How often have you realized too late that a project wasn’t going as planned? And was your roadmap for risk management in construction effective?
The most common reason for these problems is that construction managers have to handle multiple projects or sites at once. It becomes hard to keep track of every job happening on the site. Logically, we can’t win 10 races at once; instead, we may lose all. Other than this, increasing demands, constantly changing regulations, and a shortage of skilled workers act as add-ons to such challenges.
Because of all these factors, general contractors manage to achieve just a 3% margin on their projects. Yet, all the problems have a solution. And in the case of construction, the solution is proactive risk management. Contractors must practice effective risk management in construction, have skills or tools to identify potential stumbling blocks early on and respond wisely and proactively. So, let’s know what risks occur in construction and how construction management software lends a hand to tackle those risks.
What is Risk Management in Construction?
Construction risk management is any practice, strategy, or documented step to identify, assess, and mitigate issues and uncertainties on the construction site. To prepare an effective risk management plan, contractors need to make a list of risks that may arise and document the steps to be taken to address those risks. Otherwise, wait for an obstruction that could disturb the smooth execution of a construction project. Then, they are analyzed to find out the most effective ways for risk management in construction. Once documented, it needs to be shared with all workers so that they are already ready with the best possible ways to combat risks.
There are many risks in the construction industry, such as –
- unexpected weather,
- delivery issues,
- technical difficulties,
- changes in building codes, and
- a lot more, which are unexpected.
The primary goal is to minimize or prevent these unexpected events and problems by preparing risk-combat plans. It’s better to document plan B for each activity and risk to mitigate the chances of disruption in construction progress.
Why Effective Risk Management in Construction is Crucial?
Effective risk management is crucial in the construction industry for the following reasons:
Increase Margin
General contractors usually make a slim profit—around 3.5% on average. Unplanned risks, such as sudden cost increases or delays in materials arrival, can have a serious impact on margins. To address this risk, comparing what you planned (target) to what’s actually happening (actual) allows you to see the current status of your projects and step in before they mess up your budget. So careful risk management in construction helps you close the gap between target and actual and protect more margins on profit.
Keep an Overview
Risk management starts with knowing what’s going on across all your projects. When you’ve got a clear view of everything, you can catch problems before they snowball. For example, if a project’s schedule shifts, you can let everyone know right away to avoid delays. You see? It’s all about staying in this loop, sticking to timelines and budgets, and tackling issues as they pop up.
Make Data-based Decisions
Using data can be a game-changing risk management practice. The data is yours to analyze and understand what risks may arise and how big they could be. Data-driven reports will give you a clear idea of what mistakes are being made repetitively; once you have such insight, you can make better risk-handling strategies for the future. And, of course, such invaluable data presents you with a scope to prepare a well-thought-out risk management in construction layout to implement in the upcoming projects.
Keep Quality High and Clients Happy
If you manage the risks well, the quality of the project will also be good. If there are defects in construction or the material turns out to be bad, the quality falls. But when you complete the project on time, within budget, and up to standard, your clients will be thrilled—and that boosts your reputation big time.
Competitive Advantage
Companies that handle risks well stand out from the crowd. By managing risks, you can also capture new business opportunities and set yourself up for long-term success.
In short, effective practices for risk management in construction help you make more money, finish projects smoothly, and keep your business thriving.
Types of Risks in Construction Projects
Risks can arise at every phase of construction projects. Here are some common ones:
- Weather problems: If there is a storm, excessive rain, or scorching heat, work can stop, there can be delays, and costs can increase.
- Problems with delivery: If material or equipment does not arrive on time, the project can be delayed and eat up the budget unexpectedly.
- Technical problems: If there is a problem on the ground or equipment gets damaged, this can also cause delays and extra costs. (For this, checking this Machine Maintenance Checklist will come in handy!)
- Lack of Labor: If skilled workers are not available, the work may not be done on time, and there are good chances that the budget may increase.
- Changes in Rules: If the building rules are suddenly changed, then the work that has already started may have to be changed, and this can be costly.
- Issues with Subcontractors: If there is an issue with subcontractors, then the work may derail from track or even stop, and there can also be legal problems.
That is why it is important that you spot these risks quickly and inform everyone to make a concrete plan for risk management in construction.
Risk Management Process in Construction Projects
See, there are 5 simple steps to manage risk:
- Spot the risks: First, find out which things can cause problems in the project—you can understand this from the data of past projects.
- Understand the risks: Look at each risk—what is the chance of it happening and how much damage it can cause. This will help you decide which one to handle first.
- Handle the risks: Now make strategies—like what to do to prevent the risk or what is the backup plan if it happens.
- Make adjustments to risk plan: Even after making a plan, keep checking whether everything is going well or not and whether new risks are emerging.
- Keep informing everyone: Regularly update the team and stakeholders so that everyone knows what is happening.
NYGGS Tip: Using Construction ERP Software can make this a lot easier. This software provides risk-related analytics and reports that let you see right away if a challenge is rising so that you can jump in and fix things fast. Read more on this software next.
Why Construction Software Helps with Risks
These days, a lot of contractors are using digital tools like construction management software to keep risks in check and boost their profits. Here’s how it helps:
- Everything in One Place: From bills to delivery notes, software keeps all your project info centralized. That makes it way easier to spot risks since nothing’s scattered.
- Better Teamwork: When everyone’s working in the same system, communication gets smoother, and you can avoid mix-ups that lead to bigger problems.
- Data That Tells a Story: Software gives you reports that show exactly where things are going off track—like missed deadlines or surprise costs—so you can step in early.
Boost Your Profits by Managing Risks
Construction projects often don’t go as planned, and risks can end up costing you a lot. By the time you notice a problem, it’s usually too late to fix it without breaking the bank. A big reason for this is not having a clear picture of your projects because the info isn’t all in one spot.
If you’re ready to make an impactful investment for risk management in construction, check out NYGGS Construction ERP Software. They’ve got a free product tour that’ll show you how it works and how it can help you keep your projects—and profits—on track.
What do you think? Need help with anything specific for your construction project?