If you have been wondering how construction companies deal with risks and manage them effectively, don’t worry, we have got you covered. In the risk management process, the first step is to do is to identify potential dangers posed by the project or customer. Construction companies must consider any risks that could expose the company to potential losses. While there are various ways to categorize risks, six basic forms need to be recognized in construction risk management.
Impact Assessment
Once potential hazards are identified, the next stage is to assess their frequency, likelihood, and seriousness. To achieve this, construction companies need to ask key questions such as, “What could possibly go wrong?”, “What is the possibility of that happening?”, and “What would we lose if it happened?”. Simply through evaluating project and financial data, a company’s risk assessment can be more accurate. Historical data helps in understanding the likelihood of a loss occurrence and the intensity of damages.
Risk Response
After assessing risks, a construction company can respond in one of four ways, they can either accept, avoid, control, or transfer.
Accept the risk
Sometimes, taking a risk is necessary to pursue a worthwhile opportunity.
Avoid the danger
This might involve altering the project’s scope or rejecting the deal altogether.
Control the risk
A company can take measures to reduce the chance of a loss event and/or lessen its effects on the organization. For instance, a contractor can safeguard lien rights with high-risk clients or on projects of a specific size to mitigate the impact of late payments.
Transfer the risk
For this, by using construction contracts or insurance plans, a contractor may transfer the risk to a different party.
Damage Recovery Efforts
In the event of a loss, a construction company should work to limit losses and recover damages. Various approaches can be employed for loss recovery and mitigation, including making insurance claims, submitting mechanics lien or payment bond claims, resorting to collections, taking legal action, or filing for bankruptcy. A construction company’s risk management plan should outline guidelines and tactics for preventing losses and responding to them effectively.
Continuous Improvement
Contractors must regularly examine their risk management program, evaluate both successes and failures, and adjust the procedures based on the lessons learned. The process of managing construction risk should be continually improved and updated to consider historical results and broader industry developments. The construction industry’s risk landscape is subject to change over time, and future projects will likely involve new hazards and may even necessitate updated management and mitigation techniques.