In December 2008, the subprime crisis of the U.S. economy caused the construction sector to shrink at its fastest pace in recorded history. Credit markets froze causing subcontractors to go under, cost overruns spiked due to rising global materials prices, and unemployment more than tripled to 27% in just over 18 months.
The future looked bleak for the industry and we all learned a lesson: even if you budget every penny and map out each milestone, we’re always one risk away from losing everything.
Are you prepared to survive difficult times?
Proactive Planning: Without it we jeopardize our time and money.
According to a study conducted by the Construction Industry Institute, the single most effective tool contractors have to mitigate risks on their job sites is pre-project planning. By being proactive, you can anticipate problems and plan to minimize their impact or altogether eliminate them.
When it comes to risk management here are five must-do’s to properly assess risks.
1. Know Your Risks
Risks cannot be managed if they are not first identified. All teams should help to identify risks that may affect the achievement of project goals. What threats may hinder the stakeholder’s ability to achieve their goals? What opportunities may stakeholders exploit or enhance to reach the goals? Here are seven categories of risk to keep an eye on:
Occupational risk: These risks are most commonly associated with safety.
Financial risk: These risks are often the result of wishful pricing or poor economic research.
Contractual risk: Some contract clauses are always stacked against you. For example: What would the toll on your business be if you were stuck in an arbitration case?
Project risk: When sound project management or company culture and processes are lacking, the means to meet project objectives dissolve.
Stakeholder risk: These risks are generally associated with a lack of transparency and communication among teams.
Natural risks: These are generally uncontrollable risks that involve weather, geography, and unforeseen catastrophes.
Competition: The pressure to remain competitive puts profitability at risk when bidders are tempted to lower estimates and increase build schedules.
2. Determine the Probability and Impact of Each Risk
Running a business is tough, and there are so many hurdles and issues that it’s any wonder you get sleep at all. But, before you let risk keep you up at night, make sure you cover the risks that are most probable to occur and have a significant impact.
Determine probability: What are the odds a certain risk will occur? It’s a lot more likely that a key team member will be out for a week with the flu than a tornado hit your California jobsite. Rate each risk with high, medium, or low probability.
Determine Impact: What would happen if each risk occurred? Would your final delivery date get pushed back? Would you go over budget? Identify which risks have the biggest effect on your project’s outcomes, and rate them as high impact. Rate the rest as medium or low impact risks.
3. Identify Mitigation Strategies
How we respond to risks can mean the difference between in-the-black or in-the-red. The solution is remarkably simple, but powerful enough to change your outcomes. In a nutshell, there are four ways to stay on track.
Avoid the risk. For risks with a high likelihood of loss and large financial impact that are out of your control the best approach is to avoid its occurrence. For example, building on earthquake prone or poor soil.
Transfer the risk. For risks with low probability of occurring and large financial impact, the best response is to transfer responsibility. For example, purchasing insurance or outsourcing to subcontractors by contractual agreement.
Mitigate the risk. For risks with a high likelihood of occurring and small financial impact the best approach is to use management control systems. For example, safety audits and training programs can reduce the risk of occupational exposure to this risk.
Accept the risk. No matter how hard we try, some things are out of our control – like the weather. If cost-benefit analysis determines that the cost to mitigate the risk is higher than the cost to bear the risk, it is best to accept it and continually monitor the risk.
4. Select and Commit Resources
Technology: A new wave of web and cloud apps are streamlining communication, simplifying document management, and improving efficiency in construction management. Embracing a centralized cloud-based system can help alleviate all seven categories of risk. It can increase collaboration, automate schedules, and provide real time updates that lead can eliminate obstacles to achieving project objectives. Quick adoption of future technologies like virtual reality and BIM can also help speed up your building processes.
Training: Having proper auditing and training programs for your employees and subcontractors can reduce financial, occupational, and contractual risks exponentially.
Ultimately, successfully responding to risks with agility requires collaboration. Clients, designers, field, and office employees must work cooperatively during each phase of a project to address potential risks in time.
Your risk management plan is within reach––like in your desk drawer, hand, or pocket.
Selecting a mobile-ready software can safeguard your company’s training, daily processes, inspections, and more. Your project teams and stakeholders can proactively collaborate to mitigate potential risks and increase the chances of success. In the end, you’ll reduce risks, minimize delays, increase efficiency, and lower costs.