Every year, the dynamics of running a construction business change. The economic and political winds shift, new technologies arise, partners come and go, and clients face new demands and opportunities. This causes business and project risks to change as well.
Based on outlooks for 2022, here are construction risks to watch for this year and the best strategies for dealing with them.
Labor: A Deloitte survey found that 52% of engineering and construction executives say they face severe labor and talent shortages. In August 2021, 60% of surveyed firms had projects canceled or postponed because of workforce shortages. Here are some strategies to help minimize the labor shortage impact:
- Provide more training and cross-training.
- Build a talent pool.
- Engage freelance and remote workers.
- Build a companywide opportunity marketplace and post projects, leader roles, mentorships, and job openings.
- Pay overtime.
- Lower hiring standards — a person with the right attitude that’s also trainable is likely better than no person at all.
Supply Chain: Material and component availability depends on raw materials, and the raw materials have to get to the sales or manufacturing floors. The problem shows up in two ways. When raw materials are lacking, it causes longer lead times and project delays. The costs of materials go up as a result. From August 2020 to August 2021, lumber was up 16%, copper 45%, and steel 120%. Try these strategies to mitigate these issues:
- Source strategically to make your procurement process holistic.
- Incorporate more prefabrication and modularization.
- Encourage an industry-wide collaboration on new sourcing ideas.
Supply chain disruptions and volatility are among the biggest challenges expected in 2022. The businesses that can successfully navigate these obstacles will “likely emerge as winners,” according to Deloitte.
Fire and Defects: Litigation abounds, and people make mistakes, so fire and defects made the list of rising risks for 2022. Since 2014, the number of fires in new construction and renovation has been rising.
These fires happen most in the residential sector. The main culprits are electricity, cooking and heating equipment. The items that mostly catch fire first are cooking materials, framing, and garbage. Appropriate property security protocols, rules, and insurance make up the trifecta of approaches to managing this risk.
Defects are often sleepers, lying in wait to come back and haunt you when you least expect it. Unfortunately, they are also multi-layered in risk because multiple parties often contribute to the project. When the defect is traceable to a material or component provided by a party not directly involved in the project, the finger-pointing goes crazy.
Rigid quality controls, accurate apportionment of responsibility in contracts, and insurance help to corral this risk.
Slow to Innovate: The companies that are adopting new technologies that integrate with their existing tech stack continue to offer more value to their clients than those that still rely on old tech or single-point solutions. The innovators strip waste from their systems while adding more functions to track data and analyze it. They also discover new ways to reduce or eliminate 2022 risks.
Almost half of construction executives say they are putting more money into tools used with design like BIM. Other high-ranking digital tools include integrated supply networks, prefab, modular, predictive maintenance, asset tracking, drones and digital twins.
HKA, global risk consultants, recently examined 440 projects in 18 countries in the Americas. What they saw was existing risks getting worse. They summed up construction’s challenges as “failures to include inflation clauses, assign appropriate contingencies, schedule correctly or manage slack.”
Perhaps the most glaring aspect of that assessment is how heavily it weighs on management. This encompasses issues like not assigning adequate contingencies, not scheduling correctly, and not managing slack, all show as management failures.
Don’t Avoid Risk Assessments
It’s tempting to avoid risk assessments because they take time. After all, you’ve been doing projects long enough to know the risks. Why not just focus on the well-known risks and rely on well-used avoidance, mitigation, and acceptance strategies? That’s not an effective strategy because well-known and well-used things are ripe for change, and change is behind many risks.
A new subcontractor is a change with potential new risks. A different lumber supplier may impact material quality and quantity, while a piece of equipment that breaks introduces a change to your well-planned foundation work.
So, assessing the project risks should be more than a cursory process based on what you already know. A risk assessment should help you:
- Get better project outcomes.
- Improve business resilience.
- Protect company assets.
- Provide client security.
- Get better profits.
The choices you have in dealing with risk
Risk avoidance and acceptance are polar opposites when it comes to dealing with risks. When you avoid the risk, you change something to make it go away. For instance, you have an aging tool you assess as posing a risk of injury to a worker. So, you either upgrade it to remove the risk, or get rid of the tool.
When you accept a risk, you usually are doing so with small or unlikely-to-occur risks. These are also risks that you can’t realistically eliminate. There is a possibility that you won’t be able to buy a 2×4 in six months, but you don’t control the 2×4 market, and the shortage is unlikely to occur. So, you accept it.
Another option is to mitigate or reduce the risk. Do that by considering solutions, planning, taking action and monitoring the results. You could also transfer the risk. Use special wording in contracts, insurance, or make someone else accountable.
Getting ahead of 2022’s risks means making it a management imperative.