Building anything involves managing project risks—and while the spotlight recently has been on health and safety, particularly in relation to COVID-19, there are many other areas of the project management construction process where a good construction risk management plan can save you time, money and heartache.
Managing workplace health and contractor risks is fundamental in construction, still many other kinds of risks can compromise projects, profits, and reputations. They don’t always receive as much attention because they don’t always seem as urgent, according to Jim Whiting, construction risk manager and Director of Soteris.
“Individuals and organisations often become engrossed in immediate risk exposures and their effects, such as COVID-19. They get distracted, or even ignore, other crucial risks and opportunities,” Whiting said.
“Construction risks, in addition to occupational health and safety, are complicated by dynamic, ever-changing conditions that create daily risks to contractual and legal obligations, [such as] productivity, schedule, budget overruns, assets, environment and reputation,” Whiting added.
Safety and managing project risks are something Whiting believes any competent person can do. What’s more, in many companies, there is often a construction risk manager, an individual hired especially for risk management. The construction risk manager acts as a champion to improve processes and approaches, leading the company to new ideas and improved overall business management.
Basic Risk Categories
McKinsey and Co in a recent report on supply chain risk outlined four main risk types: “manageable surprises,” which are hard to predict but manageable like supplier bankruptcy; “brewing storms” which will have a high impact but can be predicted beforehand, such as regulatory changes; “business challenges” which are low-impact and can be managed easily; and, “black swan events” which are hard to anticipate and have severe impacts, such as the COVID-19 pandemic.
Risks exist at every stage of the project lifecycle, from design through to commissioning and handover. However, as the Royal Institute of Chartered Surveyors (RICS) noted in its Guidance Note, Management of Risk, the further a project advances through the lifecycle, the harder it becomes to make changes that can mitigate, manage or avoid them.
“Risk management as a discipline is becoming far more prevalent for the success of projects.”
According to RICS, the success of construction projects can be gauged on the “ability of the professional team to mitigate threats and maximise opportunities in relation to the overall objectives of the project.”
“Risk management as a discipline is becoming far more prevalent for the success of projects, programmes and indeed the construction industry.”
Regulatory Risk is Not a Bad Thing
Recent years have seen an increased emphasis on risks associated with non-compliant products and non-compliant work. Whiting said this is avoidable, and managing project risks like these can benefit the whole industry.
“At the end of the day, there is only one way to succeed—doing a job well in all its aspects,” Whiting said. “In the short-term, if a business doesn’t follow regulations, they can save some money, but they can then suffer a much larger penalty down the track.”
He believes regulations around safety, quality, and compliance exist to “keep free enterprise fair” by ensuring those who do the right thing are not at a disadvantage compared to those who cut corners.
When companies not only ensure they comply but actually go beyond compliance by managing project risks, they can reduce associated commercial stress. They can also exploit opportunities and be part of overall industry improvement.
“Show the rest of the industry how it’s done,” Whiting said. “And if you improve the performance of your subcontractors—they will goon and deliver that improved performance on their next jobs too.”
Risk is Allied to Opportunity
One of the important things to understand is that managing project risks means finding opportunities to add value, no matter the size of the company.
“Smaller organisations, who may not have a dedicated construction risk manager, can still benefit from applying basic tools to make effective decisions regarding the relative costs and benefits for alternative risk/opportunity choices,” Whiting explained.
No-one ever exposes themselves to risk for the chance of harm, loss, or damage deliberately—the goal is always to make a gain.
For instance, it could be applied when considering the relative risks of different work methods for a specific construction job such as trench excavation. This would involve the construction risk manager examining the choice of shoring devices like sheet piling or propped boxes, or battering the walls back at a suitable angle, or ultimately, relying on an engineer to put their professional indemnity insurance on the line to say the trench walls are stable and it is ok to do neither.
“The comparison analysis has to consider risk and opportunity (R&O) factors beyond occupational health and safety, financial, quality, environmental, or damage to assets,” Whiting said.
“A crucial factor when making an R&O decision is [understanding] what are your personal and corporate levels of acceptance or tolerance. In all aspects of life activities, we seek the prospect of gain or benefit but recognise clearly the accompanying risks.”
No one, even the construction risk manager, ever exposes themselves to risk for the chance of harm, loss, or damage deliberately—the goal is always to make a gain.
How to Calculate Risk and Opportunity Levels
Whiting said that opportunities of different Values (V) are pursued through processes of planned actions, events, and factors. All of them have Likelihoods (L) that can also be assessed or estimated.
The simplest form of estimation is “qualitative.” The output prospect Value V and the Likelihood L of the planned opportunity process are each separately rated as HIGH / MEDIUM / LOW. The L and V estimates are then considered together to give an Opportunity level (O). At the same time, a risk Consequence severity (C) can also be considered together with the Likelihood (L) of its scenario to give a clear picture of the degree of that risk.
Whiting’s chart below shows this approach in graphic form like a “traffic signal.” Colours recommend appropriate actions, with red indicating that the proposed action should not proceed.
This tool allows rating and ranking of risks and opportunities so that you or your construction risk manager are able to make risk-informed decisions about priorities for action, Whiting said. For complex and significant risks measured with this qualitative tool, additional estimation methods will be needed.
Putting a Construction Risk Management Plan Into Practice
The secret to a good construction risk management plan is undertaking a solid scoping process done at the initial stages of considering a project, Whiting said.
This framework can be applied through design and planning right through to delivery to identify, evaluate and manage or control the main types of risk. It can guide the construction risk manager and their risk management decisions at every stage of the project.
The secret to a good risk management approach is undertaking a solid scoping process early on.
Whether you’re just beginning your construction risk management journey towards safer project management construction or you are a seasoned construction risk manager, managing project risks is only becoming increasingly important. Make sure that you are up to date on the latest trends in construction risk management here.