As construction projects become more expensive and complex, risk management plans become an integral part of the construction process. If neglected, risks revolving around health and safety or unplanned financial costs can rise.
However, it’s not always easy to create a proper and effective construction risk management plan. The first step is always detecting potential risk factors and analysing their possible impact on a construction project.
When putting together a functional risk management plan, we should analyse risk factors and determine the best strategies for risk management.
A good understanding of where a risk may come from is required, to be able to predict and minimise overall construction project risk. Risk factors in the construction industry can be divided into the following areas:
Usually, when we talk about construction project risks, safety risks come first to our minds. Health and safety risks are related to the workforce at the construction site. Safety risks usually fall under site managers’ responsibility, since creating a safe and accident-free construction place is essential. Also, health and safety risks are managed through legislation in the construction field (such as Design and Management Regulations 1994 and other acts). Moreover, all construction projects need to have a health safety plan to reduce the possible risks.
Or, in other name, natural risks, such as storms, earthquakes, and floods can jeopardise your project. Although no one can predict those risks, the analysis of the area’s environmental conditions is a must as a precaution.
During construction projects, many legal issues and conflicts can occur. Therefore, as a part of construction project risk management, assessing and taking care of contracts and legal aspects is vital. Sometimes, some issues, such as lack of contract fulfilment, can occur, and the litigation process might be inevitable. Situations like this increase the project risk, timeline and overall costs.
Financial risks include various economic factors that can endanger the financial flow, such as an increase in cost, construction budgets, lack of sales, and competitors lowering prices. Therefore, before venturing into construction projects, it’s essential to assess any financial risks, such as inflation, tax, currencies, etc.
Project risks in construction are issues that can arise as the outcome of poor project management, poor time calculation, poor material and resource management, or a general lack of policies.
It’s quite clear that any of the above risk factors have the potential to cause severe damage to a construction process. Thus, we trust that you understand why being able to foresee these risks is important.
Client risks include risks such as feasibility risks, design risks, funding and commercial risks. While, on the other side, contractor risks include inappropriate assessments of cost and time frame by contractors and subcontractors, which may increase the overall cost and timeline of the construction project.
Identifying and managing risk in construction can greatly contribute to the success of a building project. Each risk can be regarded as a blocker that can negatively contribute to the project’s completion. Not all risks can be removed, but some of them can be reduced to a tolerable level with the proper risk management plans in place.
Let’s start with an example: if we take a look at health and safety risks in construction, we can conclude that they can heavily impact the length and quality of the project. If the workforce is exposed to an unsafe work environment, the chance of accidents will be much higher, the project deadlines will not be met, and the company can lose their reputation. Eventually, depending on the severity of the violation, the company will lose lots of money from not being able to prevent the accidents.
A construction risk management plan is a detailed plan aimed at reducing the risks that usually come along with construction projects. The goal of the plan is to buffer the risks we identified and enable smooth project flow. During the risk management planning, all potential construction risks should be carefully estimated and evaluated. Based on that, the proper procedures and processes need to be developed to reduce their impact.
Developing a proper risk management plan is fundamental for successful dealing with risk factors. This complex construction risk management plan should include the following aspects:
Above, we classified the construction project risks. Now, it is your task to figure out, as a project management consultant, which of these categories apply to your project. Identification of these risks should always be done prior to the launch of your project. Provide your management with enough time to tackle the assessment of risks and deal with them.
Ranking all emerging risks and prioritising them is crucial when it comes to construction risk management. There are two factors, based on which you can give priority to the various risks you have identified. They are: the impact that the risk can cause on your business, and the probability of risk actually emerging. Appropriate risk ranking is a crucial process in the evaluation of possible jeopardy for your project.
Risks that have a high likelihood and high impact should be tackled first. Those that are less likely to occur and impact the project can be postponed for later.
There are four simple ways to deal with such a complex issue such as construction risks:
No matter which of these four methods you opt for when handling your construction risks, there are various support systems that will help optimise the process. The most common resources that construction companies use in these cases are:
If you want effective risk management for your construction project, involve all of your staff members. Updates or risk reviews should be transmitted to all your team members, no matter their position. Informing your stakeholders about risks is an essential step in the overall process. Your message should be communicated in a clear and easy-to-understand manner.
Creating a backup plan or alternative approaches is important in order to stay on track with project timelines if danger actually appears. Creating contingencies or backup plans is also important, as sometimes both the first and second plans can fail. This practice will shorten delays and will help bring your project to an end quicker.
Risk management plans are essential to the success of the project, in many ways:
To sum up, construction risk management plans will boost the confidence of your teammates and encourage them to follow safety measurements. Valuable assets such as time and resources will be saved, as well as your precious company’s finances. On the other hand, if you decide to take on some unsupervised risks, have in mind that they might hurt your business and your company’s profit.
If you need help in assessing the major project risk and creating a functioning and feasible construction risk management plan, we can help you. With more than 20 years of experience in this industry, we have helped numerous companies with their building projects, mitigating their project risks.