Now that it is 2022, what is your construction firm’s level of preparation against an unexpected disaster? Perhaps, your business is most likely aware of the many risks that usually come with complex projects. Whether maintaining employee safety on the job site, meeting the contract terms, or dealing with natural disasters, each construction project has its own set of hazards. And if they are not managed well, these risks can hurt your projects, causing them to affect your company’s bottom line.
Therefore, a comprehensive risk management plan is essential for your construction company. With rising costs, more complex projects, and new industry trends, having a risk management plan is more critical than ever.
This blog will be your detailed guide on creating the right risk management plan for your business.
What is Construction Risk Management Anyway?
Risk management involves identifying the risks present in your construction business and assessing the procedures to minimize their impact. In construction, this process requires planning, monitoring, assessing, and controlling instances of risk.
At the center of the entire process is your risk management plan, a comprehensive document that details the risks and your strategies for addressing them.
To be able to create your risk plan, you need to first determine the factors that mostly jeopardize your construction projects. So, here is a list of potential sources of risks that are most common in construction:
- Financial risk: These factors directly impact your financial flow, including problems with the economy, lack of sales, competition with other firms, and unexpected cost increases.
- Safety risk: Any construction site risks and hazards that can potentially lead to worker accidents
- Legal risks: Potential disputes in the fulfillment of contracts with the customers
- Project risks: Project hazards like a miscalculation of time, poor management of resources, lack of proper policies, or a complete misunderstanding of project deliverables.
- Environmental Risk: Earthquakes, floods, and other natural phenomena ultimately damage construction sites and make jobs inaccessible.
In addition to these mistakes, it is crucial to consider the major impact of factors unique to 2022. As a matter of fact, this year, we will see an increase in material costs and trade tariffs, which can significantly affect project budgets. In fact, pressures for more prefab construction, building efficiency, and green construction may impact the supply chains. Even the increased selectiveness of insurance companies may change how you assign possible risks.
But How Can You Manage Risks?
To efficiently manage risks, we need to develop a risk management plan exactly what we mentioned before. This particular process can be broken down into six main steps:
1. Determine the risks
We hope you better understand some of the most common project risks we cited in the previous section. Now is the right time to determine the risks unique to your construction projects. Risk identification must take place during the pre-construction phase of your project to allow for enough time to manage any possible risks before accepting them.
To effectively analyze the possible risks, ensure to do the following:
- Hold brainstorming meetings with your project team and other stakeholders involved.
- Figure out all the possible scenarios that can impact the construction project.
- Allow every crew member to contribute some of their knowledge and expertise to this matter.
- Review your past projects since they can provide a very helpful reference to understand the scope, size, and location.
Do not forget to conduct regular meetings with your whole project team; and this helps you review existing risk plans and even determine any additional risks that may occur from time to time. But the bottom line is how important it is to have everyone involved participate and collaborate.
Pro Tip: Make sure to follow some of the best practices of construction crew management to keep everyone on the same page. That is how you can best manage your crew, especially when dealing with potential risks.
2. Prioritize risks by order of importance
After determining the potential risks, it is crucial to prioritize and categorize them based on two levels – (1) the possible impact on your construction business and (2) the chance of that risk materializing. Use numbers like percentages and dollar amount for risk analysis as much as possible.
High-probability, and high-impact, must be handled first, while low-impact, lower-probability risks must be last addressed. For instance, if a price increases with your project’s materials, it can hurt your margins, and this should be handled with medium priority. Another scenario is when a hired contractor is incapable of fulfilling their portion of the project; that risk is the main example of one with higher impact and high probability.
3. Determine your risk response strategy
Once you have evaluated the priority of your risks, you will want to choose a response strategy for every hazard. While risks are very complex, there are risk response tactics that you can use. The techniques fall into four categories:
- Avoiding the risks: If you ever feel unequipped to handle the main risk or do not develop a risk plan, the safest option is to steer clear of the project/ change the scope.
- Transfer the risk: While costly, this specific solution might be less expensive than accepting the risks. For instance, you can transfer the risks to your insurance provider or forge an agreement with the subcontractor or supplier to pass the responsibilities.
- Mitigate the risks: When you mitigate the risks, you craft plans to keep the risks as low as possible. You can even train the workers and supply the proper safety equipment to reduce dangers.
- Accept the risk: There will be times when you have to accept the risks to complete the project. For instance, you might decide to accept the delays caused by the weather, but you are planning to manage the project much better to work around the problem.
4. Execute the Risk Management Plan
After executing the risk assessment, you will want to develop your risk management plan. The risk plan optimizes your risk response strategies, detailing critical information for your team members and providing a list of solutions to either transfer, mitigate, or accept the risks. In addition to this, an effective plan has to specify resources for each of your defined risks.
Risk solutions impact various levels of your construction business:
- Strategy: Overlooking risks at the enterprise level using the indemnity clause in insurance. In addition, risks are used as means to boost profit margin.
- Operations: This is setting a process to assess and review risks, develop a safety culture and program, manage your subs and vendors, and prepare detailed documents.
- Structure: Crafting a formal risk department, ensuring insurance protects earnings stream and preventing over-participation in construction projects with higher risks.
In addition to optimizing your construction company in handling risks, you can also depend on various resources to address these hard complexities. You can opt for the following resources in their risk management plans:
- Financing: Construction company credit lines provide a better precaution if you accept various risks.
- Software: The right construction scheduling software helps you manage and process tasks quickly, including costs, safety, building design, safety compliance, and accounting. These functions can help mitigate risks as you are handling an increasing number of projects.
- Construction technology: Using emerging, modern innovations like BIM, drones and prefabricated building tactics help you mitigate and eliminate common risks like safety hazards, poor time management, and weather.
5. Create Contingencies and Revise
With all risks you decide to accept, you will want to develop a contingency plan – a substitute method for finishing your construction project despite accepting the risks. Risk management is not a set-and-forget kind of process. Continuous improvement and revisions to your construction plans can help you increase the resilience of your construction business against any possible risks. And like a dynamic document, your plans must evolve and change over time.
Be aware that even after all risks are calculated and accounted for, there still can be residual risks that often remain due to many factors. Risk acceptance integrated with construction scheduling software is an effective solution and response to these risks.
6. Involve your team members
Construction risk management should require the contribution of the main players in your company. Any updates on risk must be communicated at every level. The three main players who participate in the process are:
- Owner team
- Design team
- Contractor team.
Every team has its own set of procedures and practices; therefore, it is crucial to look into their processes and determine and eliminate risks as much as possible. Make use of subcontractor scheduling software to better track and manage your team members and your stakeholders with everything they contribute to your projects and other plans.
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All risks are different, and you should be ready and equipped with the right tactics and tools to deal with and fix them. Pro Crew Schedule can help you and your team deals with the culling out of different risks that typically arise over the life cycle of your projects, helping the project remain on track and meet your goals.
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