In risk transfer, what happens to the risk itself?

It still exists but the loss is borne by the third party who accepts it for a fee

It is shared equally with no payment

What is the purpose of a performance bond (bank guarantee) of about 5 to 10% of contract price?

To make the bank pay if the contractor fails

To charge the contractor for each day of delay

Which pair correctly matches a clause with the risk it transfers?

Fixed-price contract: cost overrun risk; liquidated damages: delay risk

Fixed-price contract: delay risk; liquidated damages: cost overrun

Insurance: contractor delay; CAR policy: price rise

Liquidated damages: flood damage

Which list gives the methods used after identifying a major risk?

Avoid, transfer, mitigate, accept, and monitor with contingency plan

Brainstorm, Delphi, SWOT, interview

Asked 2/26
2073 Shrawan · 5 marks
2070 Chaitra · 2 marks

Risk transfer with example

Short answer

For a highway bridge, flood damage risk is transferred by Contractor’s All Risk insurance, a performance bond guarantees contractor performance, and a lump-sum contract shifts cost overrun risk. These cost a premium but shield the owner from large losses. Other strategies include avoid, mitigate, and accept.

Explain with a suitable example how risk transfer is taken as risk response planning. (What methods can be used in risk management after identifying a major risk?)

Risk transfer in risk response planning

Risk transfer is a response strategy in which the project owner shifts the negative impact and responsibility of a risk to a third party, who accepts it for a fee. The risk still exists, but the loss is borne by the other party. It is chosen after analysis, mainly for risks with low probability and very high impact, or for risks the other party can manage better.

Example: construction of a highway bridge

Risk: flood or earthquake damage during construction, and contractor delay or failure.

Insurance: the contractor takes a Contractor's All Risk (CAR) policy; if flood damages the work, the insurer pays for repair.
Performance bond: a bank guarantee (usually 5 to 10% of contract price) is taken so that the bank pays if the contractor fails.
Fixed-price (lump sum) contract: the cost overrun risk is transferred to the contractor.
Liquidated damages: delay risk is transferred by a clause charging the contractor per day of delay.

The owner pays a premium or a higher price, but is protected from a very large loss.

Methods used after identifying a major risk

Avoid the risk (change plan, design or site)
Transfer it (insurance, contract, guarantee)
Mitigate / reduce it (preventive action, extra investigation)
Accept it (with a contingency reserve)
Monitor it and prepare a contingency plan with triggers

✓ Answer checked by Claude Opus 5.5 (high effort)

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All Project Engineering chapter 5 questions →

Risk transfer with example

Risk transfer in risk response planning

Example: construction of a highway bridge

Methods used after identifying a major risk

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