Risk Management in Construction

Construction is inherently risky but, it is argued, is less technically complex than projects in industries such as software, defence and engineering. This is because it is simply about using specialists in design and construction to produce a project within a specified timescale (Rafferty in Cooke & Williams, 2004, p71).
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The historical context of risk management in the construction industry

Historically construction has been risky for several reasons, including:
  • Poor record of completion to cost and time.
  • High levels of disputes and litigation.
  • Intense competition for work.
  • Low margins and profit risk.
  • Poor safety and occupational health record.
  • Pressure to produce a high return on funds invested.
  • Pressure to save time and money.
  • Pressure on health and safety provision.

Following the Turnbull Report which came into effect in 2001 construction companies have been required to show procedures to manage risk in their accounts. This is not a statutory requirement, but can have a severe detrimental impact if it is not included.

Often risk is ignored or dealt with in an arbitrary way on construction projects and it is common practice to add a 10% contingency to manage risk (Thompson and Perry in Cooke & Williams, 2004, p73).
However it is often the unidentified hazards for which provision has not been made that will have the most significant impact on a project.
Thus the task of effective risk management in construction is the prevention of losses caused by exposure to risk for example accidents, loss of money or time, damage to property or loss of reputation.

Risk Management

Risk management in construction is designed to plan, monitor and control those measures needed to prevent exposure to risk. To do this it is necessary to identify the hazard, assess the extent of the risk, provide measures to control the risk and manage any residual risks.
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Construction Risk Management Process

The image below shows a risk assessment procedure and illustrates the concept of residual risk, that is, those risks that have not been identified or that remain/persist following risk control measures.

Construction Risk Logs

Construction projects use risk logs that are similar to those in other industries, but may assess time and cost impact without controls and also include actions on residual risks. The risk identification will look at generic risks that apply across all projects, risks specific to the project in hand and risks that remain despite the controls put in place (residual risks). An example risk log template is shown below.
Item
Description
Impact
Without controls
Controls
Residual risk
Action
H
M
L
Time
Cost
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Figure 2 Cooke and Williams, 2004, p74.

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Risk Assessments

Risk assessments are carried out in a controlled and thorough way following a set process. Risk assessments for health and safety risks are a statutory requirement under the management of Health and Safety at Work Regulations and a typical assesment might follow these steps:

Risk assessment step Example risk
1. Identify the hazard
Deep drainage excavation in bad ground
2. Identify who or what might be harmed
Pipelayers in trench
3. Evaluate the risks arising from the hazard
High risk of collapse
4. Determine the control measures required
Use steel trench drag box
5. Evaluate the risks arising from the hazard
Risk of crushing/injury from excavator bucket. Risk of falling materials.
6. Record the findings of the risk assessment
Fill in risk assessment sheet.
7. Make contingency plans for the residual risks
Prepare safety method statement based on risk assessment.
Supervisor to give task talk.
Permit to work required.
Banksman working with excavator.
8. Review and revision
Monitor site operations and modify risk assessment where necessary.
Hold further task talk if method statement is changed.
Figure 3 Cooke and Williams, 2004 p76.

Risk Types in Construction

Construction risk is greatest at the earliest stages of the project starting with the choice of procurement route. There are numerous procurement routes that construction projects use each with a different balance of risk either towards the client or the contractor. For example client-led design and build puts the weight of the risk on the client and the design phase whereas contractor finance or PFI puts the weight of risk firmly on the contractor through the design and construction phases.

Client risks

Client risks are around cost time and quality. Risk management considerations for the client may include:
  • Feasibility risk - the decision to go ahead backed up by a robust business case, considering options and presenting the preferred solution.
  • Design risk - deciding the level of control to keep over design and therefore the level of risk that remains with the client in terms of design.
  • Funding risk - ensuring funds are available to pay the contractor and avoiding the risk of contractor insolvency.
  • Commercial risk - the impact on income and profits if the new asset (building) is not delivered to time, cost or quality.

Contractor risk

For contractors the biggest risk is around the tender stage when commitments are made to a price and a timescale. Margins can be lost if the bill of quantities is not accurate. Subcontractors may not stand by their quotes and work may be more expensive than estimated if the choice of construction method turns out not to be suitable.

Health and Safety risks

Statistics show that on average two people die every week on construction sites, but that 90% of these deaths could have been avoided (Cooke & Williams, 2004, p83). Health and safety risk is managed through legislation directly and indirectly related to construction including the Construction (Design and Management Regulations 1994 and the Construction (Health, Safety and Welfare) Regulations 1996. A health and safety plan is required for all but the smallest of projects and it is an important means of communication throughout the project. The Approved Code of Practice (HSE 2001) gives guidance concerning the contents of the health and safety plan and explains the responsibilities of those who have duties under the regulations.

Fire risk in construction projects

Fire risk is always present on construction sites and the Construction (Health, Safety and Welfare) Regulations 1996 require contractors to take measures to prevent risk of injury from fire, provide and maintain fire-fighting equipment, and instruct people in the use of the equipment. Contracts provide for insurance of the works during construction including fire. A Joint Code of Practice, Fire Prevention on Construction sites specifies that a site fire safety plan must be developed by the principal contractor. Adherence to the code is a contract condition in some standard forms of contract used in the construction industry.

Construction risk management - references

Brian Cooke & Peter Williams, 2004, Construction Planning, Programming and Control, Oxford: Blackwell Publishing.

Fire prevention on construction sites: The joint code of practice on the protection from fire of construction sites and buildings undergoing renovation Building Employers Confederation (1992).

Health and Safety Executive (HSE), 1996 A Guide to the Construction (Health, Safety and Welfare) Regulations 1996 (Leaflet Packs)

Health and Safety Executive (HSE), 2007. Managing Health and Safety in Construction 2007: CDM 2007: Approved Code of Practice (Legal)

Office of Government Commerce (2002), Managing Successful Projects with PRINCE2: 2009 Edition, London: TSO.

The Projects Group PLC, 2006, Risk Management Overview, Sutton: The Projects Group plc.

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