RISK MANAGEMENT – MOST FUNDAMENTAL ASPECTS OF A CONSTRUCTION PROJECT
In construction, successful execution of a project is accomplished through effective project management. A construction project has various aspects among which the most fundamental one is risk management. A company can simply not guarantee successful project execution without effective risk management.
Risk management is the most important part of overall project management. Delivering a project on time and within the given budget along with turning a profit for your company is not an easy feat. It needs proper planning, constant and detailed monitoring, communication among all team member and stakeholders, and effective risk management strategies.
Before we discuss the risk management strategies in detail, let’s have a look at the potential risks that can be expected construction projects.
- Risks related to project management and development
These risks include all the uncertainties related to project management and development in terms of tools & materials, staff, and time-frame. Listing down the tools and materials, allocating responsibilities to the staff members, and setting an accurate time frame to every task are the very first things you do once needs of your project are defined. You should always think carefully about the potential problems that may occur during the process as it will help you prepare for any kind of glitches.
- Financial Risks
Budget overruns are a common issue that construction companies are afraid of facing. It is one of the biggest and dangerous threats for a project’s successful execution. That being said, it is highly important and helpful for the construction firms to define project related financial risks before the project is started.
Financial risks majorly depend on the type of construction and the location/area where the project is taking place.
Some common potential risk factors in construction projects include
- Tax system
- Currency rates
It is therefore advised to examine all these parameters in detail before beginning of the construction project.
- Legal Risks
Construction contracts can lead to serious disputes, even after the building process has begun. Due to this reason, you need to spend extra time and effort and carefully review every single detail of the contractual agreements.
The duties and rights of both the parties should be explicitly defined and a clear solution for each potential problem should be predicted and planned. In such a case, it is advised that you consult a competent legal team as it will help you significantly reduce legal risks in your project.
- Safety Risks
Construction work has a high risk of accidents. On-site work requires great focus and attention, and all workers and managers have to stay vigilant throughout the process. Safety risk cannot be completely avoided or mitigated, but they can surely be reduced. For that purpose, the management team should their best to transform the site into accident-proof and safe place to work. This is a continuous procedure which begins during the design phase and ends when the construction has completed.
- Environmental Risks
These risk includes natural phenomena like floods, earthquakes etc. that can be hazardous for your construction project’s smooth development. Due to this reason, it is extremely important to analyze the environmental conditions in the area where the project has to be executed. Once the detailed analysis is done, the management team can take all the necessary measures to protect the workers on the site as well as the progress of the project.
RISK MANAGEMENT PLAN & GUIDLELINES
Once the project management team has determined how high their risk is on the construction projects, the next step is to follow the risk management guidelines given below:
- Identify the problems that can potentially occur.
- Identify who will be affected or what will be the impact on development of the project.
- Determine the risks that may arise in case the problem occurs.
- Decide the control measures that need to be taken to avoid or solve the problem.
- Assess all the potential risks in detail
- List down all the findings from the risk analysis.
- Create backup plans in case the first plan does not work successfully.
- Keep reviewing, revising, and improvising all the steps mentioned above as needed throughout the development of the project.
The reason why risk management is the fundamental aspect of a construction project is that the general contractor calgary want as little risk as possible, as these risks can be extremely hazardous for the project’s health and company’s revenue.
However, despite taking all the necessary measures, one can never completely guarantee the success of a project or that there will be no risks along the way. Even after detailed risk assessment and proper planning, the danger of failure is always there.
Although the risks can never be completely avoided, they can be significantly minimized with the help of right tools and plan.
HOW CONSTRUCTION COMPANIES CAN DEAL WITH RISKS
There are four ways in which construction companies can deal with the risks they encounter:
- Avoid the Risk
A construction company can avoid the risks by not accepting the projects with higher risk rates. This is a safe option which can be chosen if the management team feels that they do not have the right plan and sufficient tools to successfully resolve any problems that may occur.
- Mitigate the Risk
A company can mitigate the risk by creating plans and strategies to keep the potential risks as low as possible. There are several steps that companies can take for mitigating risks, among which the most common ones are local plans and regulations.
- Accept the Risk
There are situations in which the companies determine that the best possible solution is to accept the risks related to their project. This involves looking at the alternate solutions, and understanding and assessing what could potentially happen.
- Transfer the Risk
This can be done mostly in case of financial risks. Transferring risk is a risk management strategy that would cost company money, but it would be less than the amount they would lose if had accepted the risk. It is basically a type of insurance that saves the construction companies from losing more money than they are willing to.