Why Construction Risk Management Is Essential For Successful Projects

Every construction project has its own set of risks, ranging from schedule issues and financial concerns to safety, security, and legal risks. Managing construction project risks effectively means identifying issues proactively and taking steps to eliminate them or reduce their impact before they turn into bigger problems. Thankfully, construction management software is now available to help develop and carry out risk management processes that can span multiple projects.

What Is Construction Risk Management?

Risk management in construction is the process of identifying, mitigating, and monitoring the risks related to construction projects. Through proactive discovery and contingency plans, risk management minimizes the likelihood of issues and reduces their impact.

Risk management for construction is more complex than many other sectors since projects vary significantly in size, scope, and personnel, making them more dynamic and less predictable. Every decision includes inherent risks with the potential to delay a project, create safety hazards, or damage client relationships.

No matter the scope or types of risks in construction projects, the same set of risk management principles can be applied to optimize results. The basic steps include identifying and assessing risks, finding ways to manage or eliminate them, and then following up on all identified risks throughout the project to ensure they remain under control.

What Are The Benefits Of Construction Risk Management?

Risk management in construction projects aligns with overall project objectives, including timely completion, staying on budget, and keeping workers safe. Each project team already encounters current or potential risks and takes steps to correct them. Risk management processes apply a more structured approach, utilizing a construction risk management plan and other tools to help evaluate and track risks more effectively.

Minimizing Unexpected Costs

Construction schedules and budgets must be adhered to for a project to be successful. Issues like design flaws or supply chain issues might go undetected for months without proper risk management, creating an avoidable crisis late in the project. Prioritizing risks also reduces costs by avoiding rework and directing resources to where they are needed most.

Improving Worker Safety

No matter how well-trained and prepared contractors, project managers, and workers are, environmental hazards and accidents are always a major concern on construction sites, with the total cost of injuries exceeding $170 billion each year in the U.S. One of the primary benefits of risk management is the improved worker safety that comes from early hazard identification, regular safety inspections, and the elimination of unsafe working conditions.

Informed Decision Making

The principles of risk management in construction include a focus on data collection to help uncover important risks and estimate their impact and likelihood of occurrence. These efforts also help project managers, stakeholders, and clients get a realistic view of the overall project and the issues they need to be aware of. This approach introduces data-driven decision-making and minimizes guesswork by applying logic and data to evaluate important project issues.

What Are Common Construction Risks?

The combination of heavy machinery, fast-paced schedules, outdoor conditions, large crews, and new design elements can create a long list of risks that must be considered. These risks tend to fall into a few primary categories.

Safety Hazards

Unsafe job sites and safety hazards are an ongoing concern in the building industry. According to the National Safety Council, construction is one of the most dangerous industries. Mitigating hazards before they lead to accidents, violations, or other problems is essential. When risks are rated according to their impact and severity, any hazards that potentially impact job site safety should be considered critical.

Financial Issues

Construction risks with financial consequences don’t always have life-or-death implications, but they can still lead to cash flow interruptions, supply chain issues, and other problems that put the project outcome in jeopardy. Delayed payments, rising material costs, fraud, and other unpredictable financial risks can drain funds and put projects in jeopardy. Even small budget overruns can make it difficult to meet payroll and stay on schedule when the root cause is not addressed early in the life of the project.

Operational Mishaps

Problems like labor shortages, incomplete designs, frequent change orders, equipment failures, and environmental factors are often unavoidable in construction. They also represent risk factors that need to be assessed and mitigated early on. While the immediate consequences of these issues may not be apparent, a thorough risk assessment can point to downstream effects like rework, long delays, and reputational damage that must be prevented or mitigated to ensure project success.

Legal Problems

Construction disputes, industry regulations, and contract violations can also present risks, with the average cost of construction litigation in North America exceeding $40 million per case. Legal issues can also damage client relationships and increase scrutiny of projects and teams. Early identification of legal risks, maintaining complete documentation and records, and conducting regular site audits throughout the project can prevent legal issues from impacting project success. Professional construction contract management software can help you keep everything in check.

Tips For A Construction Risk Management Plan

Construction risk management software, risk matrix templates, and other available tools make it easier to create a risk management plan and conduct an appropriate analysis. No matter what tools and software you apply, effective risk management comes from following established best practices and process steps.

1. Identify Risks

This first step highlights the value of starting the risk management process early in the project lifecycle, ideally during the preconstruction planning phase. The project team should brainstorm and document any known or potential risk factors related to design, safety, resources, financial flow, regulations, and environmental conditions. No risk factors should be discounted, even if they are deemed unlikely to happen. It is also important to avoid jumping to solutions during this early stage of the process.

2. Analyze The Potential Impact of Risks

This next stage requires a bit more creativity and out-of-box thinking for the team to answer questions like:

• What is the worst-case scenario?
• Has this ever happened before?
• How likely is this to happen in the future?
• How would this impact the success of the project?

Answering these questions allows you to assign risk priority scores to each factor by combining the severity and probability of occurrence. For example, a serious safety issue that is likely to happen daily is both likely and severe and should become a top priority for risk mitigation. However, the risk of occasionally overspending on transportation or company meals should be noted but probably won’t require any immediate corrective action.

For hypothetical scenarios that are possible but have never happened before, the team should err on the side of caution when weighing the impact. If it is deemed unlikely, this will feed into the risk analysis when it comes time to prioritize corrective actions and resources in order of importance.         

3. Develop A Risk Management Strategy

For each risk you identify, you will need to decide whether it can be avoided, mitigated by direct action, or simply accepted when there is no possible alternative. Environmental risks like earthquakes and heat waves are examples of risks that must be accepted but should still have contingencies, such as an insurance policy or a longer timeline, to work around them.

Well-defined policies and response procedures are essential since they provide much-needed guidance if an incident occurs. These policies and procedures should include communication plans, roles and responsibilities, and specific actions that must be taken to prevent further damage and expedite recovery. This ensures that the project can quickly return to normal operations to minimize the overall impact of the risk.

4. Support Your Strategy With The Right Technology

Identifying, analyzing, and tracking risk factors for large construction projects is almost impossible without the right construction risk management software. Available tools help automate the risk management process while providing built-in templates that make it easier to find and organize data in real-time. Cloud-based construction software and collaboration tools are especially helpful since they allow stakeholders to communicate and view the same information no matter where they are.

Building information modeling (BIM) software has proven to be an effective tool for designers, architects, and project managers since it allows them to model and test concepts in the virtual world. BIM is also useful for predicting issues prior to construction and modeling potential risk factors like change orders and weather extremes to better understand their impact.

5. Monitor Progress Using Reports

The importance of risk management in construction means it should never be a one and done process. Strategic, operational, and structural solutions will be developed that require the project team to correct problems, update the project scope, or improve awareness in real-time.

After the risk management plan is created, these follow-up actions require ongoing monitoring to ensure they have been implemented and have successfully addressed the risks. Construction management software makes it easier to generate and share reports to keep all stakeholders up to date on the status.

6. Review The Process And Keep Learning

Continuous improvement can be another important benefit of risk management in construction projects when the lessons learned from each project are shared and carried on to the next. For example, if a building design concept leads to a potentially hazardous task for workers during the build, this information should be captured in the risk management database to prevent the same situation from impacting future projects.

Risk management processes rely on software and technology, but they also rely on teamwork, collaboration, and participation to ensure the right issues are explored and addressed. With these elements working in harmony, each new project continues to build upon this winning foundation.

Final Thoughts

Risk management presents opportunities to save time and money while creating a safer and more harmonious work environment for everyone involved. Construction management software has turned what was once an intimidating, complex process into a valuable exercise that brings important issues to the attention of the right stakeholders.

At RIB Software, we provide a full suite of construction management tools to make construction collaboration, benchmarking, planning, design, and project handover seamless and effective. With fully traceable documentation organized in a secure, cloud-based environment, our innovative portfolio of solutions weaves a digital thread connecting past, ongoing, and future projects to identify and prevent common risks. If you are ready to take more control of your construction risk management, get a demo of RIB Software solutions today!