The construction industry, and those related to it, including architecture and engineering, are heavily affected by risk. Every day, you put a team of skilled individuals in positions that could lead to injury. Mitigating and managing that risk is not a one task process. Good risk management for contractors requires a full understanding of every potential risk type, the costs of each, and how to balance them with the need to run a successful and profitable business.
By educating yourself and your staff, reducing risk wherever possible, and managing what you cannot reduce, your business can thrive and your employees can feel safe and protected on the job site. Let’s look at what this takes.
TYPES OF RISK TO EVALUATE
There are seven sources of potential risk in the construction industry, and while these exist for most industries, each of them can be substantially if not properly addressed for contractors:
- Natural Disaster
A good risk management plan takes into account all seven potential sources and builds a plan that can address them. This starts with the contract, where you will manage risks associated with project scope, client expectations, financials, and time availability. A poorly worded contract can open you to risk from all seven areas at once – a huge burden that few contractors can deal with.
PLAN FOR RISK TO OCCUR
No matter how carefully you evaluate and prepare against problems, there will be issues. You should expect that there will eventually be an injury on the job site and have a process in place for claims and return to work. You should expect that a project will eventually have problems and be prepared for delayed payment, breach of contract, or delays that affect your team. A proactive approach to risk management will take all of these things into account and build an action plan for issues before they arise.
STEPS TO AVOID UNNECESSARY RISK
Finally, there are several things you can and should do to reduce unnecessary risk in your business. For contractors, especially in the construction sector these include:
- Avoid unfamiliar markets – If you haven’t worked in a sector before, it’s best to avoid or slowly work your way into it. Tight deadlines, tight costs, and demanding clients can be problematic and lead to major organizational hurdles.
- Don’t plan to “make it up later” – Contractors at times will price below market and hope to make up the difference later through cost savings of some sort. Have a clear financial understanding for every project before starting and never hope to fix imbalances later.
- Require surety bonds – Some contractors will avoid these because it’s yet one more cost to add to the ledger, but by requiring these from contractors you work with, you can remove financially unstable contractors from the pool and protect yourself from major risk in the process.
Careful risk management is a must in the construction industry. By being careful and ensuring you have everything planned out in advance, a strong contract in place both with clients and your own contractors, you can reduce risk and improve business health.