Risk Management in Construction is a crucial step in the project planning process. Risk assessment helps identify potential problems, which can save time and money.
Once a company has identified risks, they must decide whether to avoid them, mitigate them or accept them. For example, a company may choose to avoid safety risks by creating a contingency plan and training workers.
Identifying Risks
Identifying risks is an important part of risk management for construction projects. It includes recognizing both internal and external factors that could affect project outcomes. For example, safety risks are a common concern in construction and must be addressed both on a very granular level (ensuring workers are properly trained to use specific equipment) and a very high-level level (ensuring appropriate protocols are in place to respond quickly and that regulations are being followed).
Risks are then prioritized based on their potential impact and likelihood of materializing. Using qualitative and quantitative methods, these risks are then categorized as either low, medium, or high. Once categorized, actions are outlined for each risk to mitigate, avoid, transfer, or accept them.
While some risks, like exposure to dangerous electrical on high-rise builds, cannot be avoided completely, they can be reduced with proper training and site safety initiatives. Other risks, such as changes in material prices, can be anticipated and mitigated by ensuring contracts are negotiated to reflect current rates.
Construction project teams often use risk logs to track and assess the impact of potential risks on a timeline, budget, and quality of the final product. They may also include a section for risks that remain despite controls put in place (residual risks). Meetings are a key part of this process and ensure that all team members have the opportunity to raise their concerns.
Analyzing Risks
There are many different types of risks that construction projects face. Some are common across all projects, while others are unique to a specific project. A project manager can help to identify these risks by ensuring that a proper risk assessment is completed.
Typically, this is done by holding brainstorming sessions with the project team and stakeholders. This allows everyone to contribute their knowledge and expertise to the process. It is also helpful to review past projects of similar size, scope, and location. This information can be used to better understand the project’s potential impact and what measures can be taken to mitigate it.
Once the risks have been identified, they can be assessed and prioritized. Often, the most important risks will require special attention and monitoring. These are the risks that, if not addressed quickly, could have a significant negative effect on the project. Other risks may be monitored, but with a lower priority or frequency.
Some risks can be eliminated altogether, such as safety hazards (falls, hearing damage, etc). Other risks cannot be avoided but can be reduced. This can be achieved by using training, site safety and PPE to minimize the likelihood that these risks will occur. This is referred to as risk mitigation and can have a positive effect on the project. Other risks can be transferred to a third party through contracts or insurance policies.
Mitigating Risks
It’s important to identify and assess all risks – even the ones that aren’t likely to affect your project. This allows you to prepare and put in place contingency plans that mitigate those risks and prevent them from affecting your project. This process can be complex and involves multiple stakeholders. It also requires a certain degree of transparency between stakeholders to address risks and their impact on the project.
Once the risks are identified, they need to be prioritized based on two factors: their potential impact and their probability of occurring. This enables you to create internal rules and procedures for addressing the risks that pose the most risk. You can then create a risk response plan which is reviewed and revised throughout the project.
There are a number of ways to mitigate construction risks, such as introducing more safety measures for workers or increasing the number of tests performed. You can also transfer the risks to other parties by writing them into contracts, purchasing insurance, outsourcing more intricate and sophisticated work or changing warranty and guarantee terms.
Some risks are unavoidable and can’t be transferred or mitigated, such as weather conditions. In these cases, you may need to build time into the schedule to account for possible delays and other impacts on your project. You can also make the decision to accept some risks if they are unlikely to impact your project and if you have the resources and expertise to manage them.
Accepting Risks
Risk management is a necessary part of construction projects. Without it, a company’s bottom line could suffer from unnecessary costs and delays. Proper risk management can minimize these losses, allowing teams to maximize profits and lead to more accurate financial forecasts.
The first step of construction risk management is identifying potential risks. This can be done through brainstorming sessions with team members and stakeholders. It can also be accomplished by reviewing past project documents or conducting site visits. Once the risks have been identified, they must be prioritized according to their likelihood of occurring and impact on the project. This can be done through the use of a 3×3 priority grid or other method.
Once the risks have been prioritized, strategies can be developed to avoid, transfer, mitigate or accept them. Risk avoidance involves taking steps to circumvent a threat, while risk transfer occurs when the responsibility of managing a risk is moved to another party. In construction, this typically involves purchasing insurance policies.
When a risk cannot be avoided, mitigation strategies can be implemented to reduce the impact. For example, if a construction project is at risk of being delayed due to weather conditions, contractors can implement reusable weather enclosure systems (RWES) on-site to reduce the risk of lost productivity and delay. These are an excellent way to reduce the impact of unavoidable risks while ensuring that the construction project remains on schedule.