What is construction risk management?
Construction risk management works to identify and mitigate risks associated with construction projects. While some construction risks are unavoidable, such as natural disasters, some can be mitigated. Given the high amount of risk in every construction project it can be hard for a human to foresee risks, therefore computer software is often used to manage risks. An effective construction project management software can improve project management and risk mitigation throughout the entire project lifecycle. Examples of risks that can impact a construction project include safety hazards, financial, environmental, supply chain issues, and project risks such as communication breakdowns or missed and delayed deadlines.
What is a risk management plan in construction?
A risk management plan details identified risks that could occur during a construction project and outlines how to mitigate the risk. Some risks are external such as weather and other risks are internal such as poor planning. Construction project managers are constantly working to optimize project plans while prioritizing safety and mitigating risks. Even with the help of advanced software construction project managers must be experienced in risk management.
Here are 7 components of a construction risk management plan:
- Identify risks: Before you can mitigate risks, they need to be identified. The first step in creating a risk management plan is to identify potential risks specific to the project. Remember that risks can fall outside of safety. Factors such as an insufficient budget, rushed schedule, and other factors can present risks. It’s important to identify all risks in order to properly mitigate them, manage expectations, and propose a successful project plan to be executed.
- Analyze risks: Now that the risks have been identified, it’s time to analyze each risk. Part of the analysis includes determining the impact it could have on the project. Tools and software can be used to analyze and prioritize risks.
- Response to risks: Determining how to respond or react to risk is key. When it comes to responding to risks, there are essentially four options you can take; avoid, transfer, mitigate, or accept. Avoiding risk means changing the project scope or revising the plan to avoid the risk all together. Transferring the risk involves transferring the risk to another party such as a third-party contractor. Mitigating risks entails taking action to reduce the chance of the risk occurring. Accepting risks means being aware of the risk but deciding to move forward. Prioritizing risks properly can help you determine how to respond accordingly.
- Risk monitoring and control: Risk management starts at the beginning of a project, and continues until the very end. As the project progresses, risks can evolve. Outlining how risks will be monitored and evaluated on a regular basis should be part of a sufficient risk management plan.
- Communication: While some may want to keep risks down low, effectively communicating risks can ensure all are aware. This can ensure risks are constantly addressed and properly managed by anyone working on or involved with the project.
- Documentation: Documentation is necessary to demonstrate the risks identified and validate how they were managed.
- Training: Training for risk can help the team mitigate risks. Providing project specific training or briefs can be especially beneficial.
What are the 5 principles of risk management in construction?
Here are the five core principles of risk management in construction.
- Identification
- Assessment
- Response
- Monitoring
- Reporting
What are the different types of risks in construction projects?
Construction projects can present an array of risks. While not all risks can be avoided or mitigated, they should at the least be acknowledged and known. Remember, risks in construction management projects don’t always mean something bad could happen, they could equate to delays, budget changes, and other repercussions. Let’s break ground on some of the types of risks in construction projects.
- Environmental risks: Environmental risks such as weather or unforeseen site conditions can put projects at risk. While often unavoidable, acknowledging these types of risks and the likelihood of encountering them can help you plan accordingly. To properly assess environmental risks you may need to do some research such as consulting with environmental experts.
- Financial risks: Financial risks can present themselves in many ways. Some examples include an unrealistic budget from the client, cash flow delays, budget overruns, and so forth. For example, if you encounter unforeseen expenses or higher costs during the project, and the client is unable to provide funding, the project can become at risk. Planning ahead for potential financial obstacles can work to mitigate risks.
- External risks: External risks such as weather conditions or natural disasters, market changes, supply chain issues, and more can equate to risk.
- Hazard/safety risks: Basic safety and hazards are important to assess as part of basic project risk.
- Time risks: There are several factors that can lead to issues with the timeline. Perhaps the client has unrealistic expectations, procurement, resource constraints or equipment failure causes project delays.
- Project management risks: Project management risks is a big umbrella of various risks that can present themselves including poor planning or communication, delays, ineffective change management, and more. Effective project management is of the utmost importance to ensure projects are cost-effective, efficient, and properly executed.
- Contractual risks: Contractual risks can stem from individuals misunderstanding project terms. Disputes can be costly and cause significant time delays.
- Legal risks: Legal risks can include contractual disputes, insurance and liability issues, compliance issues, and more. It’s critical to ensure laws are abided by and all parties understand agreements to help mitigate legal risks.
- Communication risks: Even the smallest miscommunication in construction project management can result in big risks. Ensuring communication is clear, parties are fulfilling obligations, and maintaining proper documentation of communication is essential in project management. While project managers often rely on software to help oversee projects, there’s still a vital need for project managers to be heavily involved in managing the project.
What are the pros and cons of construction risk management?
When properly managed, risk management comes with far more pros than cons.
Pros:
- Manage client expectations
- Improve safety
- Control costs
- Increase predictability
- Avoid legal issues
- Early intervention
Cons:
- Time consuming
- Findings may delay the start of a project
- Cost of implementation
- Creates new challenges
- Some risks must be accepted
How to manage risk in your construction project
Effectively identifying and managing risk in every construction project is a tremendous responsibility that project managers assume. The best way to manage risk and document risk management is to utilize a project management software with the capability to support risk management. With the help of the right software, you can identify risk and work to mitigate it. For example, you can create various schedules that the project could assume depending on various risk components. With ALICE you can run as many scenarios as needed to maximize optimization and mitigate risk most effectively.
How can ALICE help mitigate construction risk?
ALICE features construction risk assessment that helps construction project managers turn risk into opportunity. ALICE helps construction teams build an anti-fragile schedule. Input project details into ALICE and quickly model constraints, assess and de-risk your project. With every detail and interdependence taken into account, ALICE helps find the most efficient path while avoiding conflicts and potential risks. And, when risks do surface, take advantage of ALICE’s powerful optioneering engine to identify the best path formed, equipped with all the right information. Simplify the complexities of construction risk management with ALICE.
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