Construction Risk Management – Warning signs of failure
For all project participants such as owners, project developers and executing construction companies, construction risk management is no longer dispensable. Because the number of risk allowances should no longer solely depend on subjective estimations by single people, but more and more be based on comprehensive risk analysis. Hereinafter we will show you what you should take into consideration when you are working on your risk management plan for a construction project.
- Why your gut feeling doesn’t count anymore.
- Resource management done right.
- Optimizing projects through risk management.
- Minimize your risks by utilizing PlanRadar.
Construction Risk Management – Warning signs and why your gut feeling doesn’t count anymore
A crisis does not happen overnight. The best risk manager is the one that interprets signs best to try and get a sense of future developments. Because when you miss out on reading where the industry winds will blow, it is often too late to catch up. There is a fascinating 19th-century science experiment. As the story goes, researchers found out that if you put a frog in 50°C hot water, he will immediately jump out. If you put him in 15°C warm water, which you then gradually heat up to a boil, he doesn’t jump out and will eventually die. Similar things can happen to companies, that neglect risk provisioning. That is why risk management in construction should be adopted in every company’s strategy. This especially goes for medium-sized companies and small businesses, because risk provision is not as anchored as it is in big companies. In addition, a clear responsibility for hazard prevention is important – this means that the critical fields must be observed regularly and over a longer period of time. In reality, it is people who tend to be one of these critical fields that need attention. This is what PlanRadar tried to address, before turning out to be the perfect tool for anybody involved in managing construction project cycles. Till now it was almost impossible to control each contractor, sequences and cost developments caused by delays. There was nothing like an insurance for a management professional to oversee all these factors at a glance. Find out why and how this changed through the invention of a new construction contractor and business management software, in the next paragraph.
Resource management in construction projects
Understanding that the main goal was to set up an interactive process-oriented platform for the structured, orderly processing of individual projects was key to developing the ideal platform. So the decision to build around a cloud-based system was evident. Project work today is spread over many high performers, with individually high degrees of specialization, especially in the construction business. While the division of labor brings great benefits by gaining competence, it is also paired with some disadvantages in coordination and communication. Clear terms, structured processes, common understanding of the sequence of work contents must be consciously built up, with the aim to create reliable rules and regulations. Achieving this result allowed clients, planners, and contractors to look directly into the inner workings of their processes. Thus, on a performance level, cooperative routines and a common understanding can be developed. This, combined with utilizing the power of the cloud, perfectly plays into implementing risk managing features into your everyday tasks. PlanRadar includes all necessary measures for the early systematic detection, analysis, evaluation, monitoring, and control of risks. The trick was to create processes that are simply structured around your normal work to save time and cost. This already provides many indicators for the identification of impending risks and usually also the approach for necessary measures.
Further risk management benefits are:
- All participants work on the same platform.
- All participants use the same processes.
- The analysis is always visible and up to date.
- Regulates contact, communication, and coordination within the project.
- Enables information-based decisions.
- Defining task priorities.
- Makes measures more traceable.
All these benefits come without anything exceeding your usual work process or workload. So that you can easily assess potential threats to the project by f. e. observing:
- Too many open tasks.
- Too many changes.
- Too many unfinished plans.
- Too many delays.
- Too many defects.
In this way, potential threats to the success of a project can be observed more easily to generate appropriate measures.
Also, beware of a very common warning sign regarding construction management resources: High staff turnover. Yes, people are the most important resource in any project. Businesses should be sensitive to high staff turnover, especially in management. Frequent problems with delivery delays or quality are just as alarming as the withdrawal of long-standing customers. A decreasing proportion of revenue may suggest a lack of work efficiency, and even worse bad working practices. If planning is frequently revised, the cause is often bad methods of working and insufficient risk assessment.
Optimizing projects through risk management
Risk management is an almost indispensable tool for the realization of construction projects. The application possibilities are broad and can be found in all project phases and for all project participants involved in the construction of a new building. Tunneling projects were the first construction tasks in which risk management was systematically used for the first time. Due to the high geological dangers and the high-risk potential for the workers and the broad discussion about tunnel safety standards, these projects had the highest demand to understand the possible risks at hand. As a result, risk management was used primarily for infrastructure projects and major international projects to guarantee safety. In the meantime, risk management is increasingly being used in building construction and is already well implemented in current projects. And from this point, it´s no longer merely an instrument of safety insurance.
Influencing a project through risk management depending on the project progress
There is always the question of who should actually run risk management within a project. It can generally be assumed that the owner has the greatest potential. Through management at the beginning of project development, he can best define which risks he would like to avoid or mitigate in any case. Planners and especially contractors only enter the project development process later and can therefore only influence risks to a lesser extent. Unfortunately, the question often is: How can the risks be passed on from the owner to the architect or other participants? However, the question should be: how can the risks be optimized in terms of the entire process? And it is primarily the task of the owner to deal with the topic of risk management from the very beginning of the project?
All this tells us that risk management becomes an indispensable management tool. Risk management, for all those involved in the project, such as builders, project developers, and contractors, is an area of project management which nowadays can no longer be ignored. The number of risk allowances can no longer be determined by the estimate of a sole person or an insurance. Rather it should more and more be based on a comprehensive risk analysis. Contractual arrangements must identify and analyze existing project risks in order to decide how risks are handled, how they should be avoided, reduced, or passed on.
The risk management process is very similar to the construction project life cycle and should therefore also be viewed as a cycle. The basis is a companies’ definition of its risk policy. The risk management process then includes identification, assessment as part of the qualitative and quantitative analysis, determination of hedging measures in the context of optimization and monitoring in all project phases. This includes controlling, reporting and evaluation up to the risk assessment on project completion, which in turn provides new data for risk identification and analysis for future tasks.
Your gut feeling doesn’t count on this scale – Use PlanRadar instead
A key feature is certainly the accurate assessment of opportunities and risks – both are two sides of the same coin: Without risking something, no company can grow. The decisive factor, however, is that the risks taken should not ultimately cost a company’s existence. Particularly successful medium-sized companies, however, rely more on their intuition than on a systematic and continuous assessment.
Internal risks arise from the organization and structure of a company – for example when business success depends above all on a dominant shareholder. Typical for small to medium-sized companies is still the intuitive management by a patriarch, who is apparently indispensable for success and acts a lot from his gut feeling. Such companies are often successful even without a written down strategy but break down when the formative personality fails. Here the responsibilities must be distributed to several employees.
Relying solely on gut instincts will be difficult in the foreseeable future if your goal is to identify, evaluate and efficiently manage all relevant risks. With the availability of PlanRadar for a 30-day free trial, you should immediately take advantage of this opportunity.
A functioning risk and opportunity management are increasingly becoming a success factor for many businesses. Because ultimately, the value of a company is influenced by whether expected returns and risks are in an economically reasonable relationship to each other. Don’t get left behind and contact us today to find out how easy it is to integrate PlanRadar into your existing processes and help you assess risks in a more uncomplicated way. Start to use a professional tool together with each contractor involved and create a new chapter in your business career!