Risk management is an integral part of construction project management since it helps identify the potential risks that could affect a project’s progress and completion. It also helps project managers evaluate the likelihood of each risk’s occurrence and the magnitude of its impact.
Since there are different techniques to measure and prioritize risk in construction project management, it’s essential to be familiar with the strategies best suited for your project. Below, we look at some standard techniques. For more information, check out this guide on construction project management.
Project Risk Management: What is risk management?
Risk management refers to assessing, identifying, and prioritizing risks in a project. It aims to reduce the potential impact of risks or negative events in a project. The main components of risk management include:
- Risk identification – What is the risk? How does it impact the project?
- Risk assessment – How likely is this risk to occur? How much will it impact the project?
- Risk prioritization – You need to prioritize risks based on their urgency, likelihood, and impact. More pressing and immediate risks need to be prioritized in terms of management and mitigation.
- Risk mitigation – Once you know the risks, you must devise mitigation strategies. How can you eliminate or reduce this risk? Which resources or personnel will you need for it?
- Risk monitoring – It’s imperative to monitor risks even after mitigation since risks may mutate or evolve. You also need to assess how effective your risk mitigation strategies are.
- Risk reporting – All risks should be documented and reported. The data can help avoid risks before they occur in subsequent projects and give stakeholders a headstart in risk management.
4 risk management techniques for construction projects
Since there’s no one-fits-all approach, you have to select the right risk management technique based on your project’s needs. Here are some options.
In root cause analysis, you discover the root cause of a problem to identify appropriate solutions for it. The technique assumes a systematic prevention strategy is better than finding solutions for ad hoc symptoms.
The principles of root cause analysis are:
- Focusing on remedying the root causes of a problem rather than its symptoms;
- Realizing that multiple root causes may be present;
- Focusing on the WHY and HOW of the problem rather than the WHO;
- Backing up root cause claims with cause-effect evidence rather than speculations;
- Finding a way to prevent this root cause in the future.
RCA can be used to identify root causes of product defects, safety incidents, and process inefficiencies on construction sites.
SWOT analysis is a technique that evaluates the Strengths, Weaknesses, Opportunities, and Threats in a project. It gives project managers an overview of the external and internal factors that may be the reason for a risk to the project or the construction site.
A SWOT square is divided into four quadrants to denote the four factors. Strengths and weaknesses refer to internal factors, while opportunities and threats are external.
Fill each box in the square for a comprehensive view of where you stand as a construction site. From there, you can see which weaknesses you need to work on and which threats might impact the project.
Probability and impact matrix
The Probability and Impact Matrix is ideal for risk prioritization. For example, cost overruns and skills gaps are both risks in a construction site, but the latter gets a higher priority since its remediation is necessary for the project’s progression.
To create this matrix, you can do one of the following:
- Choose descriptive values – These could be low risk, medium risk, and high risk. Give a descriptive value to each risk and prioritize high risks.
- Give numeric values: Or you can assign numeric values from 1 to 5 to each risk, with 1 being the lowest risk and 5 the highest.
Budget overruns are a major risk on construction sites, which can be minimized through reserve analysis. In this technique, you assess the existing resources to allocate buffer funds and time in emergencies. Here are the main steps in this process:
- Estimating the total project cost and duration
- Allocating a percentage of the budget and schedule as a reserve
- Monitoring the reserve usage and replenishing it when needed
The reserve can be used when unforeseen circumstances arise to avoid budget and schedule overruns. The percentage of reserve allocation depends on the project’s complexity and risk level.
After you choose a risk management technique for your project, you must curate a strategy for dealing with these risks. Here are some tips.
Choose the right risk response
There are four types of risk responses:
- Risk avoidance;
- Risk acceptance;
- Risk mitigation;
- Risk transfer.
Avoidance is never the answer since the risk will only become bigger and have a larger impact later. Acceptance is the first step in mitigation. Then, devise strategies for mitigation. For example, if low employee engagement is a risk to project productivity and timely completion, which mitigation steps will you take? Get feedback from the workforce and get to the root cause of low engagement.
Is it poor training? Is there a break in the communication chain? Fix the problem to mitigate the risk. Risk transfer means outsourcing the risk to a third party, like an insurance company. It is mostly viable only for financial risks.
Implement risk monitoring and control
Once you have a risk response strategy in place, you must monitor for risks and control them. Here are some tips:
- Conduct regular risk audits and assessments.
- Monitor KPIs (Key Performance Indicators) like employee engagement, efficiency, and productivity. Compare them against your project baseline.
- Do not delay corrective action, and make sure you have a risk escalation process to notify senior stakeholders of significant risks.
Keep documentation of all risks and responses for future reference. If the same risk arises, you will not have to start from scratch and can implement the same or improved response.
Risk management doesn’t have to be tricky or tedious as long as you use the right strategies and techniques. Choose your risk assessment and management technique, improvise it according to your project’s needs, and monitor risks regularly to stay ahead in the mitigation pipeline.