It’s no secret that Construction is a very risky business. Each construction project is unique to itself and comes with its own set of challenges and opportunities. Identifying and managing construction project risks can be tricky. With careful planning and execution, it can be possible through assessment, control and monitoring those risks. When a risk turns into reality it can disrupt and derail a project which is why construction risk management is so important.
Risks aren’t always a negative. Being able to effectively identify and manage risks can lead to increased profits, establishing good relationships with clients that result in more projects, and being able to expand your business into new markets and sectors.
Types of Construction Risks:
For proper construction risk management, you need to know the types of risks inherent in construction projects. These can be financial, contractual, operational, and environmental and can be caused by both internal and external sources.
Common risks include:
- Safety hazards that lead to worker accidents and injuries
- Managing change orders
- Incomplete drawings and poorly defined scope
- Unknown site conditions
- Poorly written contracts
- Unexpected increases in material costs
- Labor shortages
- Damage or theft to equipment and tools
- Natural disasters
- Issues with subcontractors and suppliers
- Availability of building materials
- Poor project management
When risks come to fruition, they can have a serious impact on costs, schedules, and performance of your project which will lead to delays and disputes down the road. The good news is most of these risks can be managed and mitigated with proper planning and good project management.
Identifying Construction Project Risks:
Now that the common risks on construction projects have been outlined, it’s time to identify the risks unique to your project. This should be done as early as possible, preferably during the preconstruction phase of the project, as Fiorilli Construction does as part of every project approach we take. If you fail to identify and manage a potential project risk, you are basically accepting the risk should it present itself anytime during your project.
It’s a good idea to have brainstorming sessions to identify risks. A safety manager would be a good person to outline this and discuss with the project team and stakeholders. At this point, the goal isn’t to solve any problems. The goal is to identify as many possible scenarios that could negatively impact the project. It’s important to rely on the expertise, experience, and knowledge base of your team. Review past projects with similar size, scope, and location you’ve completed to better understand the construction risks your current project is facing.
A good way to prevent risks from sneaking up on you as the project progresses is to hold regular meetings with your project team and stakeholders. In addition to reviewing your current risk management efforts, you can also use that time to identify any other issues that may pop up in the foreseeable future.
Construction Risk Management Process:
Once the potential risks to your project are identified, you should carefully assess each risk based on the probability of becoming reality and the impact they will have on the project if they occur.
Rank the impact and probability of each risk as high, medium, or low. High impact, high probability risks should be handled first, while risks with a low probability and low impact can be tackled last. Factor in the amount of time, money, and work each risk will require to effectively manage. Now that you’ve ranked each risk, carefully review each one and determine if you can avoid, eliminate, reduce, transfer, or accept each risk.
Avoid the Construction Project Risk
This may mean turning down a project or negotiating the contract to remove the project risks. There’s no shame in walking away from a project if the risks outweigh the potential rewards.
Transfer the Project Risk
Your company might not be the right fit to manage a particular risk. Work with the other stakeholders to determine who on the project team is best suited to assume each risk.
Discuss with the client what risks they will assume and which ones you will be responsible for managing. Work with your insurance provider to determine which risks are covered under your current policies along with other options for protecting your company against risks.
Mitigate the Project Risk
Eliminating, reducing and accepting risks takes careful planning. Break down each risk into actionable items. Don’t overcommit your resources to handling multiple risks. You may need to bring in additional resources, such as hiring more workers or renting additional equipment, to manage all your risks effectively.
Accept the Project Risk
Agreeing to accept a risk is a decision that shouldn’t be taken lightly. It might be fine to accept a few low probability, low impact risks. Agreeing to accept a high probability, high impact risk without any type of management or mitigation could be detrimental to the project and your bottom line.
Good construction risk management requires a high level of collaboration and constant communication with all parties involved. Keeping everyone on the same page and working together will allow you to identify and manage risks before they become a problem. Remember, risks can lead to great rewards when effectively managed.