Risk management plan – a must have in your construction operations. There is never a time when a construction company is not going to take at least a little risk with their projects, however, each company will need to determine if the risks for each one is worth their time and possibly some of their profits.
Here are the numerous risk factors that construction companies encounter every day:
- Intense competition for available work
- Expectation to produce a high return on all invested funds
- Intense pressure to save as much money as possible as well as time
- Consistently low margins and lower profits
- High number of litigation cases as well as disputes
- Safety issues
The risk management team of a construction company will weigh all the above as well as create a plan to lower the risk of any project that they decide to do. Once a company receives the approval for a project, this team will then monitor and control every item within the plan to ensure that the risks stay at a minimum.
Risk Management Plan in Construction – guidelines
When the risk management team determines how high their risk is on a project, they will follow these guidelines:
- Identify what the problem or problems are or what can happen
- Identify who may be harmed or what can be harmed if this problem occurs
- Determine how many risks may arise if the problem occurs
- Decide what control measures need to be in place to prevent the problem
- Determine if any risks remain
- Document all the findings from the risk assessment
- Create contingency plans in case the first or second plan does not work
- Review and revise everything above as needed throughout the entire project
The reason that a risk management team weighs all the above carefully is because the company wants as little risk as possible. As mentioned above, there are numerous risks that can be encountered, but the worst ones include the following:
- Property damage
- Decreased production
- Less money earned from contracts
- Workers have more accidents
- The public becomes injured, which can be a major liability and cause the project to fail
- Reputation of the company is destroyed and leads to a decline in business in the future
Of course, there are never any guarantees that a project will be successful and without too many risks, even with all the proper planning and contingencies in place. Simple activities can cause major issues, while issues that a person thought would be a problem never happen. That’s the beauty of risk management, the unexpected or expected can occur at any time.
There are four things that construction companies can do when they are met with a risk and they are avoid the risk, mitigate the risk, transfer the risk, and accept the risk. Obviously, any construction company that wants to avoid major risks can walk away from projects that have higher risk rates. Sometimes it is the best decision for a company, while other times, they should have taken the risk, because the results may have been better than they anticipated.
When a company mitigates the risk, they are creating plans to keep the risk as low as possible. There are many things that companies can do to mitigate their risks, and usually they are quite successful when they do. As for transferring the risks, it is a solution that is going to cost a company money. However, that amount of money may be less than the money that they would lose if they had accepted the risk themselves. This is a type of insurance that allows the company to only lose the amount of money that they are willing to.
There are many times when construction companies will determine that it is necessary or feasible to accept the risks of a project that they want to complete. This entails looking at all the alternatives and understanding what could potentially happen. The impact may sometimes be higher than a company wants, but that is the chance that they take by being in this business.
Here are 4 benefits of risk management plan in construction:
- Consistent and Efficient Operations
Once a risk management team has contemplated the risk management for a few projects, future projects will be easier to assess. After all, they will have the knowledge and the tools that they need to make decisions faster, which will improve the operations of the company.
- Improved Safety and Security
Risk management can do more than assess projects for a company, they can also create plans to ensure that the safety and security of the employees and job sites are the best that they can be.
- Higher Confidence Levels
Risk management teams will find that they are more confident over time, as they continue to weigh the risks of the company.
- Increased Profits
Taking unnecessary risks can really hurt the bottom line of any company, which is why a risk management team should be in place.
Construction companies, large and small, may not think that they need a risk management team, but this job can be quite large and time consuming. Therefore, without a specialized team, some risks may be missed, and that can be detrimental to the outcome of the project and the business.