10 Tips for Better Risk Management in Construction

Risk management in construction projects is a constant battle for subcontractors. Subcontractors face many risks in construction that are unique to subcontractors, as well as all of the same risks that general contractors face. Subcontractors must be careful of the contracts that they sign because sometimes those contracts put them at greater risk than they should be. But types of risk like supply chain, and operational risks, can be hard to predict and are experienced by everyone.

Risk Management in Construction

Risk management in construction projects is an essential component of project management. Without proper risk management, subcontractors have a lot to lose. There are many different types of risk to look out for, but here are some of the more common types of risk in construction.

Supply Chain and Operational Risk – Subcontractors and General Contractors alike experience supply chain and operational risk. There could be a natural disaster or force majeure that reduces available supplies or prevents owner specified items from getting to the site on time. These risks are hard to predict and can be hard to manage.

Technical Risks – Technical risks are anything that restricts the product creation your customer wants. This can include the above risk as well as other factors.

Logistical Risks – These are risks that should be addressed and prepared for before the project starts. These can include equipment availability as well as transportation.

Environmental Risks – Environmental risks are the factors that prevent the project from completion on schedule or cause rework.

Management Risks – Management risks are risks that arise from management issues whether someone didn’t hire enough staff, or confusion over responsibilities and duties.

Financial Risks – These risks are fairly straightforward. These are risks like inflation, taxes, and more that can change rapidly. Different states and even cities have different taxes and other fees that can cause problems for a project.

While this list of risk isn’t comprehensive, it goes to show that there are many different types of risks that contractors have to be careful of when they are putting together their project management and risk management plans.

1. Be aware of risks before tackling a project

The very first step that a subcontractor must take before tackling a project is the identification of possible risk factors.  Without a risk identification step, subcontractors can’t create a plan to manage them.

2. Prioritize risks

Although all risk is important, subcontractors must allocate their resources appropriately toward mitigating the risks that are most critical to a project.  To do so, a subcontractor must rank these risks according to two criteria: the likelihood of it occurring and the level of impact it would have on the project.  Once the risks are ranked accordingly, subcontractors will be able to assign the highest priority to certain risks that ranked high on both criteria.

Once a subcontractor’s risks are a physical risk identified and prioritized, two main kinds of risks that can be easily avoided with project management and document control software: occupational risk and financial risk.

An occupational risk is the physical risk to workers from internal or external conditions.  Occupational risk can be avoided by improved communication methods and creating standardized procedures for all team members both before and throughout a project life cycle.

Financial risk is the risk to profitability that subcontractors face by going up against project delays and manual errors.  Financial risk can be prevented by keeping better track of projects and using project management software to improve accuracy.

3. Set up standard steps and procedures

Risk mitigation techniques are not one size fits all.  There is no universal list of risks or steps that are suited for every subcontractor.  Each company needs to have its set of measures in place intended to mitigate risk.  There are software options in place that will aid in creating standardized procedures unique to each company. The subcontractor can take his knowledge and the aid of a project management and document control tool and create a process that will be useful across the board.  After all, nobody knows the risks specific to your project better than you.

4. Communication throughout the project life cycle

Communication is vital in both the risk avoidance and risk response phases.  In the avoidance phase, it is a tool to communicate the perceived risks to all team members and explain the steps that must be taken to avoid them.  During the project, communication devices can provide a way to get help immediately should a risky situation arise or should someone suffer an injury.

5. Training new and old employees

It is a common misconception that training need only take place in the initial onboarding process.  However, training can be a useful tool for all employees, no matter how long they have worked for a company.  It is a way to brief all staff about the new process and ensure that nobody is deviating away from the set procedures.

6. Sometimes there is risk in the reward

A risk is not always negative if it’s handled properly.  If subcontractors are always turning away projects due to risk, then they are missing out on financial gain.  Subcontractors must be able to properly assess the risk of a project and be able to control it.  Once a subcontractor can do these things, it can take on riskier projects that will lead to higher profitability and more projects in the future.

7. Keep all documents in one place

Implementing a project management and document control tool will allow you to keep all documents, reports, emails, etc. in one place where they can be indexed and easily accessed at any time.  This will significantly improve financial rewards and protect against litigation because it will allow the subcontractor to keep better track of the projects and keep more detailed and organized records that cannot be disputed.

8. Integration of applications

It is helpful for project risk mitigation to have all of a subcontractor’s applications integrated into one platform.  This allows subcontractors to avoid manual re-entry of data into different applications and runs down the risk of a mistake.  Integrated platforms prevent duplicate data entry and create an easy trail of information.

9. Constant quality assurance

An important step in the risk mitigation process is regular quality checks.  Even when risks are identified, there are always opportunities for things to go wrong. Or if there is a plan in place, unexpected risks can occur as well.  Because of this, someone needs to be in charge of checking for quality in a systematic and standard way.  Some project management and document control solutions offer checklists. These can aid in this process by creating a list of quality assurance steps.  Another benefit of project management and document control that comes in handy is its capability for a quick response.  If an unexpected risk occurs, the workers on the field will be able to communicate with all members of the team and collaborate to resolve the issue in real-time when the costs are significantly less.

10. Create a sustainable practice

Once you have a risk management solution that is suited for your company and adapted to each project, the subcontractor must make sure that this procedure is sustainable and that these efforts continue to be made as time goes on.