Construction Risk Management: An Introduction
Construction risk management is a critical project management process of identifying, assessing, and building a mitigation plan to reduce the impact of the risks and avoid disruption in construction projects.
It comes under the project planning and management phase process. Construction has inherent risks; thus, construction risk management is essential to ensure the seamless completion of the project with the least disruption.
Why is it important in construction? Whether it is a small or big construction project, it involves risks. The principles of risk management in construction are elementary.
Risk management in construction is not about getting rid of all risks but minimizing the impact of those risks. With every risk comes opportunity, and construction projects are full of opportunities.
Types of Potential Risks In Construction Projects
What is risk in the construction industry? Different types of risk exist in the construction industry. The count is as high as 107 risks, as per the Construction Industry Institute. It would help to consider all these risks before starting construction risk management.
This blog will discuss the common types of risk that can disrupt your project. You can build a solid plan to mitigate those risks by identifying and analyzing them.
Financial Risks
Financial risks are prevalent in the construction industry. There can be many reasons behind such financial risks in a construction project. For example, poor planning and coordination can cause the budget to exceed. Budget exceeding is not a good sign as it can put a project at stake.
Other risks may include:
- Inaccurate cost and effort estimation
- Fluctuation of material costs due to economic instability and inflation
- Inadequate cash flow management
- Payment delays
It is crucial to understand these risks. Understanding these risks can bring more transparency to your project. It can help you mitigate these risks. In addition, it can increase the chances of completing the project within the allotted budget.
Safety Risks
Safety risks can not be ignored in a project. Your crew is your front-line army; thus, it is your responsibility to ensure they are safe. They are valuable and important stakeholders of the project. They execute the whole project from scratch.
Construction work involves safety risk, also known as an occupational risk. So, their safety and security must be your top priority. We at Fast Labour Hire do well to maintain the highest occupational health and safety standards.
Accidents can happen, but you must have a safety plan. The safety plan ensures employee safety and knows about any project’s safety risks. Risk management in construction allows you Why is Construction Safety Important? | Fast Labour Hire to build that safety plan.
Environmental Risks
Environmental risk refers to acts of God. The most common risks are inclement weather, earthquakes, or other natural acts. These events make the construction site inaccessible and destructive for the project. Thus, working in such a situation can be a significant safety hazard. Risk management helps to tackle such issues.
Project Risks
Project risks are part of managing any type of project. They are a universal set of risks in project management.
It includes all those factors which can affect your project’s performance. The common risks are:
- Poor project management results in unwanted delays
- Conflicts between team and individuals
Workforce management issues - Scheduling issues
- Miscommunication
Schedule Risks
The phrase “Time is money” is relevant in the construction sector. The reason is that construction projects are time bound and need realistic timelines. This allows ensuring smooth project deliverability.
Scheduling risks can affect your project if the project timelines are unrealistic. Even a tiny miscommunication or an error could be fatal. It can push your project schedule back by days, weeks, or even months. Such risks can completely change the project dynamics. They also decrease the likelihood of the project’s successful completion.
Legal Risks
Legal risks can also derail your project. It involves potential disputes in fulfilling contracts with clients, vendors, and subcontractors. Also, delays in payments or falling behind schedule may result in a breach of contract.
Importance of Construction Risk Management
To reiterate, risks are inevitable. Yet, the appropriate construction risk management plan can help you. It can reduce the impact of those risks. So, you can take advantage of the operational and financial benefits, including:
- Enhanced safety and security
- Better decision-making
- Streamlined and seamless operations and processes
- Improved financial handling
- Improved efficiency and productivity
- Excellent level of transparency and clarity
- Preventing disputes, and claims
- Avoiding unnecessary loss
Construction Risk Management Process
Construction risk management is a series of steps that identifies and mitigates the risks. It takes preemptive actions to execute the project without jeopardizing it. There are five steps in the construction risk management process to mitigate risks. Let’s dive in deep to understand them.
Risk Identification
We have discussed the common construction project risks. It’s time to create a list of possible issues that could arise in your construction project. These issues can hurt your project performance and derail it.
The best way to identify risk is to conduct historical data analysis. The data of previous similar construction projects can be beneficial. You can also talk with your crew about the challenges and blockers.
Risk Assessment
You should not consider all risks the same carrying the same impact. Risks depend on probabilities, as some might occur and others might not. Thus, set the priority of risks based on their likelihood and the impact they can have on the project. Creating a risk assessment matrix does the same as well.
Risk Mitigation
After risk assessment, the next phase is risk mitigation. This is where you put in place a contingency plan. It helps to reduce the likelihood and reduce the risk impact. You should handle the risks with high probability and high impact first.
Risk Monitoring
Risk monitoring is an ongoing process. Here, you are identifying the new risks and monitoring the existing ones. With the help of monitoring, you can understand how well your mitigation plan is working. Stakeholders are also onboard during this phase to keep themselves aware.
Risk Reporting
Risk reporting is vital in the process. It helps to analyze and check the effectiveness of a contingency plan. The construction management plan is also shared with the project stakeholders.
You can report using different types of software based on your preference. The reporting tools give you complete freedom and flexibility. You can build dashboards, populate data, and represent data with the help of charts and graphs. Then, you can visualize that data to drive insights and generate reports.
Principles of Risk Management in Construction
The principles of risk management in construction depend on the five-step process. Thus, this process serves as a baseline. You can identify, manage, and make money from it by doing construction risk management.
Avoid thinking about the risks you had not thought of before because now they can affect the project. Instead, consider yourself better if you know such risks exist in the first place. Now, you can work out a strategy to manage those risks.
Wrapping Up
Risks are not always adverse. On the contrary, they lead to great rewards when you manage them well. It is challenging to keep risks under control, but it is not impossible.
Construction projects are becoming complex, introducing more risks than ever. Thus, an excellent construction risk management plan requires communication and collaboration from stakeholders. Bringing all the stakeholders on one page can help you manage and mitigate risks before they become a real threat.
Not sure where to begin? Don’t worry; contact Fast Labour Hire today for your construction project and get professional help. Our team has vast experience and expertise in construction risk management and can help you make your project a big success.
Construction risks exist, but good risk analysis can help you manage those risks. We wish you the best of luck with good construction risk management.
