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Why Managing Risk in Construction is Crucial
A financial analysis shows that there is more to risk management than the protection of human life and health. It makes fiscal sense to anticipate--and deal with--risk potential before any incidents occur. Failure to foresee potential hazards leaves the construction project’s manager in danger of falling short with respect to the undertaking’s profitability. The latter is a mix of sticking to a predetermined schedule, budget and quality standard.
- Schedule: If mishaps, accidents or unplanned problems cause the construction project to run behind schedule, the company cannot get started on another project. Potentially, this results in lost job opportunities, lost revenue and perhaps even fiscal penalties. The much-publicized Los Angeles demolition of the Mulholland Bridge--known as “Carmageddon"--carried heavy penalties to the tune of tens of thousands of dollars per quarter hour if the I-405 failed to open within a three-day span.
- Budget: A construction company only makes a profit if the cost of materials and labor comes in below the revenue charged for the project. If accidents require the replacement of raw materials, or if worker accidents result in costly hospital stays or litigation, the project runs over budget. Rather than making money, the business now has to spend money to finish the project.
- Quality Standards: The commissioned project calls for detailed wood paneling but a sudden change in weather patterns leaves the finished work looking crooked. Adding insult to injury, an improperly trained worker does not complete the client-required repairs to standard. The business now has a black mark on its reputation with respect to quality control.
It is clear that leaving risk management to chance is a foolhardy undertaking indeed.
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Nuts and Bolts of Hazard Evaluation and Elimination
The faculties of the University of New South Wales and Shenzhen University determine that effective risk management depends on a “systematic way of looking at areas of risk and consciously determining how each should be treated." In other words, the experts suggest that construction project managers take a “what-if" or “worst case scenario" approach when planning the venture. For example:
- Identify skill requirements. The project manager allocates the types of skills the workers need to complete the project. Next, the professional evaluates the current state of worker training. Shortfalls point to likely risks, whether they are schedule-, budget- or quality-related.
- Verify cost estimates. Ideally the initial bid is accurate and reflects all of the work to be done. In practice, there is a good chance that bids are frequently on the low end, especially if a client changes the scope of the project once or more often. The project manager verifies the estimate and ensures that it is in keeping with the likely costs of materials and labor.
- Determine safety awareness. Has the company been cited for OSHA violations? Is there--or has there been--ongoing litigation with workers who got hurt on the job? Does the foreman frequently rely on the use of day laborers to speed up work or cut personnel costs? Affirmative answers to one or more of these scenarios point toward a potential lack of safety awareness, which in turn heightens the odds of human error.
- Ensure hardware functionality. What could possibly go wrong if the hammer breaks or the saw gives out? Not much. Then again, if the cement mixer is broken, it will put the crew behind schedule while another one is found. The project manager verifies not only that the company has the needed tools to complete the project, but also that the tools are in working order or that backup tools are available.
- Establish code adherence. Failure to adhere to recent code updates or municipal permit requirements makes it difficult to start a project on time. Cooperation with an architect, building department official and the client is essential for avoiding unpleasant surprises when the building inspector visits.
- Spearhead communication with other contractors. A construction project relies on the harmonic interaction of various disciplines. Even a construction company that covers a lot of the project essentials--such as building, plumbing and electrical work--may still have to coordinate with a mason, roofer, landscaper or painter. Failure to do so results in friction, unanticipated downtimes and even damage to quality work.
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Don’t Go It Alone
An intricate look at the delegation cycle shows that the construction project manager does not have to go it alone. Instead, the professional identifies team leads who will report back on their preparation for the “what if" scenarios. Do this by establishing communication paths as well as benchmark requirements.
For example, the project manager enlists the help of the hiring manager who is also in charge of training. The project manager communicates with the hiring manager to ascertain the skills of the workers and then recommends needed training for the upcoming project. The hiring manager provides the training and reports back to the project manager when it is completed.
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Cover All Bases
Do not leave managing risks in construction projects to chance. While there is still a chance that an unforeseen event occurs, the fact that knowable problems are minimized greatly enhances the company’s ability to deal with the truly unexpected snag.
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- Faculties of the University of New South Wales and Shenzhen University, http://prres.net/Papers/Zou_risks_in_construction_projects.pdf
- Image Credit: “A construction site of an office building in Taka-Töölö in Helsinki" by Matti Mattila/Wikimedia Commons via Creative Commons Attribution 2.0 Generic license