Effective risk management for construction projects
What's risky about construction projects?
Almost every construction project has a number of inherent risks which span across parties or stakeholders:
Client risk - The client or asset owners shoulders a significant amount of risk they minute they decide that the 'business' case for the project is there. Is the project actually feasible? Will the design and quality of the asset fulfil the purpose of the project? Will enough funds be available for the duration of the project and if so, will the project be delivered on time and/or on budget?
Contractor and subcontractor risk - For contractors and subcontractors, the fact that they must 'bid' on work and set a price ahead of works introduce immediate commercial risks to the project. Once a price and time commitment is made, contractors and subcontractors margins are set too. If the project goes late and overbudget, those margin decrease and can result in a loss of money.
Other stakeholder risks - Less direct but still important parties in the construction project include suppliers and communities. Suppliers carry obvious quality, commercial and financial risks while communities shoulder health and safety risk from being in close proximity to a project.
And within a few or each of these categories, there is specific functional risks including:
Commercial and financial risk - Construction projects don't have a great record of completion within the pre-set parameters of cost and time. Associated with these risks, every party also carries legal risk associated with disputes and litigation arising from these delays and budget headaches.
Health and safety risk - Construction sites are dangerous places, with heavy machinery and equipment, lots of moving pieces and constantly changing environments resulting in thousands of injuries and too many deaths. This risk is very real to contract parties as well as to workers.
Environmental risks - Today, more than ever, project parties must also factor in environmental risk - and manage the environment in a way which mitigates damage and disruption.
Broadly speaking, this encapsulates most of the risks associated with planning, designing and delivering any single project.
What is risk management?
Risk management in construction starts with the planning and evlaution of project risks, followed by the implementation of processes, procedures and systems to avoid or mitigate these risks most efficiently.
Risk management is a critical component of project management. It is one of the less sexy but most important parts of delivery quality assets and building a sustainable business in the industries.
For construction projects, this means taking the time to careful assess the risks associated with each phase of work - depending on which party you are. As a client, you will need to assess risk holistically, looking at those critical financial and commercial risks as well as the environmental and quality risks which will need controlling throughout the course of the project. For contractors and subcontractors, this means carefully forecasting how much time and money it will cost you to complete the work being bidded on.
How well these risks have been managed over the years is cause for debate. There has been many improvements in health and safety outcomes with less injuries and deaths on construction sites, but many projects and project parties continue to deliver late and overbudget.
So is there a specific system or process which can help companies better manage risk? I think yes.
Where construction risk management has fallen short to date
So much time, effort and money has been spent on risk management in the planning and design phases of construction projects. And this is great. These phases are absolutely critical to delivering a solid asset which will last its lifetime.
The other reason that companies have been stronger at assessing risk during these phases is that they are more predictable and more stagnant. It's easy to get a project team or stakeholders together to brainstorm and discuss risks over the course of a day or two; to build risk registers and accurately prioritise the risks established.
Where all of this planning and risk management has met its match on construction projects all over the world is the minute the project starts. In true cliche fashion:
These risk management plans that we lay out are good and comprehensive, but they are still one dimensional and rigid compared to the dynamism of thousands of interconnected pieces moving every day.
Accurately planning for a year long or three long project is impossible. But what's not impossible is setting a plan with some variations and change expectations, and then tracking and monitoring these risks closely enough to make real-time changes to processes, procedures and actions.
The reason so many projects haven't been able to effectively manage risk (particularly financial and commercial risks) is not because they don't plan effectively.
It's because they don't have the tools in place to properly track what's happening once the project begins. Companies have the best intentions, but they simply cannot turn what's happening on the ground in terms of production, supplies, labour, safety issues, permits and more into cohesive data that can be used to monitor risk and adjust accordingly.
Improved risk management in construction projects through software
So if we accept that this is the case, then we must find a viable solution for tracking what's happening on site in a way which makes it possible to aggregate, understand and then action accurate insights.
And the way that projects, teams and companies can do this is through software - construction project management software.
It all starts with the way your data and information is captured directly on site
The first and major reason that clients, contractors and subcontractors have never been able to risk manage and monitor throughout a project is because of how they currently capture what's happening on site.
Most construction companies and projects in the world still use fragmented documents, systems, softwares and standalone apps to capture site information.
A construction site diary today is often filled out on a paper PDF form, a word document, spreadsheet or standalone digital form solution or app.
On the surface, this seems like a fine way to capture information. You're simply writing down what's going on. The problem with capturing information this way is that it's not connected to the rest of your internal management system. It doesn't parse critical information through and to an end point where it can be understood.
To clarify, when any of these fragmented systems are used to capture site information, that data which has been captured must then be sorted and aggregated, typically by a human. A person may collect all of the paper site diaries or have a bunch of word docs sent to them, and they will then combine this information and enter it manually into a spreadsheet. Not to mention that the way people write information can often differ so that it's illegible or virtually impossible to combine.
All of this work including downloading, entering, uploading and emailing is simply the data capture portion of the solution.
What we really need here is a single solution which changes the source of the document - which turns the data into an entirely digital format. Dashpivot does this. All of the forms and documents used on site on a construction project stem from digital templates which are deployed to projects and teams. Engineers, foremen and project managers simply open up their laptop, mobile or tablet and complete the form.
This way, the form is standardised across all of the people and teams using it, and all of the data is standardised too.
Automating the flow of this data through the software
The beauty of software is in its ability to crunch numbers and move data in a coherent and fast manner. With a connected project delivery solution, there is no need to have a valuable resource (human) collect forms and documents to sit down and enter that data into a spreadsheet.
With software, this data is automatically organised and aggregated for you. Your risk management and monitoring source is what's happening every day:
- How many safety incidents did we have
- How many metres of paving did we lay
- How many tonnes of concrete were delivered
- How much did we pay for today's supplies
Using a single consolidated platform to collect this information on site means that all of this information is instantly uploaded to your system in real-time, so that it can be used - and I stress used and manipulated - to better understand what's happening now.
Bringing risk management full circle and mitigating risk through real-time analytics
The way that people display their risk profile in the form of:
- What's happening vs. what we expected to happen
- How many of these things happened today etc.
Is through spreadsheets and excel charts.
What brings this risk management full circle from collecting what's happening on site to sending clean and accurate data into an IMS is how this information is displayed and how quickly.
With software and standardised data, the data being captured on site with mobiles and tablets can be displayed instantly in a visual format through real-time analytics dashboards and charts.
All of that standardised and accurate data is being piped straight into charts in real-time. You can create and customise dashboards for safety risks, environmental risks, production and commercial risks and of course financial risks. Using these software dashboards, you can assess your plans and manage risk in real-time - diving into the details and pulling information as you go.
Now you can make smart and informed decisions about what to do to get back on track or make changes.
If you know after one week on your project that you are 100 tonne behind on concrete, you can make a quick adjustment.
But if the knowledge that you are 100 tonne behind on concrete takes a week to hit your desk, one week to reconcile into a spreadsheet and one week to set a meeting to look at the charts - then you may already be 500 tonne behind schedule. And with hundreds or thousands of moving parts outside of your control on every project, it may already be too late.
The key to managing the project delivery phase of risk - which always requires the most time, money and inputs from all parties is real-time data.
There are other amazing features to modern software which further improve risk management, but for our purposes today, understanding that you can manage risk from the site to the office and back again in real-time will give construction companies the power to properly manage risks on their projects after the planning phase and all the way up to the handover of an asset.