Managing project risks leads to successful projects. The Project Management Institute (PMI) listed risk management as a top project management skill. The risks for projects are numerous. The Construction Industry Institute identified 107 project risks. You can’t eliminate risk from a project, but it can be controlled and managed.
A Dodge Data and Analytics survey states that 49% of projects go over budget, and 61% are behind schedule. Additionally, an Independent Project Analysis survey says that 35% of construction projects will have a significant unforeseen change. The survey also showed that 25% of projects in the field grow by over 30%.
Risk can derail any project. However, a risk management plan can keep your project on track. The three steps in a risk management plan include identifying the risks, assessing the risks, and controlling the risks.
A. IDENTIFYING PROJECT RISKS
Below are nine common risks that can derail your project. They include:
1. Financial Risk
This includes price escalation, poor estimating, budget overruns, financing, and change orders.
See the related post: Healthcare Construction Budgeting: 7 Strategies to Boost Your Project’s Success
2. Schedule Risk
This includes an unrealistic schedule, inadequate contingencies for permitting and inspections, weather delays, and material procurement.
3. Design/Technical Risk
This includes errors and omissions, poor investigation of site conditions, scope changes, and a design that doesn’t meet the user’s needs.
See the related post: Choosing the Best Healthcare Design Architect: 10 Key Questions to Ask
4. Construction Risk
This includes poor quality of work, communication, and supervision. It also includes choosing the right contractor and subcontractors based on experience, project size, and financial requirements.
See the related post: Identify the Best Hospital Construction Contractor: 10 Questions to Consider
5. Environmental Risk
Exterior risk items include weather and geotechnical conditions. Interior risk items include abating mold and asbestos.
See the related post: Avoid these 5 Infection Control Pitfalls in Healthcare Construction.
6. Legal/Contractual Risk
The contract type determines who carries the risk. A lump-sum contract has the contractor at risk. A time and materials contract has the owner at risk. By comparison, the contractor has more risk with a GMP (guaranteed maximum price) contract. Integrated Project Delivery (IPD) shares the risk and savings. Also, contractual disputes can lead to additional costs and time.
See the related post: Avoid These Top Ten Costly and Troublesome Construction Disputes
7. Regulatory/AHJ Risk
These items include government and regulatory agencies’ approvals for permitting, inspection, meeting codes and standards.
8. Safety/Security (Job Site) Risk
This includes maintaining the safety of the job site and security from theft.
9. Organizational/Leadership Risk
This includes the owner’s experience with the project, their involvement, and their decision-making process. There is added risk in coordinating with the owner for their supplied equipment and work performed in-house.
With the risks identified, it is essential to be proactive. This approach allows you to devise a plan to manage and accept necessary risks. A reactive approach will lead to additional costs and delays. It is essential to review and update these risks on an ongoing basis.
B. ASSESSING PROJECT RISKS
Assessing the risks helps you prioritize them. The risks are prioritized by evaluating the occurrence and consequences of each risk. The impact of each risk will vary by project. Assessing risk at the project’s onset and throughout the project is vital.
A simple matrix can be developed for prioritizing risk based on weighing the probability of it occurring and the consequence. Below is a sample matrix.
C. CONTROLLING PROJECT RISKS
With the risk assessed, there are four strategies you can employ to control risk. They include:
1. Accept the Risk – You might accept risks that benefit the project. An example would be accepting design risk to help expedite the schedule.
2. Avoid the Risk – You may avoid a project outright due to unplanned costs that may occur. Also, you may avoid working in specific locations due to geotechnical concerns or avoiding working with particular clients.
3. Transfer the Risk – You may want to transfer a risk you aren’t comfortable handling. This includes transferring work to a subcontractor specializing in that risk (e.g., asbestos or mold removal) or transferring risk by getting additional insurance.
4. Mitigate the Risk – Risk can be reduced by providing additional training (e.g., safety) and equipment or more cameras and guards in the case of security.
Conclusion
Risk can’t be eliminated, but you can manage risk by identifying, assessing, and controlling the risks. Also, it’s essential to build a company culture around risk management. This would include creating an ongoing safety program, providing continuing education and training, auditing operations, and analyzing trends. Also, tools such as project management software help reduce risk.
Risk management benefits include improved profitability, safety, and operation—additionally, risk reduction results in fewer disputes, claims, and ligation. Don’t let risk ruin your project.
Taking the time to manage it will provide a path for successful projects and happy stakeholders.
