Guide to risk management in construction

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Risk management helps construction companies avoid major issues that cause delays and budget overruns during a project. This guide will help you create your own risk management plan.

Construction disasters can be massive. The problem-ridden downtown Las Vegas project in the late 2000s claimed the lives of six construction workers, prompting a strike for worker safety.

In 2006, a 10-ton construction platform collapsed on the streets of Boston, killing three people. And 51 workers died in 1978 when a cooling tower under construction collapsed in West Virginia.

Even if your project isn’t at risk of a massive disaster, these aren’t the only risks a construction manager should be concerned about. Minor issues can delay your project and blow your budget.

And even if you don’t think your workers are at risk, those responsible for those projects probably didn’t think theirs were either – the only way to know for sure is to properly manage risk.

Creating a plan to manage risk is a key part of construction management, especially the planning and scheduling part of construction. Here’s what you need to know about the process and how to do it right.

Presentation: What is construction risk management?

Construction risk management refers to identifying potential factors that could disrupt a construction project or pose safety concerns for workers.

Risk management in the construction industry involves assessing these factors and creating plans to prevent them from occurring or to mitigate them if they impact the project. Risk management involves creating a document that identifies the risks and the procedures to deal with them.

The 4 types of risks in construction

Construction sites involve many risks, but they generally fall into four main categories.

1. Security

Safety hazards are hazards on the construction site that can injure or kill your workers. Mitigating these risks should be the first priority of any construction manager for obvious reasons.

Safety risks can involve catastrophic accidents, but they can also include gradual damage to a worker’s body over time, such as back problems from lifting heavy loads.

Here are three examples of security risks:

  • Excavation and trenches that can trap or even bury workers in failure.
  • falling objects which can strike workers from above, sometimes fatally.
  • Lack of safety harness or inconsistent use that results in falls.

2. Budget

Fiscal risks are always at the forefront of construction managers’ minds. They can lead to increased costs, resulting in either dissatisfied customers, a shrinking profit margin, or both. Construction managers must take proactive steps to avoid the many things that can affect the budget during a project.

Here are three examples of fiscal risks:

  • Change ordersor changes to the contract, which lead to additional costs due to the extra work.
  • Poor performance of subcontractors which requires construction officials to bring in another sub-contractor at additional cost or remove workers from other duties to complete the work.
  • Underfunding is a major cause of budget overruns. Construction managers must accurately estimate the cost of a project before undertaking it.

3. Schedule

Construction schedule risks are closely related to fiscal risks. Each impacts the other, and both often have similar causes. However, schedule risks don’t necessarily lead to budget issues and vice versa, so they deserve their own category.

Typically, unforeseen events are a big cause of schedule delays, but planning also plays a role.

Here are three examples of schedule risks:

  • Bad weather is considered in all construction projects, but sometimes Mother Nature can be worse than average for a part of the project, causing delays.
  • Resources unavailable leaving workers without tools to do the job, which means the job has to wait for those resources to become available.
  • Mistakes of your team forces them to redo work, delaying other essential tasks. Sometimes it’s their fault, and sometimes it’s your fault for not planning properly or having a build workflow in place to help them do their job.

4. Legal

Construction projects are big business that involve a lot of money, safety rules, permits, and city and county ordinances. Add them all together, and that means construction officials face tons of legal risk.

The risks posed by legal issues range from small fines or a temporary work stoppage to massive lawsuits or even the closure of a business for significant violations.

Here are three examples of legal risks:

  • Environmental regulations expose construction companies to heavy fines if workers accidentally contaminate the environment with, for example, a fuel spill.
  • Controls may reveal that the building is not up to code, forcing work to stop.
  • OSHA (Occupational Safety and Health Administration) Violations can close a project or even a business, so construction managers must ensure that all safety rules are followed, which includes safety equipment and good practices.

How to Create and Execute a Construction Risk Management Plan

A construction risk management plan doesn’t have to be complicated, but it should be comprehensive. Even small risks can disrupt your project. Follow these steps to put a plan in place that will protect your project from disruption.

1. Brainstorm with your team

The first step is to list all construction risks on paper. Include everyone you can think of, then have a meeting with everyone on your team. Brainstorm all the potential risks, big or small, and write them all down so you can sort them out later.

Refer to old risk management plans, if you have any, for other ideas. Also look at past projects to determine any issues.

2. Divide risks into four categories

With each identified risk, it is time to get organized. Determine which category each risk belongs to (security, budget, schedule, or legal) and organize them into a document that everyone can refer to. Place this document in a shared drive where it will be easy to share and access it from anywhere.

3. Write down each risk

Not all risks are created equal, so further organize the document by categorizing each risk in two ways: First, describe the likelihood of it occurring during the project (eg, 10%).

And second, explain how it would affect the project. Rate it on a scale of 1-10, then describe what it would do to the project in your own words.

4. Create two plans for each risk

Offer two construction risk solutions to handle each scenario. The first plan should outline what you will do to reduce the risk of this risk occurring, such as replacing aging equipment before the project begins to avoid the risk of it failing mid-project. Assign this task to a member of your team.

The second plan outlines what you will do if the problem occurs in the middle of your project – i.e. what mitigating actions you will take, such as having another sub-contractor on call if your principal is unavailable or unable to do the job.

5. Review and adjust

Keep accurate records of each hazard. Did it happen? What did you do? What was the result ? Review your risk management plan at the end of the project and determine if you did a good job or if more work is needed. More than likely, it’s the latter, and that’s OK. The more you tweak it, the better you will get with each ensuing project.

Use construction software to write a plan

Don’t try to manage the risk management process with spreadsheets – construction management software has advanced features that will help you do it better, and The Ascent has reviewed the best platforms.

In addition to managing risk, software will help you create a schedule, write a daily construction report, organize your finances, and manage the general management of the construction project. Try a few options, then choose one to improve your risk management procedures.

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