How to Manage Construction Risk
Managing risk is an ongoing process and you will need to be acutely aware of your current risk tolerance at all times.
Now that we’ve identified many of the types of risks you might face during your project, let’s take a look at how you’ll be able to manage all of these different risk factors.
Identify Potential Risks
We laid out some of the various risk factors you may face above, but each project is unique and will have its own various high probability risks.
As an expert in your company’s business and previous projects, you will have a strong understanding of potential risks, and hopefully previous experiences to rely on.
Additionally, you should rely on stakeholders across the project and organization to foster a strong risk management team, and we’ll touch on that in the next step.
Determine Risk Stakeholders
There will be too many different potential risks to your project for any one person to handle.
It will be necessary to identify who is responsible for identifying, assessing, and mitigating risk for each area you might be facing risk from.
Who from your project team will be responsible for handling financial risk? Or who will handle legal risk (hopefully someone with a background in law!)?
Gathering your project team together and determining who will be responsible for which areas will provide you with:
A defined group that is constantly monitoring risk
An understanding of the different risk tolerances for each risk factor
A cross-functional team that can help assess and mitigate all of your different risks
Determining stakeholders will help keep risk at the top of everyone’s mind as they move throughout each stage of the project.
Perform a Risk Assessment
A risk assessment will be a narrowed down version of your earlier step of identifying risks.
Now that you know where you might face risk, you can assess what is at stake when something does go wrong.
The U.S. government defines risk assessment as: "A risk assessment is a process to identify potential hazards and analyze what could happen if a hazard occurs."
There are existing templates and workflows that your teams can follow to perform an assessment and identify what areas of your business would be impacted by particular risks.
Create a Risk Management Plan
When you've established your team of risk stakeholders and performed a risk assessment it's time to create a risk management plan to outline all of the steps and processes your team will follow. This step is one of the overall pillars of project management, as well.
The construction risk management plan will help your team manage risks and help your project management team understand overall risks. The previous steps will all be rolled together to create this plan.
Here are some of the areas you will cover with you risk management plan.
Not every project will have the same risks. Construction companies face a number of different risks from different vectors with every project. Effective risk management starts by identifying which project risks you will face.
Risk identification will narrow down the potential threats your project faces and allow you to focus on the real risks.
The step of risk identification will be an important part of your risk management plan, and give your team a defined boundary of where to look for risk.
Now that you've identified the risks that apply to your project, it's time to perform a risk analysis and understand the overall impact each risk factor can have.
Because you've identified stakeholders they should each be able to bring a level of expertise to the risk analysis and give detailed thoughts on what situations could arise, their impact, and what needs to be done to prevent a problem.
Life is full of risks, and your risk management plan needs to account for the fact the a certain level of risk acceptance is required for every project.
Your risk management process will need to account for a tolerance toward risk, and as a team come to an understanding on what will be acceptable to move forward with the project.
Define Response Plans
The goal for your risk management plan, of course, is to avoid any kind of incidents or accidents. But, life doesn’t always go according to plan, and situations will inevitably arise.
If you don’t set up response plans ahead of time then you risk being caught flat-footed if something does happen. Time is of the essence when a situation occurs and you need to have a plan in place before something goes wrong.
After you’ve determined stakeholders and roles for each area of risk you might face on your construction project, you will be able to create response plans tailored to each individual area.
When you’re creating your response plans think about the following:
Who is directly responsible for handling alerts should a situation occur?
How will the rest of the project team be notified?
Will other risk factors be affected?
When is a risk considered mitigated and work safe to continue?
Audit Your Risk Management Technologies
To properly identify, assess, manage, and mitigate the risks of your project you’ll need more than just one Excel spreadsheet that tracks everything.
For projects that have many moving parts, workers in the office and on the job site, and potentially spanning multiple time zones, you’ll need technology that can support your entire team.
Each of your projects is unique, and the risks you face are also constantly evolving. To properly manage your risk it’s important to leverage technology that can be custom-fit to your organization.
When you are facing an ever-changing slate of risks it’s necessary to be sure you can be flexible with your risk management process and technology.