There are few industries that face the same variety of risks as construction. A risk is any plausible event that would derail your plans. And accounting for every possible risk in construction projects is very challenging indeed.
If we compare construction to other industries, it quickly becomes clear why risk management is so much more complex for builders. Other sectors also deal with fairly stable or predictable risks. For example, the biggest threats to a manufacturer’s projects are supply shortages or labour problems. Meanwhile, agriculture’s biggest worries are the weather and pests.
But building is, by its nature, much more unpredictable. Every project is entirely unique. Construction involves large numbers of independent companies working together. And project managers must deal with all the supply, weather and labour issues that other industries face too.
The best way of minimising risk in construction projects is to be fully prepared for everything that could go wrong. Let’s learn more about managing risk in the construction industry.
7 key risks in construction projects
An in-depth academic study of risks in construction projects identified seven key areas where building projects can be significantly derailed. The study’s authors then interviewed 40 contractors to find out how they perceived each risk.
- Design risks
- Design errors and omissions
- The design process takes longer than anticipated
- Stakeholders request late changes
- Failure to carry out the works in accordance with the contract
- External risks
- New stakeholders emerge and request changes
- Public objections
- Laws and local standards change
- Tax change
- Environmental risks
- Environmental analysis incomplete
- New alternatives required to avoid, mitigate or minimize environmental impact
- Organizational risks
- Inexperienced workforce and staff turnover
- Delayed deliveries
- Lack of protection on a construction site
- Project management risks
- Failure to comply with contractual quality requirements
- Scheduling errors, contractor delays
- Project team conflicts
- Right of way risks
- Expired temporary construction permits
- Contradictions in the construction documents
- Construction risks
- Property cost overruns
- Technology changes
The study showed that from the twenty factors described above, design errors and design process delays were the most frequently mentioned risk factors. Respondents also believed that these risk events were most responsible for the poor quality of work, delays and associated losses.
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Benefits of systematic risk analysis in construction
Every project manager knows that construction work involves high levels of uncertainty. However, when time is tight, conducting an exhaustive risk assessment may not always seem like the best use of resources. Furthermore, studies highlight the following benefits of analysing risk in construction projects:
- Helps assess and ascertain project viability
- Can minimise losses
- Identifies project risks and quantifies the potential cost of each
- Determines if you will make an adequate profit on a particular project
- Keeps insurance premiums at acceptable levels
- Limits professional indemnity claims
- Protects your company’s credibility and reputation
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A 4-step framework to manage risk in construction projects
Research into construction project risk shows it can be successfully managed using the following four-step process:
- Risk identification: Work collaboratively with stakeholders to identify everything that could go wrong with a project.
- Risk assessment: Score the risk on a sliding scale to decide how much of an impact it would have on your project if it were to happen. Prioritise the biggest risks.
- Risk mitigation: Develop plans to minimise the risks so they are less likely to happen. Then outline protocols defining what you will do should the risk arise.
- Risk monitoring: On a regular basis, assess your project and scan the horizon for risks that may occur.
To use this framework, it’s especially valuable for the project manager to organise meetings with stakeholders (the architect, owner, contractors and sub-contractors) to define all the risks facing this project in particular.
Certain risks will face all projects (e.g. unpredictable weather), yet others will be very specific to each building. For example, the architect may have designed an unusual façade feature that no one has ever built before. You, therefore, need to analyse all the things that could go wrong and how they could be addressed.
Technology can support construction project risk management
Construction apps like PlanRadar can support your approach to building project risk management. While tools cannot predict the risks themselves, they do let you monitor them over the course of your project and help you take mitigation actions. Perhaps the biggest benefit of construction software when it comes to risk management is that it gives you more data and a faster method of communication.
PlanRadar supports the 4-step framework for managing construction project risk described above:
- Risk identification: Workers on site can use the app to inspect project progress, raise issues and alert the project manager (including sharing photos). As a result, no risk goes unreported.
- Risk assessment: PlanRadar lets you track all amendments, defects and the progress of remedies. You can also receive a complete report of project progress at the click of a button.
- Risk mitigation: Communication is particularly important for responding to risks and preventing them from ‘snowballing’. Defect orders are forwarded in real-time to the responsible parties, along with a completion deadline and priority information. All communication between parties is also centralised and securely stored within the PlanRadar platform.
- Risk monitoring: PlanRadar lets you document defects, view project progress, report any issues early and respond fast before things get out of control.