Construction
Published: July 31, 2024 | Updated: 31st July 2024
All construction projects contain risk. Arguably, effective project or construction management could be described as effective risk management. This starts at a very early stage in the development cycle, often at initial feasibility stage, weighing up the risk of whether the project is viable or not.
From that point onwards, there is then a continuous process of identifying risk, assessing the impact that risks present to the project and then mitigating those risks. This process is essential for the success of every development project. Construction by its nature is complex and many uncertainties exist both throughout the project itself and across the wider industry.
Identifying Risk
The creation of a list of risks or what is known as a ‘risk register’ is immensely beneficial. It allows potential risks to be identified at an early stage and if possible, designed out. Residual risks can then be managed and appropriate contingency plans put in place to mitigate or avoid them. Typical risks that are all too familiar for those working in the construction industry include:
These risks can be managed effectively, controlled and allocated appropriately between contractor and client. This is key to the success of all construction projects but requires careful planning and preparation. The risk profile for the project must also then be formalised through the contract documents so that they reflect the desired apportionment of risk between client and contractor.
Quantifying Risk
Risk by its nature often has financial and programme implications for a project. When preparing a risk register, it is important to quantify risks in terms of their impact on both cost and programme. Key decisions can then be made at an early stage when the true costs of certain design decisions, planned works or methodologies of construction are fully understood. The quantification of risk also informs decisions on whether to bring forward investigation or testing works to more accurately assess risks that perhaps initially may be difficult to assess. Examples include:
Once investigation works are completed and the extent of works to deal with an identified risk are understood, the costs for these can be added to the project cost budget and time allocated to these works in the project programme. This approach therefore leads to better informed decision making and more accurate cost & programme forecasting.
It is inevitable that not all risks can be fully understood and quantified until further into a project. An estimate of the likely risk can however be made and appropriate cost and time contingency built into the project from the outset.
Building Contracts – risk profile / allocation of risk
Once the risk profile of the project has been mapped out, the client can then consider how they wish to allocate those risks. A client may be happy to take on board most of the risk in the project and as such seek prices from suitable contractors on this basis. This is often referred to as ‘Traditional Procurement’. The works are fully designed, scheduled, quantified and priced. A contract is then entered into on the basis that any variation to the designed works is paid for by the client and any additional time required due to these variations will be granted to the contractor, together with any associated costs.
Alternatively, the client may wish to proceed with minimal information and pass on as much risk to the contractor. Usually including the development of the design for the works. This is the principle of what is referred to as ‘Design & Build’. The contract that will be entered into reflects the greater allocation of risk onto the contractor. This gives greater cost certainty to the client.
Many projects are procured somewhere between the two scenarios described above, with parties qualifying risk and allocating design responsibility & risk to whichever party is most suited to take on that risk.
Conclusion:
‘Plan, do , review’ is a widely adopted mantra for successful risk management in construction projects. This approach when adopted from the very initial stages leads to forward thinking approach that will deal with risks before they materialise into the problems that can de-rail a project.
Whitefox – Chartered Surveyors’ QS & Project Management team provide support and advice to our clients on a wide range of building projects across commercial and residential sectors.
If you would like our team to support you in the successful delivery of your project then we would be delighted to have an initial conversation with you to better understand your goals and how we can help you achieve them.
