CONSTRUCTION RISK MANAGEMENT

Risk management in construction industry is an important part of the project planning and management. Various risks associated with construction projects such as financial risks, environmental risks, socio-economic and construction related risks are studied and dealt in risk management.

The volatility and capriciousness of the environment in the construction industry was never hidden from anyone. It’s easily influenced by external factors (technical, design, logistics, physical, operating, environmental, socio-political, force majeure et cetera) which are capable of not only derailing projects but can also create an irreparable aberration.

Construction risk management is the process of evaluating and implementing procedures to reduce the impact of risks in construction projects. This risk management process involves thorough planning to create a risk management plan that allows project managers to identify, monitor and mitigate risks as they arise.

Key points:

• For every construction project, there are around 107 risks to consider, according to The Construction Industry Institute.
• Using construction software may be a solution that helps you manage large risks when used throughout the project. Risks are classified into categories including finance, schedule, and design.
• Risk mitigation in project management helps prevent delays and rework, helping project managers provide stakeholders with timely access to reports, data, and documents while improving transparency and producing a higher quality of work.
• The six top risks to address include labor issues, safety hazards, coordination hurdles, poor documentation, inconsistent reporting and errors, and disputes.
• It’s possible to reduce risks with software and a solid risk-management program.

Different types of Construction Risks are discussed below:-

Technical Risks

Technical risks include anything that restricts you from creating the product that your customer wants. This can include uncertainty of resources and availability of materials, inadequate site investigation, or incomplete design. These risks can commonly occur when there are changes in project scope and requirements, and if there are design errors or omissions.

Logistical Risks

There are various logistical risks that need to be addressed before beginning a project. These risks include the availability of transportation facilities and availability of equipment such as spare parts, fuel, and labor. Without addressing these logistical issues, you risk huge project delays and losses.

Environmental risks

Environmental risks include natural disasters, weather, and seasonal implications. These risks are commonly overlooked when people are unfamiliar with local conditions. If you are going to be working on a project in a new city, you need to become familiar with that region’s weather patterns. If you prepare for possible weather risks, you are much more likely to avoid potential delays and losses.

Management-related risks

The most common management related risk is uncertain productivity of resources. Before you begin a project you need to be sure that you have sufficiently skilled staff and that you have adequately defined their roles and responsibilities. Failing to do this can lead to disastrous losses.

Financial risks

Anything that can affect construction companies’ finances can be classified as financial risk. Financial risks in construction include cost overruns, material waste, change orders, late payments from clients, and increased cost of materials. These risks can create cash flow problems that can halt or delay projects, leading to litigation and ultimately negatively impacting the bottom line. Financial risks are often attributed to poor planning and coordination.

Socio-political risks

Customs and import restrictions and difficulties disposing of equipment are a few of the socio-political risks you may face during a construction project. Depending on where your project is, there are going to be different regulations and codes that you must abide by. If you assume that each project is going to have the same codes and regulations, you will be in for a rude awakening.

Risk Management Process

The process of mitigating risk for a construction project is no different than any other project. The only difference is the type of risks you’re managing in the construction industry. Here are the five steps of the risk management process:

1. Identification:First, make a list of every possible issue that could arise. Do the research, talk to your crew and explore historical data from past construction projects that are similar to yours. While this identification list is always open for edits and updates, you should have a set deadline so that you don’t get bogged down in analysis.
2. Assessment:Not all risks are equal. Some are more likely to occur, others less so. One way to assess your list of risks is to use a risk assessment matrix, which charts the likelihood of each risk and the size of the impact it can have on your project. Creating a risk assessment matrix helps you when addressing the risk, if it appears.
3. Mitigation:This is where you implement a contingency plan that will reduce the likelihood and impact of the risks you identified earlier. The top priority, of course, is those you defined as highly likely and having the greatest impact. These should be given an owner, who will be responsible for identifying the risk (if it occurs) and managing its resolution.
4. Monitoring:This step is always ongoing, as you attempt to identify these risks when they show up. That includes monitoring the effectiveness of your mitigation plan. Also, stakeholders should be consulted and kept updated on these project  Engage other department leaders to help, and empower the team to respond to risk. Have them note if a risk has moved to a different spot on your risk assessment matrix.
5. Reporting:Your construction risk management plan should be analyzed and shared with the crew and stakeholders. These reports on risk mitigation allow you to evaluate the effectiveness of the contingency  While this can be done with an Excel spreadsheet, using project management software is more efficient. Online tools gather the data automatically, create dashboards to illustrate progress and even generate reports that are easily distributed.