Managing Risk in Construction Projects
Risks are part and parcel of a construction project. Not only life risks or physical injuries but also other pitfalls that could stem from land acquisition, finance, logistics, and of course calamities. It makes risk management in construction projects a critical aspect of a project manager’s job. All his endeavors to meet the deadline and keep within the budget can go in vain if risk chances aren’t identified and preempted.
Risk management safeguards a project but it requires a plan in advance
Mitigating risks to prevent them from triggering (being proactive) is less expensive than dealing with issues that develop if the risk does trigger (being reactive). Unmanaged risks can cause project delays, losses, and even project cancellation in construction companies. Risk management in construction projects should be mandatory during project initiation, planning, and execution; well-managed risks raise the likelihood of project success dramatically.
However, given the many stages and long duration of a large construction project, risk management can be mind-bogglingly complex. That is why risk management in construction projects should have a proper sequence of activities based on a proven strategy. Let’s take a look at the possible risks and how to alleviate them.
What precisely is construction project risk management?
Risk management is the process of identifying and evaluating the hazards in your construction project in order to reduce their impact. Planning, monitoring, and controlling occurrences of risk are all part of the construction process. Your risk management plan, a document that defines the risks and your strategies for dealing with them, serves as the process’s focal point.
The goal of risk management is to recognize potentially problematic situations before they occur. Risk-mitigating activities should be carried out throughout the duration of a project.
What are the different types of construction risks?
To create your risk plan, you must first identify the elements that are most likely to jeopardize your initiatives. The following are the most typical sources of building risks:
Safety Risk:
Your most precious resource is your workers. Nothing can be accomplished without them. They are also at risk of injury because many of their duties at the site are not safe. Accidents can happen even if your workforce is skilled and seasoned. Therefore it’s absolutely important to know the working conditions at your site, what hazards the workers may face, and develop a safety strategy to optimize the safety of your crew at the site.
Financial Risk:
Nothing works without money. Labors’ payment will get stuck, no equipment can be rented, you get the picture. So, make sure any issues that may disrupt your cash flow get detected fast. Such issues may include a surge in material costs, market competition, and so on. The better you comprehend the financial risk, the more prepared you are to stick to your budget.
Legal Risk:
Managing a construction project entails more than just time, money, and logistics. Legal constraints, such as regulations, infractions of code and contract term conflicts with your clients, vendors subcontractors, etc. must be taken care of with utmost importance. Any of these factors can derail your construction project.
Project Risk:
Project risks are the general risks you have to deal with in your project management. These include poor resource management, missing deadlines and falling behind schedule. The construction project manager must be diligent and aware of potential problems that could be stumbling blocks.
Environmental Risk:
Environmental risks include floods, earthquakes and other natural calamities, which are also known as “acts of God,” Any big calamity unleashed by nature that may damage the work site or leave it inaccessible is costly and potentially harmful to a construction project.
How to manage project risks
Risk management in construction projects is a structured way to address risks that can occur in a project. In order to ensure that there is minimum disruption to work and successful project outcomes, you must undertake all possible risk mitigation strategies. In addition to educating you to anticipate and get prepared for the potential risks, the risk management process also provides you with tools to deal with some of the risks, if they arise.
In general, the risk management lifecycle follows the steps listed below, with some slight variations. The process can be used to assess both positive and negative risks.
#1. Recognize risks
To understand potential risks, you first need to know what they are. By making a list (or spreadsheet) of potential risks, you’ll identify individual risks that can affect your project.
Common project risks include implementing a new technology program, having a poorly defined project objective or deliverable and failing to take adequate measures to protect team members’ health and safety.
Consult previous projects similar to your own to determine what challenges you might encounter. Encourage brainstorming among the stakeholders, team members and subject matter experts, as they might have knowledge of the issue that you’ve missed.
#2. Analyse the impact of possible risks
You will examine each risk’s likelihood of happening as well as any potential effects it might have on your project throughout the risk analysis step. You may start by organising this list of risks into a risk register, which would include information on each risk’s priority level and mitigation strategies. Both qualitative and quantitative data can be recorded.
#3. Make a priority list of the various risks
The risks should be prioritized based on each risk’s probability and impact. Assigning a risk high, medium or low priority based on the variables you’ve identified is what this means. Your team will be able to determine where to concentrate their efforts on risk mitigation by evaluating your risks.
#4. Manage risk
Create plans for tackling each risk, then enter them in your risk register. This is the first step in risk management. Risks can be reduced in four ways – avoiding them, accepting them, reducing them and transferring them. It’s not an exact science to choose the optimal solution for each risk potential, therefore you’ll need to utilize your judgment and knowledge.
#5. Monitor risk
As your project gets underway, establish a strategy to track each risk. You can have a constant awareness of the risks and their likelihood of happening by designating team members to monitor and minimise them. This will help you be prepared to address any risks that do arise.
#6. Report
Reporting your risk mitigation steps is very important so that the crew and stakeholders can review and discuss your construction risk management plan. These risk mitigation reports let you assess the contingency plan’s effectiveness. Although an Excel spreadsheet can be used for this, using project management software is more effective. Cloud-based software gathers data automatically, provides reports that are simple to disseminate and even builds dashboards to show progress.