Identifying and Managing Construction Project Risks

Construction is a risky business. Each construction project is unique and comes with its own set of challenges and opportunities. Identifying and managing risks can be tricky, but not impossible with careful planning and execution. When a risk turns into reality it can disrupt and derail a project. In order to avoid disaster, you need to be able to properly assess, control and monitor risks once they’ve been identified.

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 results in more projects and being able to expand your business into new markets and sectors.

Types of Risks

In order to identify and manage risks, you need to know the types of risks inherent on 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 Risks

Now that we’ve discussed some of the risks common on construction projects, it’s time to identify the risks unique to your project. This should be done as early as possible during the preconstruction phase of the project. Remember, if you fail to identify and manage a potential risk you are basically accepting it should it present itself during your project.

Hold brainstorming sessions with the project team and stakeholders to identify risks. At this point you aren’t looking to solve any problems. The goal here is to identify as many possible scenarios that could negatively impact the project. Be sure 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 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.

Managing Risks

Once you’ve identified the potential risks to your project, you now need to sit down and 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 al 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 risks. This may mean turning down a project or negotiating the contract to remove the risks. There’s no shame in walking away from a project if the risks outweigh the potential rewards.

Transfer the risks. 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 risks. 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 risks. 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 risk management requires a high level of collaboration and 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.

 

 

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