The Ultimate Guide to Construction Risk Management

Project managers and subcontractors have always taken a little risk to finish off construction projects. However, not preparing a construction risk management plan to deal with the unforeseen circumstances can result in cost overruns and several other issues.

Often, the construction companies fail to understand the involved risks due to which they jeopardize the safety of the workers along with the project. In such scenarios, mitigating risks becomes a priority. Considering this, we have compiled a useful guide that will assist contractors in managing project risks without any trouble.

Tops Risks in the Construction Industry

When it comes to construction, safety is not the only thing that needs attention. Various other factors or risks could damage or impact the time required to complete any construction project. To begin, one must be able to identify the risks as this is the best way of coming up with a solution. Also, it is necessary that the contractors thoroughly analyze each risk since it helps in crafting a detailed management plan. That said, here is a list of common risks that plague the construction industry:

• Financial Risk

Budget overruns and material waste are two of the biggest threats in the construction business. In addition, the construction companies should also define the fiscal risks at the beginning of any project. When it comes to fiscal risks, location, currency, inflation, and the local tax system can greatly influence the overall budget. That said, all of the financial parameters are to be analyzed before starting any construction project.

• Environmental Risk

Earthquakes and floods can create an obstacle in the smooth development of your project. This is why it is better to analyze the environmental conditions of the area where your project will take place. By analyzing the risks, your team will be in a better position to come up with solutions that can minimize or control the damage. Also, by having a safety plan in place, you can protect your workers which will in turn also allow your project to follow a smooth pace without any hindrances.

• Safety Risk

Construction business possesses a strong threat to the safety of workers. Any bad job or lack of attention to details can result into severe accidents concerning the labor force. Since this could result in a string of legal action, it is better to transform your worksite in an accident-proof place. You can achieve this by conducting a safety checklist inspection daily.

• Project Risk

Project risks arise due to the factors related to poor management. Any shortcomings in construction material, staff or tools will lead to project risks that can impact the overall construction time. Because of this, project managers must define the needs of the project, allocate tasks to the proper teams, and come up with an accurate time-frame for every task.

• Excessive Competition

Too much competition can compel contractors to take on bigger jobs with limited resources. To deal with the competition, they often agree to take certain projects where they feel pressured to provide excellent projects through subpar material. Also, there is the problem of matching final costs and delivery time to that of the one provided by a competitor. All of this paves way for competition risk which can put the contractor’s project and profit at risk.

Necessary Steps for Risk Management Plan

When the contractors recognize that their project will encounter various risks, they need to create a risk management plan. This can be best achieved by creating a management team that can assess and deals with all the involved risks. The creation of a management team will help in the following ways:

• Identify all the risk that can or will happen before, during or after the completion of the project.
• Identify the parties who will incur the most damage due to the risks. Additionally, the teams will also identify how these risks will impact the progress of the project.
• Determine how many other smaller risks can arise if any major risk takes place.
• Decide on all the preventative measures that need to be in place to avoid the risk or to lessen its impact.
• Document or report back any finding associated with the risks.

To have a risk management team is great since they not only work towards minimizing the risks but they can also help by creating contingency plans in case some unpredicted event takes place. Additionally, a qualified team that identifies, prioritizes and mitigates risks will allow your projects to run smoothly. Through this way, you can save money, time, and resources as the project progresses.

Tips for Improving the Risk Management Process

While managing the risks can seem easy, the task of creating a team and supplying them with the needed resources can be a daunting process. To top it all off, the lack of knowledge regarding various construction aspects can also result in various losses. These can be in the form of mistakes or discrepancies in contracts or legal documents. However, with the following tips, it will be easy for you to reduce such risks!

• Using Contract to Lessen the Risks

Often, the subcontractors sign the contract without realizing what they are getting themselves into. On the other hand, the technical language used in the contracts also proves itself to be difficult to comprehend. Since nobody wants to end up in a legal battle due to the lack of clarity in contracts, it is better to draft contracts using transparent and clear language that everybody understands.

• Cover Your Base through Proper Insurance

The involved parties must identify the risk and obtain the necessary insurance plans to protect themselves. In addition, the contractors must secure automobile liability, commercial general liability, and get other coverages. On top of this, the project manager must acquire a builder’s risk policy as well.

• Creating the Indemnity Clause to Share Risks

An indemnity is a contract section that takes place between two or more parties. It ensures that the responsible party will compensate the other party for any liability, loss or harm that takes place outside of the contract. Having such a clause in place will protect the innocent parties and will hold the responsible parties liable for their lack of concern.

Conclusion

Risk management is crucial not only in construction but also in real estate Philippine projects. Of course, risk management assumes a different role when real estate is concerned. However, the essence remains the same which is to protect the workers, reduce the accidents, minimize the damage to property, and manage the loss of money appropriately.

Because of its importance, we have shared a comprehensive guide that can help the contractors in working on their terms when it comes to managing or assessing construction-related risks. By following this guide, contractors will be able to develop construction projects with minimized risks!

Shawn mike provides ghostwriting and copywriting services. He occasionally writes articles for Dynamologic Solutions.