The Construction Risk Management Guide for 2020

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Risk management can be the difference between your business failing or succeeding.

Construction risk management is critical for planning a successful project. Jobs can become overrun with cost issues and safety hazards if a proper understanding of where risks lie isn’t determined. It’s crucial for project managers to mitigate risks that pose a threat to the working environment, personnel, finances and more.

Thankfully, identifying risks associated with large construction projects has never been easier. A wide variety of project management and other construction software solutions are now available on the market. However, software only gets you so far. A thorough understanding of positive risk management practices is required to properly handle potential threats to your job.

Have a look at our comprehensive Construction Risk Management Guide for 2020 and understand the key aspects of this instrumental process.

The Benefits of Risk Management in Construction

Risk management plans provide your company with more security in many respects. Although developing a risk management plan for construction takes a lot of effort, positive processes protect your organisation with many essential benefits.

After a risk management plan is set in place, operations are streamlined, making the future projects easier to assess. Team members have the knowledge and tools needed to make decisions and avoid risk, improving the efficiency of your company.

Risk management plans allow teams to follow all security and safety standards on construction sites, too. The possibility of a safety hazard is drastically minimised, speeding up jobs.

Having a water-tight plan allows teams to gain confidence, saving valuable time and resources. Taking on unmanaged risks, however, can hurt your company’s profits. 

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Sources of Construction Risks

It’s important to first understand where risks may originate from. The potential sources of risks that are most likely to jeopardise your construction project are:
  • Financial Risk
  • Safety Risk
  • Environmental Risk
  • Legal Risk
  • Project Risk

Financial risks: Encompass factors that impact your financial flow, including problems with the economy, unexpected cost increases, competition with other companies and lack of sales.

Safety risks: Refer to any potential injuries to a worker because of methodologies, behaviour or technologies used.

Environmental risks: Relates to natural phenomena that could potentially damage construction sites and make work inaccessible i.e earthquakes, floods, storms, hail etc.

Legal risks: Involve potential conflict in the execution and fulfillment of contracts with clients.

Project risks: Revolve around hazards as a result of poor project management including miscalculation of time, poor management of resources, lack of proper policies or misunderstanding of project deliverables.

How to Manage Construction Risks

In order to properly manage risks on construction sites, a risk management plan needs to be developed. There are six major steps involved in this process. They are:

  1. Identify the risks
  2. Rank construction risks in order of importance
  3. Deal with each risk
  4. Select the right resource to help manage your risk
  5. Involve team members
  6. Create contingencies & Revise

Step 1: Identify Risks

Now that the sources of construction site risks have been identified, it’s important to figure out those that apply to your project. To maximise results, risk identification needs to be executed prior to any construction commencing. This allows project managers more time to deal with the risks and evaluate whether or not they need to be actioned.

A brainstorming session held by the project leaders is a great way to flesh out potential risks posed around the construction site. This session allows team members to contribute their knowledge and expertise, with past projects providing a handy reference to understand scope, size and location.

Step 2: Rank Construction Risks in Order of Importance

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Construction risks will be different for every project a company tackles. It’s important to categorise risks and rank them depending on what is going to affect you the most. Risks can be prioritised on two variables: The potential impact on your business and the likelihood of the risk actually materialising.

High-probability, high-impact risks need to be addressed first, while low-probability and low-impact risks handled last.

According to Contractor company failure statistics, the actual construction process isn’t even in the top five risks that businesses face. The 5 main downfalls of companies include:
  1. Unrealistic Growth (overextending credit lines, taking on too much work): 37%
  2. Performance Issues (lack of experience and/or staff): 36%
  3. Character Issues (transfer of ownership, key person leaves): 29%
  4. Accounting Issues (insufficient cost and time tracking, non-compliance): 29%
  5. Management Issues (lack of training, poor project management): 29%

Undesirable business practices are a common catalyst for failure. Although many construction business owners and managers understand the labouring process, they often struggle with the management side of the operation. Properly ranking risks is a critical process to evaluate potential problems.

Step 3: Deal With Each Risk

Construction risks can be incredibly complex at the best of times, however, risk management techniques are categorised in four simple ways:

  1. Avoid the risk - If you feel as though you’re unequipped to deal with a major risk, the best option is to change the project scope or not execute it at all. For example, you’re able to refuse to build projects in areas prone to earthquakes. 
  2. Transfer the risk - Purchasing insurance is the most popular way to do this. An appropriate contractual agreement with a subcontractor or supplier is also a reliable plan of attack. 
  3. Mitigate the risk - When you mitigate risk, you create plans to keep the risk as low as possible. You can train workers and supply proper safety equipment to lessen the dangers of a safety risk, for example.
  4. Accept the risk - For instance, weather is uncontrollable and can cause extensive delays on construction schedules. However, good construction project management can sometimes work around the problem and lessen its impact.

Step 4: Select the Right Resource to Help Manage Your Risk

Whether you’ve chosen to accept, mitigate or transfer a risk, different resources may help you to optimise your risk management choice. Construction companies typically use the following resources in their risk management plans:

  1. Financing: A good precaution to use are construction business credit lines. 
  2. Technology: Drones, prefabricated building methods and BIM are all examples of exciting new innovations in the construction industry that can help mitigate or eliminate risks like safety hazards, weather and poor time management. 
  3. Software: There is an ever-expanding list of software options available for construction risk management. From costing to building design, project management, accounting or other aspects of construction, implementing innovative software can save you time, money and resources.
  4. Professional Advice: Legal firms that specialize in construction contracts, as well as bankers, accountancy firms, and consultants, are good sources of advice from professionals for businesses. Your insurance program can also advise you on requirements and the pros and cons of different programs.

Step 5: Involve Team Members

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For effective risk management, everyone in the company must be filled in on and contribute to proper processes. Construction risk management demands inclusivity of all relevant parties to actually work - risk updates and reviews should be communicated to all levels. Since each team has its own set of practices and procedures, it is important to look into their processes and identify and eliminate risks wherever possible. The stakeholders also play an important role that can impact risks.

Regular, helpful reminders about risk management are the keys to ongoing success. Keeping communication about risks simple and to the point as well, so that your message is easy to understand and remember.

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Step 6: Create Contingencies & Revise

Developing a contingency plan or an alternative method for finishing a project when a risk is identified and accepted is crucial. Creating back up plans in case the first or second plans do not work is a great idea to stay ahead of the curve and remain productive.

iSeekplant work with businesses that understand risk management.

iSeekplant is Australia’s leading online construction marketplace. With thousands of dedicated suppliers across the country that understand risk management processes, we’re guaranteed to have the right machines for your project. Get in touch with us today and receive a quote for your project!

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