Construction Risk
Construction RiskAccording to the U.S. Census Bureau, the U.S. construction industry was worth $1.3 trillion in 2019. Within such a large industry like construction, risk is inherent in all activities. Depending on the action, you carry the potential loss of time, resources, money, or reputation. Failure to prepare for these risks jeopardizes your business and likely will violate any contracts on client projects. As such, your responsibility is to control risks by avoidance, sharing, mitigation, transfer, or insurance.
Since in a real-life scenario resources and time are stretched thin, below are the top 5 risks to begin your risk management efforts.
1.Labor Risk
Although demand for construction projects remains high and even continues to grow, many are concerned with their ability to locate and retain qualified workers. According to the Bureau of Labor Statistics https://www.bls.gov/ooh/construction-and-extraction/construction-laborers-and-helpers.htm, growth is projected at 11%, much faster than average. While this would typically signal a healthy industry for workers to join, its currently a marker of a lasting labor shortage as even more positions are created. The Associated General Contractors of America report that 80% of contractors have difficulty finding qualified craft workers to hire. “Workforce shortages remain one of the single most significant threats to the construction industry,” said Stephen E. Sandherr, AGC’s chief executive officer.
Within labor, there are also concerns of quality and productivity on projects. In terms of quality, you cant afford to hire unqualified labor. Poor quality jobs violate contracts, damage your reputation, and endanger lives. In 2019, construction of a Hard Rock Hotel in New Orleans came to a halt as the parts of the building collapsed, killing one and injuring 18. Incidents such as these can cause irreparable damage, delaying timelines, and preventing future jobs. It’s crucial to properly qualify labor, offer training and evaluate performance.
In construction, it can be difficult to promote productivity, which can be affected by numerous actors such as employee overtime, lack of training, poor management, etc. However, we can determine inefficiency by comparing varying levels of productivity. For example, a study found that the productivity of two groups performing identical jobs on the same site could vary by up to 50%.
2.Safety Concerns
Many construction sites have an inherent level of risk that is expected, but there is a difference between following safety measures and providing hazardous working conditions. These safety measures must be implemented correctly not only to protect employees, but to ensure a projects ability to proceed without interruption and follow timelines.
Such hazards include language barriers that create unclear instruction, a lack of fall protection for employees, or poorly constructed scaffolding on site. For example, employees being off the ground is an unavoidable risk, but utilizing a damaged ladder or one that is not slip-resistant adds an unnecessary likelihood of risk.
Luckily, there are many industry standards and regulations such as from OSHA that help guide organizations in creating safe work environments, which simultaneously protect worker health, efficiency, and materials. However, these regulations are not without their costs. According to a study performed by the National Association of Home Builders, government regulations account for 24.3% of the final price of a new single-family home. While that is a single instance of construction, the added expense is can be expected to similarly apply across projects.
3.Documentation Risk
Construction projects typically require hundreds of documents to keep track of. A construction contract, for example, can include 15 different documents specifying varied aspects of the project such as timeline, quality, and deliverables. Then you need proper documentation of workers, completed forms, licenses, permits, proof of training, etc.
Understanding and keeping track of these documents is crucial to any business to avoid unnecessary risks such as an unsatisfied customer, or extra expenses like alterations or fines. Companies will need to clearly specify the scope of work, which lists all the work to be completed and all aspects of that work, such as the materials to be used and techniques for completing the job. We won’t go into too much detail here, but know there are many other complex components that must be carefully reviewed such as a bill of quantities, blueprints for the project, and verified insurance coverages.
Locating necessary documents can be a vast waste of time and cause unnecessary delays. This is especially true for companies that continue to use paper documents, such as onsite. Utilizing a central system to store and organize documents is imperative to keep things running smoothly.
4.Communication Risk
Communication risk comes from both workers and stakeholders. With workers, we’ve established that clear communication increases productivity and minimizes safety issues. However, clear communication is also necessary to ensure the job is done correctly the first time. According to USGNN, 52% of rework on a global scale is caused by poor data and miscommunication. In 2018 the total cost of rework in the U.S. was $65 billion, meaning that over $30 billion was spent due to communication issues. These reworks are due to both miscommunications to the workers, and unclear expectations given to project managers. Its good practice to ensure everything is clearly explained and to do so in writing for future reference.
5.Project Delays
Any construction risk, such as those listed above, can escalate into a project delay. When project dates are set back, not only does it disrupt your ability to begin future projects that are already scheduled, but your profit margins begin to shrink. As clients get frustrated, your reputation will also begin to suffer. These delays can result in having to pay overtime to catch up, project abandonment depending on the stage, or even litigation.
Any delay that extends the duration of the project is considered a critical delay. If it’s not critical, it can usually be remedied fairly quickly and without much effort. Examples include labor strikes, natural disasters, or changes by the owner, all factors which are likely to cause a significant delay. These examples are also considered excusable delays. Meaning they are unforeseen or out of control.
Non-excusable delays are typically ones that will violate contracts and cause negative consequences. This is because they are reasonably in control, such as a delay in material delivery or faulty work. To prevent delays, a project manager must utilize teamwork and regular monitoring, as well as detailed investigations throughout the project. Careful scheduling and accounting for possible delays in the plan allow extra room for the element of the unknown. It’s better to finish a project ahead of time than be behind schedule.
Construction Risk Software
Now, outside of these risks we’ve mentioned there exist countless others for consideration. For construction sites, your risks will generally fall under the categories of finance, design, and scheduling. The necessity for an all-encompassing risk management solution is evident, especially considering risks not mentioned such as the evolving use of technology in the industry. So many risks in construction are unavoidable, such as the weather and worker fatigue, so it’s fundamental to mitigate whichever risks you can.
As the construction industry is constantly evolving, it’s crucial to utilize software to help you stay competitive and minimize any unnecessary costs. The RiskWatch platform allows you to completely manage all aspects of construction risk within a single platform, covering areas such as contract review and storage, compliance, physical security, and communication.
