The Types of Risks in Construction Projects
Construction projects are very complex and can pose various internal and external risks. A strict set of codes, laws, and regulations must be followed during the construction process to best avoid these risks. Unfortunately, there is no way to completely avoid risks as there are bound to be unknown factors that arise over the course of a project. One of the best ways to manage risks is to know the various types and how you can manage them. If you can identify and categorize risks before you start a project, you can optimize your risk management and avoid any possible losses.
Construction risks can be categorized into these six categories:
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.
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 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.
Inflation, local taxes, and availability and fluctuation in foreign exchange are a few of the possible financial risks you might incur during a construction project. If you are working on a project internationally, it is important that you understand how the foreign currency will be exchanged. Different countries have drastically different taxes as well, so you need to take this into account before starting a project. Your finances are going to look a lot different if you are working in a tax-free city versus a high-tax city.
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.
So how do you manage these risks?
Determine what risks are most likely to affect your project, which risks are the most important and document them.
2. Quantification and planning
Assess the risks carefully and identify the implications that these risks might have on your project.
3. Response monitoring and control
Monitor risk responses that have been implemented as planned and determine if the risk exposure has changed. In the final stage of risk control, monitor risk metrics and milestones and the effectiveness of your risk management actions.