Beware These 4 Risk Factors on Construction Projects
Being able to identify and manage risk on your construction projects plays a large part in your company’s success or failure. There are plenty of horror stories about how one mistake dealt a crippling or fatal blow to a business. On the other hand, the riskier an endeavor, the more profit it usually involves.
The key is knowing the risks you face, then managing them skillfully. In doing so, you can position your company for growth, while fostering better relationships with vendors and customers. Managing risk is a skill that everyone on the job needs – from your leadership team to every field worker. When it comes to risks that threaten a project, people need to be able to make good decisions, sometimes quickly.
Below are four of the risk factors companies most often face, as well as techniques to oversee them so they don’t end up wrecking your projects and your business.
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1. Labor
Managing labor availability is a tightrope walk at best. Talk about risk . . . If you take on a job and you don’t have enough workers available to complete the project, you automatically set your company up to miss deadlines and disappoint the customer. On the other hand, few companies have the luxury of maintaining a staff that can just sit around waiting until the next job comes along.
We’ve been talking about construction companies dealing with skilled labor shortages for over a decade, and it’s likely they’ve been dealing with it much longer. The challenges are twofold:
- attracting new, generally inexperienced talent;
- retaining experienced workers whose interest level and careers are winding down.
When experienced workers leave and are replaced by new talent, it’s not just financial risk of lost productivity that a company faces. An even greater risk comes with not knowing the rules and being unable to recognize hazardous situations. Additional supervision, job training, mentoring, and continuing education can be effective ways to address this risk.
In the case of experienced workers, who serve as the backbone of any construction company, there are a few strategies to keep them interested in staying:
- rewards for dedication (i.e. wages and competitive benefits),
- healthy employee-management connection,
- culture that values the engagement of workers in company initiatives,
- opportunities for skills enhancement and advancement.
2. Defaults
It’s a rare subcontractor that would start a job with the intention of defaulting on the work. But it happens, which is why prequalification of subs before bidding is important to head off this risk.
Once hired, many subs have to front a large portion of their costs on a project before they ever begin billing and getting paid (dealing with their own risk issues). If their cash flow is problematic, some may juggle finances among projects, bringing the risk of delays that can affect your project and harm the productivity of other teams.
You can monitor the subs on your job and watch for signs of trouble: delayed deliveries, a decrease in workers onsite, or complaints from unpaid suppliers and workers. If you notice subtle warning signs, stay on top of the situation. Addressing problems early is far better for your project and the other teams on the job.
3. Change Orders
Change orders happen. Adjustments to the scope of work or contract can be initiated for a variety of reasons by project stakeholders. While part of construction life, changes carry with them the risk of bringing a project to a screeching halt if not handled the right way. When changes interrupt the project flow, cost overruns and schedule delays follow.
Things you can do in advance to avoid the risks from change orders:
- Clarify vague items in the scope of work;
- Clearly identify what’s expected from subs;
- Ensure plans and specifications are clear and exact;
- Eliminate conflicting language in your contracts;
- Establish who can authorize a change to the project and the correct procedure.
4. Safety
Keeping workers safe must be a top priority on the job. The ramifications of jobsite accidents extend beyond the human impact to include schedule delays, extra costs, negative morale, and lower productivity.
Addressing safety risk can include:
- Developing a safety plan for the job.
- Getting safety commitments from subs.
- Training workers.
- Providing personal protective equipment for use on the job.
- Holding mandatory onsite safety meetings and hazard updates.
When you consider all of the other risk factors that threaten construction projects – poorly defined scope of work, unforeseen site conditions, equipment theft or damage, design errors, poorly written contracts, incomplete drawings, unexpected increases in material costs, poor project management – it makes skillful risk identification and management even more important for keeping your projects on track and your company positioned for growth.
If you’d like to better understand your business processes and the risks you face, you may benefit from a Business Process Assessment. Contact Applied Software today and talk to the Applied experts about your risk management opportunities.
