Construction risk management is a process of identifying and assessing the unique risks inherent in each project. Crucial to the assessment is the development of methods to mitigate the impact of risk on the success of the project, your business. Here are the macro risks facing the entire construction industry in 2022.
Meeting contract requirements, ensuring worker safety, securing materials or dealing with natural disasters are growing risks that make construction risk management a requirement for every contractor. Increasing spending and increasingly complex projects in the context of an ongoing pandemic raise the stakes for creating detailed processes upfront to identify deteriorating trends and action plans to reverse them.
Basic risks on the construction site
To create your risk plan, you must first identify which elements are most likely to put your initiatives at risk. The following are some of the most common sources of construction-related risks:
- security risk: Any dangers or dangers on the construction site, which may result in injury to the worker
- Financial risk: Factors affecting your cash flow, such as B. declining sales, economic problems, unexpected cost increases and intensified competition
- Legal risk: Potential legal issues in contract compliance
- Project risk: Project hazards such as poor resource management, underestimation of time, lack of appropriate guidelines, or misunderstanding of project outcomes
- natural disasters: Floods, earthquakes and other natural disasters that can devastate construction sites and make work inaccessible.
How to deal with risks
The process of developing a risk management plan is divided into the following steps:
- Identify the hazards: Risks should be identified during construction preparation to have time to plan for them before accepting them.
- Rank the hazards in order of importance: Risks should be prioritized based on their potential impact on your organization and the likelihood of their occurrence
- Decide on a reaction strategy: Develop a response strategy for each risk.
- Choose Involve members of the team: The design team, the owner team and the contractor team are the three main participants in the construction process. It is important to study their procedures and, where possible, identify and eliminate hazards.
- Create and revise contingencies: For risks you accept, create a contingency plan—a backup strategy for completing the project if the hazard materializes.
Here are some examples of foreseeable hazards that could be mitigated through planning:
- Materials not supplied: A different design could be produced or bulk or specialty materials pre-ordered before contractors are hired.
- Shortage of skilled workers: This could be countered by setting up a local labor camp or recruiting workers from other countries.
- Plants and equipment not available: Equipment such as piling equipment and spare parts could be ordered during the design phase before a contractor was engaged.
- Illness: This could be addressed through insurance coverage for critical personnel.
- Failed information and communication technologies: Duplicating facilities, developing backup procedures, and maintaining uninterrupted power sources could help limit this risk.
- Power failure or lack of water: Dual supplies, uninterruptible power sources or the availability of standby generators could help reduce this risk.
Why is a contingency plan important?
On a real estate construction project, there is a lot of pressure to stay on schedule, on budget, and to the set standards of quality and craftsmanship. You must ensure that the project’s schedule and quality commitments are met. This is where the construction emergency comes into play. It is intended to help the construction crew to deal with the unexpected in an efficient and planned manner. And all this while adhering to tight deadlines and high quality standards.
Although everyone involved in project planning performs a detailed analysis of what is required to complete the project, numerous factors contribute to the need for contingencies, such as:
- design plan
- resource plan
In the event of unforeseen additions, the building deposit serves as insurance. With a construction contingent, you can plan for the unforeseen and keep your project on budget and on schedule.
The plan should include all forms of construction contingencies required for the project. Typically, a construction loss account is formed for 5% to 10% of the total construction expenditure. A construction emergency budget should include a well-established method for accessing emergency funds, which situations require the use of money and which do not. Besides the actual amount of money, it also outlines a clear system for notices, paperwork, and permits.
Construction risks are divided into three categories:
Building supplies are needed for every project, no matter what type is used.
1. Contractor’s quota
Everyone knows the following:
- price increases
- unexpected problems
A contractor emergency allows the contractor to manage cash when unexpected problems arise. A contractor’s quota is the amount that is included in the contractor’s projected price for the project. This amount is in excess of the table of values and is set aside for unexpected costs or other challenges attributable to the contractor.
2. Owner Contingent
However, contractor oversight or error is not usually the cause of project changes. Occasionally the owner may make changes to:
The owner contribution in this scenario is an amount set aside to cover any adjustments requested by the owner. GMP contracts (Guaranteed Maximum Price) often rely on owner quotas.
Most owners will require that unused contingent assets owned by the owner be used to improve the project, such as:
- Replacing items deleted for financial reasons
- Adding products to wishlist that were previously “on hold”.
- Improvements in materials or deliveries in general
3. Design contingency
Before a project begins, designers try their best to create detailed designs. However, design aspects may change throughout the project for a variety of reasons, including:
- Unavailability of Material
- scope creep
- Required upgrade
If these concerns arise after the project has started, the designer may choose to use design contingency to pay for the costs of these issues not covered by the as-bid plan.
The emergency plan serves to cushion the impact of any risks that arise. Without them, the full impact of the risk could have a significant impact on the entire project. The contingency plan is the last line of defense in the event of a disaster. A project manager should have an implementation contingency plan in place, rather than having to create one as risk increases.
The contingency is just another tool in a project manager’s arsenal of tools to ensure project success. Contingency planning is a must in today’s project management world due to the timing when a contingency needs to be executed.