Safety Management

Key Elements of a Construction Risk Management Plan

Shannon M Farley @sfarley
Safety & Compliance
11 min read
March 18, 2022

It’s no secret that construction is a dangerous occupation. In 2020 alone, the U.S. Bureau of Labor Statistics recorded 1008 fatalities in the industry that are caused by accidents like transportation issues, fires, explosions, falls, and contact with equipment — all problems that are highly preventable. This goes to show how critical it is for companies to have well-planned construction risk management strategies in place.

Risk management can help identify and mitigate potential problems in a construction project. As a result, companies can reduce hazards in the work environment and make it safer for employees. At a larger scale, these strategies can also be instrumental in meeting deadlines more efficiently, curbing project downtime, and staying within budget.

However, before you reap these benefits, you have to go through the process of formulating a construction risk management plan. To start, we will outline some of the key elements of risk management for construction projects. We’ll also go through how you can make the process more efficient by leveraging reliable safety management software like Salus.

Qualitative Risk Management Plan for Construction Companies

Simply put, qualitative risk management analyzes the variables of a construction project that cannot be measured numerically but can be observed. Often the first step in any risk mitigation strategy, this type of analysis is descriptive and subjective. It is used to categorize risks based on one’s perception of the likelihood of an event and its potential impact on the project. With this in mind, project managers can map out which risks must be prioritized in the planning process. To get you started, we’ve made a step-by-step guide you can use for qualitative construction risk management.

Identify Risks

Mitigating and avoiding risks starts with knowing what risks you need to address. Project managers and team members must draw from their expertise and experience to determine scenarios that can negatively impact the construction project. It also pays to facilitate regular brainstorming sessions, interview stakeholders, as well as review past projects.

The abovementioned aside, it is also a good practice to formulate a checklist of common construction risks. This gives the risk identification process more structure, allowing you to cover all your bases and be prepared for any obstacle that might get in the way of your timeline.

Among the risk categories you can explore while preparing your checklist are:

  1. Technical Risks. These could include potential flaws in the construction design, scope creep, subpar site investigation, incomplete environmental analyses, and the like.
  2. Financial Risks. These largely cover problems such as labor overcharges, payment delays, fluctuating material costs, and property cost overruns.
  3. Organizational Risks. Inexperienced staff, rapid staff turnover, misallocation of resources, scheduling errors, and team conflicts fall within this category.
  4. External Risks. Included here are problems outside of a project manager’s control – delivery delays, public objections, right of way issues, and sudden changes requested by the client.

Assess Risks

Once you’ve come up with your list of potential risks, the next step is to assess them thoroughly.

Start by describing how the scenario might affect your operations. Gauge what consequences the risk has – Will it delay your project timeline? Will it cause considerable budget setbacks? From there, you can rank each risk by the perceived severity of its effect. As an example, scope creep may pose a more significant impact on a project compared to a one-day delay in the delivery of construction materials.

Alongside this, you must also assess the risk by its probability. Try to review your internal inspection logs, accident reports, and similar data to get a more accurate sense of how likely a risk can happen. For instance, it is more likely for you to encounter inclement weather during the course of your construction than to deal with sudden changes in tax laws.

Analyzing your identified risks using these two factors will allow you to categorize them into (1) low impact/low probability, (2) low impact/high probability, (3) high impact/low probability, and (4) high impact/high probability scenarios. This way, it is easier to set priorities when it comes to contingency planning.

Ownership of Risks

Accountability is necessary when it comes to construction risk management. In fact, according to KPMG’s 2021 Global Construction Survey, 42% of project managers rate ownership as an attribute that can greatly influence an organization’s success or failure in dealing with project disruptions. A dedicated team to work on risk management is never a bad idea.

The only question is who you should put on your risk management team. Ideally, the team should comprise representatives from critical departments in your organization. This way, you can make sure they know the processes well and can efficiently lend their knowledge for risk planning. Some critical roles that you could consider include:

  • Risk Manager. As the leaders, risk managers coordinate with the stakeholders of a construction project. They oversee the development of strategies as well as actively monitor project hazards in order to ensure timely and proper action if or when they arise.
  • Project Management Officer. The PMO acts as a liaison between the project manager and the risk manager. PMOs should know the construction project thoroughly and has in-depth knowledge about the ins and outs of a project’s technical operations.
  • Financial Officer. Often coming from the accounting or finance department, financial officers are in charge of risks related to revenue and profitability. They must be able to analyze the potential financial impact of any risk presented.
  • Schedule Manager. This team member is responsible for keeping tabs on project timelines. Schedule managers must have a solid grasp of the deadlines of deliverables so that they can create critical paths, reduce activity dependencies, and minimize any schedule-related risks.
  • Compliance Officer. The duty of a compliance officer is analyzing project processes to ensure they comply with industry regulations and local, state, and federal legal requirements. They must also analyze projects according to internal policies and bylaws.
42% of project managers rate ownership as an attribute that can greatly influence an organization’s success or failure in dealing with project disruptions.

Response to Risks

Humans have a natural fight-or-flight response when dealing with stressful situations, and these instincts often apply to construction risk management. However, unlike individuals, a company must move in unison when responding to a particular situation. To do this, creating a risk response plan is necessary.

A risk response plan, sometimes referred to as a risk register, outlines the who, what, and how of risk response. This should have a detailed documentation of critical factors such as:

  • Identified risks, their descriptions, and their corresponding threat levels
  • Risk owners for each threat and their responsibilities
  • Specific actions to be taken when the identified risks do happen
  • Timelines for responses
  • Contingency plans

It should also note down the remediation strategy that you and your team agreed on for each risk. This is often anchored on these four responses:

  1. Avoidance. This strategy focuses on completely removing a negative risk by any means necessary. In many cases, this is used for threats that are highly detrimental to the project.
  2. Mitigation. This aims to reduce the impact of inevitable threats. For instance, accidents often happen in construction sites but companies can always invest in safety equipment and provide extensive training to workers to keep the risk low.
  3. Transference. Try as we may, there will always be problems that we cannot handle on our own. In the context of construction risk management, this could mean passing on the threat to an insurance provider or securing warranties from your suppliers.
  4. Acceptance. As the old saying goes, one must learn to choose their battles. In construction, there may be threats that are simply not worth resolving. Rather, accepting the risks and working around them is a more viable option.

Monitor Risks

The last step in qualitative risk management is to monitor the risks as the project progresses.

Armed with your list of potential risks, assessment matrix, and risk response plan, you can start keeping a close eye on risks on the fly. To do this, it’s important to practice the following throughout the construction project:

  • Regularly Communicate With Risk Owners. Brainstorming sessions shouldn’t stop once you have your risk response plan. It is important to touch base with risk owners during the project so that you can remain aware of any emerging threats that you were unable to foresee.
  • Continually Assess Identified Risks. As you move through the different phases of your construction project, the impact and likelihood of certain risks may change. So, it is important to keep a close eye on the threats you’ve already identified and see if revising your response to them is necessary.
  • Evaluate Process Changes for New Risks. In a world where companies need to be agile, one must expect process changes every now and then. With these new processes, however, come new risks so it’s important to evaluate changes as they happen to scan for threats.
  • Leverage a Safety Management Software. With the volume of files construction risk management generates, pen and paper simply won’t cut it. You should consider using safety management software that can digitize your risk planning process from compliance management to corrective action documentation. This way, it’s easier to secure your files and retrieve the data when you need them.

Quantitative Risk Management Plan for Construction Companies

Numbers don’t lie. So, in addition to performing qualitative analysis, quantitative analysis is also needed in formulating a risk management plan for your construction project. This uses numerical data to provide more specific information on the impact of project risks. Meaning, if qualitative analysis can give you an idea of how a particular risk will affect your project, quantitative analysis can provide you with data on the extent of its effect. As such, the two go hand in hand when it comes to risk planning.

Schedule Risk Analysis

Quantitative risk management starts with performing a schedule risk analysis (SRA), a strategy that aims to improve the predictability of any project. This helps managers gauge the impact of certain scenarios on the time to completion (TTC) of a construction project. The process for this typically goes as follows:

  1. Set your project’s baseline schedule. Estimate the duration and budget for the project. Make sure to set time and cost ranges depending on both your best-case scenario and worst-case scenario. Then you can easily determine whether the results of simulations still work with your preferred timeline and the cost you budgeted for.
  2. Define the profiles of identified risks. Similar to the first step of qualitative analysis, this process will require you to define the risk profiles of identified threats. The only difference is that you will be defining time and cost probability distributions so you can quantify them.
  3. Run Monte-Carlo simulations. In a nutshell, a Monte Carlo simulation is a technique that simulates project progress based on set durations and costs. It will then generate different outcomes and their corresponding probabilities so you can gauge the likelihood of each scenario.

By taking these steps, you can produce actionable information for your construction risk management efforts. In turn, you can reduce resource costs, lower labor costs, and also determine the project end date to a tee.

Cost Risk Analysis

When it comes to construction projects, money must be budgeted carefully. So, as part of your risk planning, you will need to perform cost analysis.

While simply cross-checking your budget with the cost of materials can help determine whether your budget will suffice, long-term projects such as construction will require you to quantify as much of the process as possible. Using cost risk analysis, you can consider all the costs associated with your construction project and then calculate how certain risks may influence the costs.

If threats present, cost risk analysis can help you be aware of potential budget setbacks. It also makes it easy to create justifiable contingency measures related to your project’s finances.

To simplify the process and make it more thorough, having safety management software at your disposal can be helpful.

Start Construction Risk Planning

One can never be too careful in construction project planning. This is especially true today as 77% of risk leaders believe that more complex, interconnected risks will emerge rapidly in the coming years. So, it’s important to develop a construction risk management that employs both quantitative and qualitative analysis strategies. That way, you can avoid being ill-prepared for untoward scenarios that affect your project timeline and cost.

However, manually creating a construction risk management plan can be challenging. To simplify the process and make it more thorough, having safety management software at your disposal can be helpful. One solution you can consider is Salus.

Salus is a safety management system created specifically for the construction industry. It aims to simplify complex workflows through comprehensive tools for form management, asset management, compliance management, and certificate management, among others. With this reinforcing your existing processes, you can approach construction risk management more proactively.

If you want to learn more about how Salus’ best-in-class tools can optimize your construction company’s workflows, be sure to book a demo here.

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