There are few industries that face the same variety of risks as construction. A risk is any plausible event that would derail your plans. And accounting for every possible risk in construction projects is very challenging indeed.
Building is, by its nature, very unpredictable. Every project is entirely unique. Construction involves large numbers of independent companies working together. And construction project managers must deal with all the supply, weather and labor issues that other industries face too.
The best way of minimizing risk in building projects is to be fully prepared for everything that could go wrong. Let’s learn more about managing risk in the construction industry.
10 Types of Risks in Construction Projects
The following list shows ten types of risk factors in construction projects as well as a selection of examples. Please note that this list is not exhaustive and that the actual risks can vary depending on the construction project.
1. Financial Risks
- Cost overruns and budget overruns
- Inaccurate cost estimations and contingency planning
- Cash flow issues and payment delays
- Insufficient cost risk analysis and financial monitoring
- Insufficient insurance policies
2. Delays and Scheduling Risks
- Scheduling errors and poor project management
- Supply chain disruptions and material shortages
- Delays due to subcontractor issues and backlogs at permitting agencies
- Contractor and subcontractor performance issues
- Unexpected project scope changes
3. Environmental and External Risks
- Adverse weather conditions and natural disasters
- Regulatory changes, compliance, and force majeure events
- Incomplete environmental analysis and mitigation requirements
- Tax changes, new stakeholders, and public objections
4. Labor and Workforce Risks
- Labor shortages and inexperienced workforce
- High turnover rates and training deficiencies
- Lack of competitive compensation
5. Legal and Contractual Risks
- Contractual disagreements and scope of work issues
- Documentation errors, omissions, and contradictory documents
- Payment disputes and liquidated damages
- Quality defects and defective workmanship
- Property damage and personal injury claims
6. Safety and Health Risks
- Equipment failures and unsecure construction sites
- Safety hazards on-site, including fall hazards and struck-by objects
- Insufficient compliance with regulatory safety standards
- Lack of comprehensive safety training and audits
- Inadequate responses to incidents
7. Design and Engineering Risks
- Design errors, omissions, and delays in the design process
- Late stakeholder changes and scope adjustments
- Contradictions in construction documents
- Failure to meet contractual design quality requirements
- Inadequate responses to environmental or design constraints
8. Project Management and Planning Risks
- Poor risk assessment and inadequate project planning
- Scope management and change control issues
- Inadequate project management software or tools
- Miscommunication within project teams
- Conflicts and coordination issues among project team members
9. Supply Chain Risks
- Material shortages and reliance on a single supplier
- Geopolitical risks affecting material availability
- Inadequate inventory management
- Inadequate stockpiling of critical materials
- Delayed deliveries impacting project timelines
10. Organizational Risks
- Inexperienced or understaffed teams
- Delays due to organizational inefficiencies or contractor defaults
- Communication issues across project stakeholders
3 Areas of Construction Management Risks
Construction management risks overlap with the risks listed above but represent a more specific subset. The key difference is that construction management risks focus on those associated with planning, coordinating, and overseeing the execution of a construction project. Let’s examine the associated risks within each of these three areas:
1. Construction Management Risks Associated with Planning
- Scheduling and Delays: Errors in planning, contractor delays, and ineffective scheduling.
- Scope Management: Issues with managing scope changes and poorly defined project scopes.
- Cost Control: Overseeing budget allocations and contingency funds.
- Resource Allocation: Managing the availability and efficient use of labor, materials, and equipment.
- Change Management: Handling and implementing changes in project scope or design without major disruptions.
2. Construction Management Risks Associated with Coordinating
- Communication: Miscommunication within teams and between stakeholders.
- Conflict Resolution: Managing conflicts within the project team and with external stakeholders.
- Subcontractor Coordination: Managing subcontractor schedules, performance, and compliance with project standards.
- Contract Management: Addressing disputes over payments, scope, and performance requirements.
3. Construction Management Risks Associated with Overseeing
- Regulatory Compliance: Meeting safety standards and conducting regular safety audits.
- Incident Management: Preparing for and managing worksite incidents or accidents.
- Quality Control: Ensuring that workmanship and materials meet project standards and specifications.
Benefits of Systematic Risk Analysis in Construction
Every project manager knows that construction work involves high levels of uncertainty. However, when time is tight, conducting an exhaustive risk analysis may not always seem like the best use of resources.
Nevertheless, it should always be done, at least in principle. A study on the advantages of risk analysis in construction shows why:
- Helps assess and ascertain project viability
- Can minimise losses
- Identifies project risks and quantifies the potential cost of each
- Determines if you will make an adequate profit on a particular project
- Keeps insurance premiums at acceptable levels
- Limits professional indemnity claims
- Protects your company’s credibility and reputation
A 4-step Framework to Manage Risk Factors in Construction Projects
Research into building project risk shows it can be successfully managed using the following four-step process:
1. Risk Identification
Work together with everyone involved in the project to list all the things that might go wrong. This includes talking with project managers, contractors, suppliers, and clients, and reviewing the project plans. Looking at past projects can also help spot potential risks. By identifying as many risks as possible early on, the team is prepared for what might come up during the project.
2. Risk assessment
The next step is to assess risks by rating each factor based on how likely it is to happen and how big of an impact it would have on the project. High-impact risks, like those that might cause major delays or cost overruns, should get the most attention. This way, the team can focus on preparing for the most serious risks first.
3. Risk mitigation
Mitigation is all about creating plans to prevent risks from happening or to lessen their effects if they do occur. This includes setting up strategies to avoid problems and having clear steps in place in case the risk does happen. Everyone on the team should know these plans so they can respond quickly and effectively. Preparing in advance helps the project stay on track, even when unexpected issues arise.
4. Risk monitoring
Finally, monitoring risks is an ongoing task. Regularly check on project progress and keep an eye out for new risks that might pop up as the project moves forward. This might include looking for changes in regulations, supply chain issues, or weather events. By continuously monitoring, the team can adjust their plans if needed, helping the project stay on course and avoiding surprises.
Technology Support Construction Project Risk Management
By digitizing processes related to managing risk factors on construction sites, efficiency can be sustainably increased, saving time and effort for everyone involved.
PlanRadar is a platform for documentation, communication, and reporting throughout construction and real estate projects. With this software and app, project leaders can identify, assess, mitigate, and monitor all types of risks in construction projects.
PlanRadar supports the 4-step framework for managing building project risk described above:
- Risk identification: Workers on site can use the app to inspect project progress, raise issues and alert the project manager (including sharing photos). As a result, no risk goes unreported.
- Risk assessment: PlanRadar lets you track all amendments, defects and the progress of remedies. You can also receive a complete report of project progress at the click of a button.
- Risk mitigation: Communication is particularly important for responding to risks and preventing them from ‘snowballing’. Defect orders are forwarded in real-time to the responsible parties, along with a completion deadline and priority information. All communication between parties is also centralised and securely stored within the PlanRadar platform.
- Risk monitoring: PlanRadar lets you document defects, view project progress, report any issues early and respond fast before things get out of control.
This video shows how a site manager uses PlanRadar to keep an eye on various risk factors in his construction projects and manage them efficiently:
With Planradar, we are able to efficiently measure and document findings on-site and to communicate and process them further.
Streamline your processes now with PlanRadar and test the platform for free for 30 days!
