Few things are as risky as construction projects. There is heavy equipment, crews working in precarious situations and complicated logistics, safety hazards and risk factors to manage. How do you meet your deadline while managing all that risk?
The answer is construction risk management. It can be mind-bogglingly complex, which is why you should make a detailed construction risk management plan. Let’s take a look at the basics, what a construction project manager is responsible for, types of risk in construction projects and how to deliver a successful project.
What Is Construction Risk Management?
Construction risk management is the process of evaluating and implementing procedures to reduce the impact of risks in construction projects. This risk management process involves thorough planning to create a risk management plan that allows project managers to identify, monitor and mitigate risks as they arise.
A construction risk management plan is developed in the early stages of the construction planning process. It details what project risks might occur and the risk response to resolve them. This includes designating someone on the crew to own the issue and address it.
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Risk Management Plan Template
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What Are the Types of Risk in Construction Projects?
In general, risk is anything that will delay the project or create further costs. There are many sources of risk on a construction site. To create a better risk management plan, it’s essential to know what risks there are, and where they will occur:
- Safety Risk: Your crew is your most valuable resource. Nothing can be done without them. They are also subject to safety hazards, as many of the tasks assigned to them can be dangerous. While your crew is skilled and experienced, accidents can happen. Know the safety risks to your crew, what hazards they might fall prey to and create a safety plan to ensure employee safety.
- Financial Risk: Without money, nothing happens. No one gets paid, you can’t rent equipment—you get the idea. That’s why any factors that can interrupt your cash flow need to be identified. This can include a cost increase for materials, competition in the market and so on. The more you understand the financial risk, the more likely you’ll stay within budget.
- Legal Risk: Managing a construction project involves more than the constraints of time, cost and scope. There are legal constraints, such as regulations, code violations and contract terms disputes with your clients, vendors and subcontractors. Any of these things can send your construction project off track.
- Project Risk: Project risks are universal project management risks associated with managing any project. These include poor management of the resources, missing deadlines and falling behind schedule. The construction project manager must be thorough and aware of difficulties that can throw the project off track.
- Environmental Risk: AKA an “act of God,” such as floods, earthquakes and other kinds of natural disasters. Anything nature unexpectedly unleashes that makes the construction site inaccessible is costly and potentially destructive for a construction project.
Project management software like ProjectManager makes the risk management process much easier. Make a risk management plan with a fully-featured Gantt chart, then track your projects with real-time dashboards and reports. Try it free today.
The Construction Risk Management Process
The process of mitigating risk for a construction project is no different than any other project. The only difference is the type of risks you’re managing in the construction industry. Here are the five steps of the risk management process.
- Identification: First, make a list of every possible issue that could arise. Do the research, talk to your crew and explore historical data from past construction projects that are similar to yours. While this identification list is always open for edits and updates, you should have a set deadline so that you don’t get bogged down in analysis.
- Assessment: Not all risks are equal. Some are more likely to occur, others less so. One way to assess your list of risks is to use a risk assessment matrix, which charts the likelihood of each risk and the size of the impact it can have on your project. Creating a risk assessment matrix helps you when addressing the risk if it appears.
- Planning: Once risks have been identified and prioritized based on their likelihood and potential impact, a construction risk management plan should be developed. This document will explain in detail how risks will be managed throughout the construction project.
- Mitigation: This is where you implement a contingency plan that will alleviate the impact of the risks you identified earlier once they occur. The top priority, of course, is those you defined as highly likely and having the greatest impact. These should be given a risk owner, who will be responsible for ensuring risk mitigation.
- Monitoring: The construction risk monitoring step is always ongoing, as you attempt to identify these risks when they show up, or you may also identify new potential risks as the construction project progresses. That includes monitoring the effectiveness of your mitigation plan. Also, stakeholders should be consulted and kept updated on these project risks. Engage other department leaders to help, and empower the team to respond to risk. Have them note if a risk has moved to a different spot on your risk assessment matrix.
- Reporting: Your construction risk management plan should be analyzed and shared with the crew and stakeholders. These reports on risk mitigation allow you to evaluate the effectiveness of the contingency plan. While this can be done with an Excel spreadsheet, using project management software is more efficient. Online tools gather the data automatically, create dashboards to illustrate progress and even generate reports that are easily distributed.
What Is a Construction Risk Management Plan?
A construction risk management plan (CRMP) defines the strategies and procedures to identify, assess and mitigate construction risks. It acts as a roadmap so project managers and their teams can be proactive in addressing potential challenges to minimize how they impact the project’s timeline, budget and quality. This comprehensive document plays an important role in improving the chances of delivering a successful project.
What Should Be Included in a Construction Risk Management Plan?
When putting together a CRMP, be sure to include the following sections.
Construction Risk Register
This detailed document outlines the risk categories to consider for the construction project. These may include financial, safety, environmental or legal risks. There are also external risks, like dealing with new stakeholders and their change requests. Those can wreak havoc on your construction risk management plan. Laws and local standards can change once you break ground, and the environmental analysis could be incomplete.
The risk register should identify risks, evaluate them and give them a rating, which combines probably and severity to help prioritize them. It should also include a risk owner, risk response strategies and contingency planning if unforeseen circumstances arise.
Construction Risk Matrix
A construction risk matrix is a visual tool that helps assess and prioritize potential risks in a construction project. It helps the team focus on the most important risks that could have a significant impact on the project’s budget, timeline or quality. The X-axis represents the likelihood of the risk occurring while the Y-axis represents the impact or severity if the risk occurs.
Risk Response Actions
These are strategies used to help identify risks in a construction project. The goal is to mitigate, transfer, avoid or accept the risk. For example, risk mitigation can include quality assurance and control procedures or regular safety training. Transferring a risk can include shifting the risk to a third party such as purchasing insurance policies. Avoidance may be design modifications and acceptance may be putting contingency funds aside to cover potential losses.
Risk Management Team
This is the group responsible for identifying, assessing and mitigating risks that could impact the construction project. Members typically include a risk manager, project managers, subject matter experts and stakeholders. Once the risk has been identified and assessed, it will be prioritized and monitored as needed. This team is responsible for communicating information to relevant stakeholders to keep them informed of changes.
You also need to keep an eye on the construction crew at the job site. Make sure you hire experienced professionals and offer them safety training because an inexperienced workforce is asking for risk. So is poor morale, which can lead to staff turnover or conflict. Don’t forget to make sure permits are updated and that there are no contradictions in your construction documents. These are just a few of the many factors to account for when managing your construction risk management plan.
Risk Budget
The risk budget refers to the finance allocation set aside to cover unexpected costs or potential losses that arise from identified risks in a construction project. Think of it as a safety net to help protect the project from financial strain because of unexpected events. When making a construction risk budget, be sure to factor in things like the weather, design changes, budgets, likelihood and impact.
Key Risk Indicators
Key risk indicators are project metrics that monitor and assess potential risks to the project in terms of finances, scheduling, quality, safety and legal matters. For example, financial risks may include changes in material costs while schedule risks could include weather-related delays. By tracking these key risk indicators, construction managers can address problems early.
Communication Plan
A thorough communication plan is key to the success of a construction project. It allows all project stakeholders, including the project team, subcontractors, clients, suppliers and local community members to be on the same page. Be sure to define the communication objectives and understand what communication channels will be used.
Construction Risk Management Templates
We’ve outlined some of our most helpful construction risk management templates to utilize for your next project.
Risk Matrix Template
As stated above, creating a risk matrix is a very important step in the construction risk management process because it allows you to understand which risks can be more impactful for your project. This free risk management template for Excel is ideal for project risk analysis.
Construction Risk Register Template
A construction risk register template is a way to systematically identify, assess and manage potential risks in the construction project. Use this alongside a risk management plan to help reduce the chances that the risk will occur.
Construction Risk Assessment Template
A construction risk assessment template is a helpful tool for identifying and prioritizing risks that could potentially impact the construction project. It offers a consistent approach to risk management and makes it easier to track progress and accountability.
How ProjectManager Can Help You Mitigate Risk
Construction risk management involves a lot of monitoring and tracking. To properly control risk, you need construction project management software that provides real-time insights into your progress. ProjectManager is a cloud-based tool that delivers real-time data for effective construction risk management.
Manage Projects on Gantt Charts
Collecting all the risks and prioritizing them can be difficult. Using ProjectManager’s interactive Gantt chart, you can organize all the risks and assign them an owner and resources. Once the risk is an issue, you can create a task to address it, attach files to those tasks and leave comments for your team. That allows crews to collaborate, whether in the office or the construction site.
Multiple Project Views
Of course, not everyone likes using a Gantt. Your crew might prefer a task list or project calendar that captures important dates. That’s why ProjectManager offers multiple project planning views, so everyone can use what they want to use. Changes to tasks in one view are reflected in all the rest.
Track Progress on Dashboards
Unlike other software, our real-time dashboard doesn’t have to be configured. Graphs and charts show metrics such as time, tasks and workload so you can see an issue fast and respond quickly. We also have one-click reports that can be shared to update stakeholders. We have all sides of your construction risk management plan covered.
ProjectManager is an award-winning tool that helps organize construction projects, from planning risk to monitoring and reporting to stakeholders. Build on a collaborative platform that connects your crew to help them work better together. Try ProjectManager free today!
