risks by using the following tools:

Letter of credit
Bid bonds
Performance bonds
Surety bonds
Risk-adjusted discount rate

Explain when and how each of these tools is best used in construction.
(6 marks each)