What Makes Up a Good Risk Management Plan in Construction
What Makes Up a Good Risk Management Plan in Construction

What Makes Up a Good Risk Management Plan in Construction?


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When it comes to construction project management, it is no secret that project managers must keep a keen eye for detail and employ a meticulous and hands-on approach. With a million moving parts involved in one project, the construction industry is notoriously prone to risks. As a project manager, you should be aware of the numerous dangers of building projects. Every project has its own set of risks, whether it’s satisfying contract requirements, ensuring employee safety on the job site, or coping with natural calamities. From using heavy equipment, people operating under hazardous conditions, and sophisticated logistics to safety concerns, the risks associated with these factors must be considered and evaluated thoroughly. If not appropriately managed, these risks can harm your building projects and be lethal to your bottom line.

As a result, planning out a good risk management plan in construction is essential to ensure smooth and seamless project delivery. It should include precise but straightforward processes for controlling risks, deciding how to deal with them, and turning them around to benefit your business. With growing expenses, new industry trends, more complicated projects, and heightened safety concerns, a risk management strategy is more critical than ever. In this article, let us dive into why construction projects are prone to risks, what risk management is, and the risk management process. We will also share several tips you can use to manage risks more efficiently.

Why are Construction Projects Prone to Risks?


As stated earlier, construction projects have historically been dangerous for various reasons that often result in a poor track record in terms of cost and timeliness. As a project manager, there is a lot of pressure to save time and money. This is why having an efficient construction project management plan is essential to ensure high-quality projects are delivered on time and within budget constraints.

The unidentified dangers for which no provisions have been made, on the other hand, are frequently the ones that have the most influence on a project. In construction, sound risk management aims to reduce losses caused by risk exposure, such as any untoward accidents, loss of money or time, property damage, or reputational harm.

What is Risk Management in Construction?


Construction risk management is about assessing and putting measures to mitigate the effect of hazards on construction projects. It entails extensive planning and preparation to develop a risk management strategy that helps project managers identify, monitor, and reduce risks. Each potential hazard must be identified during the initial stages; its corresponding risk must be assessed to implement control measures.

In a nutshell, a construction risk management strategy explains what project hazards could arise and how to deal with them. This involves appointing team members to be in charge of the problem and resolving it so it does not cause any more problems.

What are the Sources of Construction Risks?


In general, a risk causes the project to be delayed or incur an additional cost, time, and resources. To start creating your risk management plan, you will need to figure out what parts of the construction are most likely to threaten your initiatives. There are several sources of risk on a building site, which are defined below:

Safety Risks

The construction industry is a hazardous workplace. Your construction crew is your most important asset, but worker accidents occur due to any building site dangers or hazards, even if they are trained and seasoned. They are also exposed to safety risks since many of their assigned duties might be hazardous. Knowing the dangers to your crew’s safety and the hazards they may be exposed to can help you develop a safety plan to protect your employees.

Financial Risks

Every business needs a solid cash flow system to operate. Lack of sales, economic challenges, unanticipated cost hikes, and rivalry with other businesses are all factors that affect your cash flow. So, taking in any project, regardless of its scope or complexity, comes with financial risks, so any circumstances that might cause your cash flow to be disrupted must be recognized. This might include a rise in material costs, increased market competition, or an additional workforce.

Legal Risks

As a project manager, constructing a project comes with commitment and responsibility. However, time, cost, and scale are not the only factors to consider while managing a construction project. Regulations, code infractions, and contract terms conflicts with your clients, vendors, and subcontractors are all legal restraints. Any of these factors has the potential to derail your building project.

Project Risks

Poor resource management, time underestimation, a lack of solid policies, or a misunderstanding of project deliverables are potential project dangers. In construction, project managers must keep up to date with whatever happens within the project, down to its most minor details. You must be meticulous and aware of any obstacles that might derail the project. Poor resource management, missing deadlines, and going behind schedule are just a few examples.

Environmental Risks

Natural disasters wreak havoc on building sites and make it impossible to work. Any event caused by nature that renders the building site inaccessible is expensive and potentially harmful to the project. This is potentially out of our hands, but considering these risks throughout the project planning phase can help you adjust your schedules, milestones, and commitments accordingly.

The Five Steps of Creating a Risk Management Process


Risk management must be systematic, organized, collaborative, and cross-organizational to be effective. The component aspects of a sound risk management approach may be classified in various ways, but here are the five basic steps of the risk management process:

Identify All Possible Risks

First on the list is to itemize every possible issue that might develop first. Now that you have your list of construction project hazards, it’s time to figure out which ones are specific to your project. You can investigate historical data from previous building projects that may be similar to the one you are handling now. Identifying risks should be a priority during the project’s preconstruction phase to give time to create contingency plans and prepare your team to handle these.

One good way of identifying risks is by holding brainstorming sessions with your stakeholders to discover all conceivable situations that might influence the project. All teams will be able to offer their knowledge and experience and valuable insights during a brainstorming session.

Assessing and Evaluating Risks

Not all dangers are created equal. Similarly, not all risks should be treated the same – some are more likely to happen than others. The next step to creating a sound risk management plan is to assess the risks you have identified previously. It should include a risk assessment matrix, which shows the possibility of each risk and the extent of its impact on your project; this is one approach to examining your list of hazards. Creating a risk assessment matrix can assist you in dealing with the risk if it arises.

Mitigating Risks

This is when you put your contingency plan into action to lessen the chance and severity of the risks you identified previously. After you’ve determined the risks’ importance, you’ll need to decide on a response strategy for each one. While threats are diverse, risk management approaches may be divided into four categories:

  1. Avoidance

    You might feel unprepared to handle a significant risk – maybe it can be due to financials, resources, or you do not have a risk strategy in place. It is best to avoid the project or modify the scope in this case.
  2. Transfer

    This method may be less expensive than taking the risk. You can engage with an insurance provider or contract with a supplier or subcontractor to delegate obligations.
  3. Mitigation

    When you mitigate risk, you make strategies to keep the risk as low as feasible. In construction, risks cannot be thoroughly eliminated. To reduce the threats of a safety risk, you might teach personnel and provide suitable safety equipment.
  4. Acceptance

    There are times when you must incur risks to finish a project. For example, you may choose to tolerate weather-related delays if you plan to manage the project better to work around the issue.


This next involves keeping an eye on the success of your mitigation strategy and how your project is progressing. Stakeholders should also be consulted and kept informed about the project’s hazards. Enlist the assistance of other department heads and empower the team to respond to risk.


The crew and stakeholders should review and discuss your construction risk management plan. Once the risk is resolved, these reports allow you to assess the contingency plan’s efficacy. While the traditional way of reporting – such as spreadsheets or manual logs, may be used, construction project management software is more efficient. These online, cloud-based tools collect data automatically and keep everyone on the same page.

How To Execute a Good Risk Management Plan


A risk management plan improves your risk response approach by giving team members vital information and options to minimize, transfer, or accept risks. An effective strategy should identify resources for each of your stated risks and define priority. Risk management solutions can influence several levels of your organization.

You may rely on various services to solve these complications and optimize your firm to handle hazards, but here are four resources you can utilize to make your processes easier:

Project Management Software

Design, budgets, safety compliance, construction crew management, and accounting can be managed and processed quickly by utilizing the right software. These can help you get a clear overview of every detail of your project, regardless of scope, size, or complexity.

Financing and Insurance

As stated earlier, construction business credit lines or insurance can typically provide a good safeguard if you accept certain risks.

Professional Advice

Construction contract lawyers, bankers, accounting companies, and consultants are all excellent sources of expert guidance for organizations. They can provide expert advice on criteria and the benefits and drawbacks of various plans.

Construction Technology

Drones, BIM, and prefabricated building technologies are examples of new, vital developments that may assist lessen or eliminate common risks, including inadequate time management, safety concerns, and weather.

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