Identifying potential risk issues at an early stage is critical to the success of any project. To understand the risk that is apparent on a construction project exists from the initial project concepts and continues throughout it’s life cycle is imperative when considering any action plan which should include the below.
Historically construction has been risky for several reasons, including:
- Poor record of completion to cost and time.
- High levels of disputes and litigation.
- Intense competition for work.
- Low margins and profit risk.
- Poor safety and occupational health record.
- Pressure to produce a high return on funds invested.
- Pressure to save time and money.
- Pressure on health and safety provision.
Following the Turnbull Report which came into effect in 2001 construction companies have been required to show procedures to manage risk in their accounts. This is not a statutory requirement, but can have a severe detrimental impact if it is not included. Often risk is ignored or dealt with in an arbitrary way on construction projects and it is common practice to add a contingency to manage risk.
However it is often the unidentified hazards for which provision has not been made that will have the most significant impact on a project. Thus the task of effective risk management in construction is the prevention of losses caused by exposure to risk for example accidents, loss of money or time, damage to property or loss of reputation.
Risk management in construction is designed to plan, monitor and control those measures needed to prevent exposure to risk. To do this it is necessary to identify the hazard, assess the extent of the risk, provide measures to control the risk and manage any residual risks.
While there are many types of potential risks on any project, we focus on the risks for our Clients. Risk management considerations for the client may include: Feasibility risk – the decision to go ahead backed up by a robust business case, considering options and presenting the preferred solution.
Design Risk – deciding the level of control to keep over design and therefore the level of risk that remains with the client in terms of design.
Funding Risk – ensuring funds are available to pay the contractor and avoiding the risk of contractor insolvency.
Commercial Risk – the impact on income and profits if the new asset (building) is not delivered to time, cost or quality.
Contract and Contracting Risk – ensuring that the contract and agreement with any contractors is comprehensive and addresses areas that may impact time, cost, quality or design before a contract is executed.