We All Hope for the Best, But Are We Prepared for the Worst?
September 10, 2012
By Eric K. Rodriguez, P.E., ECC Future Leader
Think about the project you are currently working on or planning. Now, think about what could go wrong. Is this the first time you have thought about the potential setbacks you could encounter? Have you thought about the likelihood of those occurring? If they do occur, are you prepared to address them quickly, minimizing cost and schedule impacts? If you are an owner, is your contractor prepared, too (or vice versa)? What I’m getting at is: Are you managing the risks on your projects?
I’m sure that most, if not all, would answer “yes” to that last question. But I’m sure that your definition of “risk management” is probably very different than many others’ definitions. Back in my engineering firm days, I worked on a variety of large commercial and industrial construction projects from the pre-design phase through completed construction. I worked with different owners, design firms, and contractors. In all of those projects, not once was the risk management process the same. In fact, the risk management process on these projects ranged from an in-depth and sophisticated process to a “go through the motions” formality. And, I’ll admit, managing risks wasn’t always high on my priority list. Luckily, though, every project, except for one, went relatively smoothly. Of course, there was the occasional problem that arose, but those problems were usually resolved very quickly and never really threatened the project financials or schedule.
On the project that didn’t go smoothly beginning to end, the problem that arose was fairly minor at first. It was a careless error on the part of a subcontractor. The problem was that the error just slipped through the cracks and went undetected, eventually turning into a major problem. The result was costly litigation for the subcontractor and the owner. The most frustrating thing about that project was that the subcontractor’s error should have been identified early on. And had there been a better risk plan in place, the error most likely would have been identified. That was really my first exposure to seeing first-hand how realized risks can significantly impact a construction project and its stakeholders.
Now, I see it all the time. My role on construction projects is no longer engineer; instead, I’m a consultant. Usually, I’m helping contractors or owners get out of a mess from a construction project gone badly. Trust me when I say, a lot can go wrong on your projects. And, even when those bad things aren’t your fault, you are still impacted. So, again I ask: Are you managing the risks on your projects?
Last year, McGraw Hill Construction published a report entitled, Mitigation of Risk in Construction: Strategies for Reducing Risk and Maximizing Profitability. An area of that report that I found interesting involved statistics on the adoption of risk evaluation strategies, risk mitigation strategies, and risk assessment tools and technologies. Not surprisingly, the report found that construction project stakeholders (owners, A/E firms, and construction firms) vary significantly in their risk management practices.
Nearly all of the stakeholders surveyed have a formal process for evaluating risks, with the most common being team brainstorming sessions. However, fewer stakeholders continue the risk management process by engaging in risk mitigation efforts. For those that do, the most common strategies are developing plans to manage potential risks and creating contingency plans. Going one step further, there was a significant drop-off in the number of stakeholders using tools and technologies to analyze the identified risks. Only about half of the survey respondents report using software or statistical modeling for risk analyses. This suggests that many firms rely on their own experience and knowledge when managing risks and don’t necessarily turn to advanced analysis techniques.
So, as I mentioned earlier, I’m sure most of you work for a firm that proactively manages its risks in one way or another. But, can your firm do more? I know doing more involves devoting more resources, and that may not always seem viable. But, one day it could mean the difference between your project reaching a successful completion or ending up in court.