In an industry built on layers of complexity and involving significant human risk, construction risk management needs deep collaboration and planning – long before the first brick is laid.
The construction industry must be built to withstand a wide range of risks, from the unpredictability of more extreme weather and supply chain disruption to a difficult reliance on diverse teams and subcontractors.
Such risks are a constant threat to project timelines, budgets and overall safety. And the landscape in 2024 was more challenging than ever.
Evolving regulations, technology integration and financial pressures are adding layers of uncertainty that can be difficult to forecast and control.
PEOPLE ARE PRIORITY
“One of the most significant risks in our industry today is having enough qualified people with the experience, capacity and skills necessary to safely perform their work,” says Todd Friis, senior VP of risk management at construction company Clayco.
“Companies should make it a top priority to provide mentorship and educational opportunities to newer workers. With increased availability of hybrid styles of training, now more than ever, people can be trained efficiently and effectively.”
Another significant risk, adds Friis is that companies are being tasked to build projects “faster, leaner and more efficiently,” meaning they need to be extremely accurate in forecasting risks during the pre-bid and estimating stages of a project.
Marsh global head of construction Richard Gurney explains that while advancements in technology and sustainability practices offer promising opportunities, financial risk remains among the most significant threat facing the global construction industry today.
“Financial risk, associated with the high inflation and high interest rate environment, has been a major headwind for construction businesses,” he says. Beyond this, Gurney says the main emerging risks — climate change, hiring and retention, and cyber — are set to have the biggest impacts.
“In terms of climate, there is the need to adapt to the rising physical risk, with the frequency of extreme weather events as well as the variations in temperature.
“Financial risk, associated with the high inflation and high interest rate environment, has been a major headwind for construction businesses”
“On hiring and retention, skilled workers are essential for maintaining high levels of productivity and providing a solid basis for growth. But these employees are increasingly hard to come by and then keep,” he says.
“The construction industry is considered vulnerable to cyber attacks due to the rapid digitalisation of the sector, resulting in a larger digital surface area for hackers to exploit.”
Megan Shapiro, founder of Construction Contract Coach, adds that the construction industry continues to face supply chain disruptions and labour shortages due to increasingly complex regulatory requirements.
“While many of these issues are systemic, I believe that one of the most critical risks to the industry today is within our control: contract mismanagement. Without a clear understanding of contractual obligations, construction companies expose themselves to disputes, delays and cost overruns,” she explains.
PROTECTING PROJECT OUTCOMES
For Friis, effective risk management should include a collaborative approach that begins with the prebid process.
“A robust prequalification process is imperative to ensure subcontractors are properly evaluated and clearly understand safety expectations. In addition, detailed pre-planning, including project staffing and efficient communication of the work plan to all levels of personnel, is required to achieve a winning safety strategy,” he says.
He adds that effective risk management touches all key business drivers: safety, production, quality and profitability.
Gurney agrees that effective risk management starts well before construction, with the careful assessment of project requirements, plans and contract documents to ensure the scope, timeline, and potential risks are clearly understood.
“Maximising employee health and safety continues to be paramount.”
“This also means being very focused on construction risk management during the commercial phase of the projects by having a coherent and structured approach to identifying, assessing and managing risks,” says Gurney.
“Maximising employee health and safety continues to be paramount. Technological advancements in the construction industry are expected to enhance safety standards. For example, by creating virtual models of construction projects, these technologies will allow for thorough risk assessments, identifying potential hazards before construction starts.”
Shapiro says that being proactive and creating a framework where potential problems are anticipated and addressed before they become critical is the easiest way to protect project outcomes. This can include using the AIM (assess, integrate, monitor) framework.
“Companies must implement regular assessments, create clear protocols for communication, document management and strong leadership accountability, then integrate these processes into every facet of the company. These processes must be then monitored and periodically updated,” she advises.
TRANSFORMATIVE TECHNOLOGY
Friis says technology is quickly expanding capacity for risk management in construction: “As new technology is refined and tested, its effectiveness improves virtually overnight. With the introduction of AI into the workplace, there are endless opportunities to further advance risk management strategies in construction by forecasting risks, analysing data and much more.”
For example, companies now are able to use video and photography technology to inspect a project in terms of safety, quality and productivity, he explained.
“The key questions are how do insurers price this new and emerging risk, and what technologies will truly be adopted by the thousands being brought to market.”
“In the future, integrating AI into our tools will enhance safety and operations through learning so ware with predictive algorithms, keeping team members safe without them even realising the tool is predicting and preventing the next failure.”
Gurney says that as technology continues to advance and adoption grows, the impact on companies’ risk profiles needs to be better understood. For example, digitalisation may serve to turn physical and workmanship risk into system and logistical risk.
He concludes: “The key questions are how do insurers price this new and emerging risk, and what technologies will truly be adopted by the thousands being brought to market.”
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