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Key Takeaways
- Schedules, Lookaheads, and Weekly Work Plans within one integrated platform.
- Real-time insights and project analytics through automated dashboards.
- Easier, streamlined plan management through a user-friendly interface.
Table of contents
- Introduction to Risk Management in Construction
- Importance of Risk Management in Construction Projects
- Types of Risks in Construction Projects
- Risk Assessment Techniques
- Mitigation Strategies for Construction Risks
Construction is inherently risky. Even small remodeling projects can balloon into high costs and potentially dangerous situations. But when you're dealing with large-scale commercial projects, the risk exponentially increases. Risk management deals with that. But what is risk management in construction projects?
First, let's look at risks in construction projects. Basically, risks mean “the possibility of an incident that will harm the project’s feasibility.” If you've worked in the industry for any length of time, you probably have a long list of potential disasters.
Risk management is the process of identifying likely problems for each project and taking steps to deal with them. With good risk management, potential disasters become manageable inconveniences.
Ultimately, that means better cost control, schedule adherence, and improved safety among other benefits. Let's take a look at why risk management strategies are so important, the types of risk to be on the lookout for, and how to assess and mitigate construction risks.
To understand why risk management is so important, we need to take a moment to consider exactly what's at stake if things go sideways.
Risk management goes beyond the specifics of a single project. For example, if you fail to put financial guardrails in place, your most recent project is at risk, and you might be unable to meet operating costs after the project is done.
If you don't take your reputation seriously on this project and leave stakeholders unsatisfied, It's going to be nearly impossible to pick up a new project. Ignoring safety protocols and regulations is not only unethical but can land you in a lot of legal trouble.
In short, the entire feasibility of your company rests on effective risk management. That's why it's so important to look at some examples of risks in construction projects you are likely to face in the industry.
What are the risks in construction projects? From a bird's eye perspective, we can break down common risks in construction projects into three broad categories – financial, reputational, and safety.
Financial Risks
Greenlighting a commercial construction project poses a massive financial risk to the project owners. Large-scale factors like inflation and lack of solvency present major challenges. On top of that, cost overruns stemming from inaccurate estimates and changes in scope are all too common.
Once the project starts, financial risks include supply chain problems along with fluctuating material and labor costs. From the stakeholder's side of things, delayed payments and unexpected expenses often impact project timelines.
External factors like changes in building codes over the course of the project and delayed permits can also have a huge impact on finances.
Reputational Risks
At first, reputational risk might seem a little harder to monitor, but it’s no less important. The construction industry runs on trust, and if you establish a reputation for shoddy contract work, unreliable management, or incompetence, your days of winning project bids are over.
Some of the more common mistakes that impact your reputation include poor communication which leads to misunderstandings and dissatisfied clients.
Along those same lines, scheduling problems between subcontractors can leave workers wasting time on site while they wait for the previous crew to get their work done - which leaves you responsible for the sub's missed profits.
Safety Risks
Most importantly, the safety of your crew is at risk if you don't take the steps you need to mitigate on-site hazards. This is important not only from an ethical perspective but also a legal one. The construction industry consistently leads to high levels of injury reports, and in 2021, construction accounted for 21% of deaths among workers.
To some degree, physical safety risks are inherent to working at a construction site, but often, taking the right precautions goes a long way in preventing serious harm.
OSHA’s “Fatal Four” statistics highlight the most serious risk workers encounter on site. Falling, being struck by an object, electrocutions, and being caught between compressed equipment or objects are the leading causes of fatal accidents.
Other common risks include hearing loss, misuse of power tools, and failure to use personal protective equipment when building with hazardous materials.
The key to mitigating any of these risks is accurately assessing where your company and your on-site crew are most at risk and addressing those issues as quickly as possible.
The future of schedule management
Download the playbook to learn more:
- Integrates effortlessly with Procore.
- Designed with simplicity in mind.
- Leverage the power of lean construction.
The future of schedule management
There are quite a few ways to break down project risks in construction. They vary a lot in cost, accuracy, and efficiency. Ultimately, any of these options can be the right choice depending on the nature of your project.
Qualitative risk analysis works by interviewing experts, brainstorming, and relying on your gained experience from past projects. It often uses descriptive scales like high medium or low risk. On the positive side, it's simple, quick, and cost-effective.
However, it's also subjective given that someone's perception of risk might not be an accurate reflection of actual risk. For example, an experienced worker may have never worn a respirator when dealing with certain chemicals but that doesn't mean other workers won't have a negative reaction to the substance.
A quantitative risk analysis takes the opposite approach. It's a numerical assessment that uses statistics to analyze probabilities based on large-scale research. Common methods include sensitivity analysis, expected monetary value analysis, and even more advanced methods like Monte Carlo simulations.
The quantitative analysis is objective and provides a precise estimate of risk. That said, they cost a lot and require long-term data to be accurate - which means they can often take a significant amount of time to complete.
Whether you use a quantitative or qualitative approach, a risk assessment matrix goes a long way in helping you visualize risk. This valuable tool combines the likelihood of the risk happening with the severity of damage to the project if it does happen to create a risk score.
Basically, the higher the number associated with the risk, the more steps you need to take to prevent that risk from happening.
For example, forgetting to cover building materials to protect them from the rain might have a likelihood of 7 but only a severity factor of 1 since the materials are primarily for the outside of the building and are mostly waterproof.
That combines to a total score of five – relatively low. However, the risk of workers falling from scaffolding might have a probability score of 2, but a severity factor of 16 given the height of the project. This leads to a final score of 18 - very high.
This kind of information is useful because it tells you that it's probably a better idea to expend more resources on scaffolding safety equipment and training than buying extra tarps to cover building materials.
Sometimes risk mitigation is obvious like the example above, but other times exactly how you'll avoid risk can be a little harder to figure out. That's why you need to build a comprehensive risk management plan in construction projects.
The question of exactly how to manage risk in construction projects is a tricky one. While the specifics of a risk management plan in construction projects depend entirely on what the risk is, we can outline two overarching strategies that project managers can use to deal with risk.
Risk Avoidance and Reduction
In the best case scenario, you can take steps to drastically reduce risk or avoid it entirely. For example, choosing to not build a wing of a project to let the project owners avoid taking out a loan means no risk of faulting on loan payments.
This is where good construction planning software comes in. If you and the project owners can leverage software to get a clear picture of exactly how much the project is likely to cost, as well as the consequences of funding problems, then you can make the best decision.
Avoidance doesn't always work - but you can still do a lot to reduce risk. For instance, roofers deal with some of the highest risks in the construction industry, but simply avoiding adding a roof to your projects is not going to get you a lot of contracts.
But suppose your building plan calls for complicated roofing structures; removing those architectural features from the blueprints significantly reduces the risks of injury. Roofers go from spending two weeks up there building an intricate design to a couple of days installing a standard roof.
Of course, the downside is that you don't get the look that the client wants - but looking carefully at project constraints and using analytic tools can help you and the project owner mitigate risk.
Risk Transfer and Acceptance
While there are always ways to avoid or reduce risk, sometimes the cost of doing that is so high that it makes the project unfeasible. That's why risk transfer and acceptance are also strategies to consider.
Generally speaking, risk transferral comes in the form of insurance and legal documentation. Everything from worker’s health insurance to carefully worded contract clauses shield you from the consequences of something going wrong.
Taking the time to find the best insurance for your crews, and only working with subcontractors that are fully insured, means that everyone on the project will get the best care should something happen.
Subcontracting itself is a great way to transfer risk to people who are more experienced in an area. For example, maybe you have an electrician or two on your crew, but this project involves a lot of high-voltage work over a huge area.
Dumping that much work on those two would both wear them out and present a major safety risk. Subcontracting the electrical work means you are bringing in a fully insured and highly trained group specializing in that type of work. That reduces risk overall and transfers the accountability to the subcontracting group rather than you.
It's also worth noting that depending on the consequences of the risk, sometimes it's a good idea to do absolutely nothing. For low-impact, low-probability risk it might cost a lot more to try and avoid it than to just hope for the best. For example, why would you spend $1,000 trying to protect $100 worth of equipment from theft?
Ultimately, successful risk management comes down to a proactive approach of accurate analysis and effective mitigation strategies. If you are ready to sit down with your project owners and outline your risk management strategies, consider Outbuild's free trial to see how top-notch, scheduling, planning and analytics software can help you.
The future of schedule management
Download the playbook to learn more:
- Integrates effortlessly with Procore.
- Designed with simplicity in mind.
- Leverage the power of lean construction.
The future of schedule management
There are quite a few ways to break down project risks in construction. They vary a lot in cost, accuracy, and efficiency. Ultimately, any of these options can be the right choice depending on the nature of your project.
Qualitative risk analysis works by interviewing experts, brainstorming, and relying on your gained experience from past projects. It often uses descriptive scales like high medium or low risk. On the positive side, it's simple, quick, and cost-effective.
However, it's also subjective given that someone's perception of risk might not be an accurate reflection of actual risk. For example, an experienced worker may have never worn a respirator when dealing with certain chemicals but that doesn't mean other workers won't have a negative reaction to the substance.
A quantitative risk analysis takes the opposite approach. It's a numerical assessment that uses statistics to analyze probabilities based on large-scale research. Common methods include sensitivity analysis, expected monetary value analysis, and even more advanced methods like Monte Carlo simulations.
The quantitative analysis is objective and provides a precise estimate of risk. That said, they cost a lot and require long-term data to be accurate - which means they can often take a significant amount of time to complete.
Whether you use a quantitative or qualitative approach, a risk assessment matrix goes a long way in helping you visualize risk. This valuable tool combines the likelihood of the risk happening with the severity of damage to the project if it does happen to create a risk score.
Basically, the higher the number associated with the risk, the more steps you need to take to prevent that risk from happening.
For example, forgetting to cover building materials to protect them from the rain might have a likelihood of 7 but only a severity factor of 1 since the materials are primarily for the outside of the building and are mostly waterproof.
That combines to a total score of five – relatively low. However, the risk of workers falling from scaffolding might have a probability score of 2, but a severity factor of 16 given the height of the project. This leads to a final score of 18 - very high.
This kind of information is useful because it tells you that it's probably a better idea to expend more resources on scaffolding safety equipment and training than buying extra tarps to cover building materials.
Sometimes risk mitigation is obvious like the example above, but other times exactly how you'll avoid risk can be a little harder to figure out. That's why you need to build a comprehensive risk management plan in construction projects.
The question of exactly how to manage risk in construction projects is a tricky one. While the specifics of a risk management plan in construction projects depend entirely on what the risk is, we can outline two overarching strategies that project managers can use to deal with risk.
Risk Avoidance and Reduction
In the best case scenario, you can take steps to drastically reduce risk or avoid it entirely. For example, choosing to not build a wing of a project to let the project owners avoid taking out a loan means no risk of faulting on loan payments.
This is where good construction planning software comes in. If you and the project owners can leverage software to get a clear picture of exactly how much the project is likely to cost, as well as the consequences of funding problems, then you can make the best decision.
Avoidance doesn't always work - but you can still do a lot to reduce risk. For instance, roofers deal with some of the highest risks in the construction industry, but simply avoiding adding a roof to your projects is not going to get you a lot of contracts.
But suppose your building plan calls for complicated roofing structures; removing those architectural features from the blueprints significantly reduces the risks of injury. Roofers go from spending two weeks up there building an intricate design to a couple of days installing a standard roof.
Of course, the downside is that you don't get the look that the client wants - but looking carefully at project constraints and using analytic tools can help you and the project owner mitigate risk.
Risk Transfer and Acceptance
While there are always ways to avoid or reduce risk, sometimes the cost of doing that is so high that it makes the project unfeasible. That's why risk transfer and acceptance are also strategies to consider.
Generally speaking, risk transferral comes in the form of insurance and legal documentation. Everything from worker’s health insurance to carefully worded contract clauses shield you from the consequences of something going wrong.
Taking the time to find the best insurance for your crews, and only working with subcontractors that are fully insured, means that everyone on the project will get the best care should something happen.
Subcontracting itself is a great way to transfer risk to people who are more experienced in an area. For example, maybe you have an electrician or two on your crew, but this project involves a lot of high-voltage work over a huge area.
Dumping that much work on those two would both wear them out and present a major safety risk. Subcontracting the electrical work means you are bringing in a fully insured and highly trained group specializing in that type of work. That reduces risk overall and transfers the accountability to the subcontracting group rather than you.
It's also worth noting that depending on the consequences of the risk, sometimes it's a good idea to do absolutely nothing. For low-impact, low-probability risk it might cost a lot more to try and avoid it than to just hope for the best. For example, why would you spend $1,000 trying to protect $100 worth of equipment from theft?
Ultimately, successful risk management comes down to a proactive approach of accurate analysis and effective mitigation strategies. If you are ready to sit down with your project owners and outline your risk management strategies, consider Outbuild's free trial to see how top-notch, scheduling, planning and analytics software can help you.
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