The Construction Risk Management Guide
Date Posted: September 5, 2023
Posted In: Discussion,
From Big Rentz: What is your construction company’s level of preparation against a disaster?
As a business or firm, you’re likely aware of the many risks of construction projects. Whether meeting the terms of a contract, maintaining employee safety on the job site or dealing with natural disasters, every project has its own set of hazards. These risks can hurt your construction projects and prove fatal to your bottom line if not managed properly.
Thus, construction risk management is a must-have for any company. An effective risk management plan must have easy-to-follow yet detailed processes to help you mitigate risks, learn how to deal with them and turn them around to boost your company. With rising costs, new industry trends and statistics, more complex projects and increased safety concerns, having a risk management plan is more crucial than ever.
Read on for our guide on how to manage risk on your construction sites. For a condensed version, jump to our infographic below.
What Is Construction Risk Management?
Construction risk management determines the risks present in your business and creating procedures to minimize their impact. In construction, the process involves planning, monitoring and controlling instances of risk. At the center of the process is your risk management plan, a document that details the risks and your processes for addressing them.
How To Manage Risks in 6 Steps
To effectively manage risk, you’ll need to develop a risk management plan which we’ll break down into six steps below.
1. Identify the Risks
To craft your construction risk management plan, you’ll first need to identify the factors that could most jeopardize your projects. The potential sources of risks most common to construction include:
- Safety Risk: Any construction site risks or hazards that can lead to worker accidents.
- Financial Risk: Factors that impact your financial flow, including lack of sales, problems with the economy, unexpected cost increases, and competition with other firms.
- Legal Risk: Potential disputes in the fulfillment of contracts with clients.
- Project Risk: Project hazards such as poor management of resources, miscalculation of time, lack of proper policies or misunderstanding of project deliverables.
- Environmental Risk: Floods, earthquakes and other natural phenomena that damage construction sites and make work inaccessible.
Risk identification should take place during the projects pre-construction phase to allow for time to manage any potential risks before accepting them.
An effective way to analyze risks is to hold brainstorming sessions with your project team and stakeholders. The goal is to identify all the possible scenarios that could impact the project. A brainstorming session will allow all teams to contribute their knowledge and expertise. Past projects can provide a helpful reference to understand size, scope and location.
After brainstorming, hold regular meetings with your project team. These meetings allow time to review current risk plans and identify any additional risks that may occur throughout the project.
2. Prioritize Risks in Order of Importance
Construction risks vary for each company — a risk affecting one construction business might not be a concern for yours. For example, certain environmental risks, like a hurricane, may not affect your inland business like they would affect a business on the coast.