Construction risks: The major construction risks you need to worry about now
About construction risk
Construction is one of the most historically risky industries in the world. While not as technically complex as some other industries, the combination of 'stuff' in the construction industry including a lot of moving physical pieces seems to conjure up a serious set of risks which companies, workers and the entire needs to manage every day.
Some of the very high level construction risks which have plagued the construction industry over the years include:
- Budget and schedule overruns
- A high frequency of disputes, contract changes and litigation
- Intense competition for work, little obvious differentiation and poor performance evaluations
- Low profit margins and high insolvency risk
- A poor health and safety record, with too many injuries and fatalities
- Pressure to deliver projects quickly and with high quality
While these describe the macro level of construction risks well, there are also some very specific risks which different construction parties need to be most aware of.
Understanding and identifying the risks you or your specific operation needs to be on top of is one of the best and easiest ways to reduce your risk. Risk mitigation and risk control starts with identification and awareness.
Now we are going to jump into some 'category' specific construction risks. It's impossible to bucket and categorise construction risks perfectly, because there is plenty of overlap and some nuance in the categories.
No category of construction risk is inherently more important or 'risky' than any other. Each risk needs to be assessed on its own merit and will ideally be assessed in a systematic way. When risks are assessed and controlled in a standardised manner, the outcomes are more predictable, more reliable and can be more easily improved.
Risks for construction projects
You would have noticed that many of the risks we talked about in the opening sections are mostly 'project risks'. Project risks are the most obvious and talked about constructions risks (alongside safety risks) because they are very evident and because almost all construction companies operate on a project-basis.
Some of the major construction risks on projects are:
Design risk - A lot of a construction project and its success as dictated at the design stage/ This is a stage which incorporates a lot of inherent risk because it sets the stage for the rest of the project. There's also risk associated with changing or modifying original designs.
Estimating and scheduling errors - Similar to design risks on some ways, there is a lot of estimating and scheduling risk associated with a construction project of any significant length of time. Project managers and their companies do the best job possible to accurately estimate and schedule the project as well as resources while also building in some padding and contingency, but there is a significant chance that the original estimates and schedules won't be perfect - and this will lead to changes in resources, costs etc.
Geological risk - Geological conditions are always a risk on construction projects, with subsurface and geotechnical conditions having a huge bearing on the construction project, as well as the lasting integrity of the construction structure or project outcome.
Availability of resources - The availability of resources is a risk which most companies face at all times, and the construction industry is no different. One of the major construction risks for projects is that the company may can lose labour or other resources as the project progresses for a number of reasons. This can raise a number of issues including an inability to meet the estimates and schedules outlined at the start of the project.
Project incident/accidents - Accidents and incidents are an all-too familiar part of construction risk. In relation to project specific risk, incidents and accidents result in delays, changes, loss of productivity and potentially more serious consequences like the shutting down of a site.
Defective design or delivery - Defects are a pretty normal part of construction, but there is always the risk that a project will be held back by defects or really damaged by significant defects. To best manage this risk, most companies have a systematic approach to defect management and aggregating defects through process like punch lists.
Availability of funding - Many construction companies rely on external funding to deliver their projects. Construction cash flows aren't always ideal for contractors and subcontractors, so the availability of funding can mean the different between having money to spend and delivering a project vs. running out of funds prior to finishing and getting paid.
Project performance and productivity - One of the constant risks associated with every construction project is project performance and productivity. A company makes forecasts and estimates based on certain expectations for productivity, and if their workers and efforts fail to meet this bar, then the project will be at risk.
Changes in work - Construction projects don't always (or often) go exactly to plan. Plans change because of internal and external forces, and these changes can have a big impact on multiple project parties as well as the project at large. Construction companies attempt to mitigate some of this risk through formal change orders and variation processes, but it can still be jarring and risky.
Lack of coordination and/or communication - Construction projects involve a lot of moving parts, including people, and managing all of these people effectively can be challenging - especially without coordination tools like software. Poor coordination and communication can have a profound effect on a companies ability to deliver a project well, so it is an ever-present construction risk.
Weather and natural disaster - We flagged unexpected changes as a constant risk on construction sites, and one of the major reasons for this is weather and extreme natural weather events. Weather deserves a mention of its own in construction project risks, because its such a common source of pain and change on construction projects.
Risks on construction sites
Construction 'sites' are where construction projects take place. Most construction sites are a hive of activity and moving parts, and they are also a breeding ground for hazards and risk.
Utilities - One of the major risks on construction sites are utilities. Many construction projects involve digging beneath the surface, excavating earth and the demolition of buildings and other objects. These activities are destructive by nature, but they become very risky and very dangerous when they involve utilities like electricity and gas. When struck, these utilities can easily cause major and catastrophic damage through explosions and other events. The best way companies manage these risks on construction sites is through procedures like dial and dig, safety permitting, and risk assessments.
Delayed deliveries and disruptions - The lifeblood of construction sites are deliveries. Every day, deliveries and supplies arrive on site so that new works can start and the project can continue. The problem with all of these deliveries and moving pieces is that they can get delayed or disrupted. This is a constant risk on construction sites.
Unsuitable equipment and materials - One of the major sources of risk on construction sites are plant and equipment. Plant and equipment are one of the most common reasons for injuries and fatalities. While some of these issues are caused because the equipment is inherently dangerous, some of them are caused because of unsuitable equipment or an unsuitable approach to using certain equipment.
Damage to property - With all of the moving parts on construction sites, damage to property is a constant risk. This can be damage to an existing structure not associated with the project during delivery and other activities, or it can be damage to the project property which leads to defects and sometimes structural issues.
Accidents and incidents - Accidents and incidents are a holistic construction risk. They put projects at risk because of delays and other issues, and they are a constant risk on construction sites too.
Site access - Site access is a constant source of risk on construction sites. Companies and workers work hard to ensure that site access is good and safe, and that only those people who have taken the necessary steps to enter site do so. This often includes things like proper site inductions and PPE.
Security - Similar to site access, site security is a constant construction site risk. The purpose of site security is to ensure that the things which are supposed to stay inside the construction site do so, and the things which need to stay outside do so too.
Poor conduct and negligence - Some construction site risks are inevitable and unavoidable, but others are completely avoidable. Too many construction issues stem from poor conduct and negligence - whether intentional or not. Creating a culture of good conduct and good habits is the best way to ensure that you minimise the risk associated with this type of behaviour.
Chemicals - Chemicals are a main source of risk on most construction sites. Chemicals, which serve many important purposes on construction sites, can be very dangerous. There are many processes and procedures surrounding documenting and tracking chemicals properly to ensure their safe handling.
Other stakeholders - Construction sites often seem to operate and function in their own world, but they are often surrounded by buildings and people doing normal life. Keeping other stakeholders 'happy' is a constant battle and constant risk on construction sites. Activities like noise monitoring are instituted to prevent avoidable issue with the public and other stakeholders.
Construction industry risks
The construction industry is really important to society. Hundreds of millions of people are employed in the construction industry which makes it critical for a large chunk of the world's livelihood, and society relies on construction projects for delivering and maintaining the places we live and how we move.
The construction industry has managed and mitigated many internal and external risks over the years, and it has more to navigate in the years to come too.
Technology - The construction industry has always had a bit of a love-hate relationship with technology. Technology has enabled new types of construction and increased productivity, but it has also caused disruptions and resulted in the death of some businesses. technology is an ever-present construction industry risk and opportunity. Today, some of the major industry-wide applications of technology threaten to derail many of the processes construction companies have relied on for many years - and also to improve how projects are planned and delivered. Once again, it will be a double edged sword and source of risk for those who don't manage it properly.
Political risk - Many construction projects enter the realm of politics due to their scale, and the nature of the fact that many are payed for with tax payers dollars. Changes in politics and the political landscape can have an impact on companies and projects, so it's a risk which companies should be aware of.
Economic instability and market conditions - Some construction risks are completely outside of any single person or company's control, including economic instability and macro level market conditions. Projects and companies over the years have been dramatically impacted by recessions and other economic events, which can grind entire projects and companies to a halt.
Cash flow risk -The construction industry at large has always suffered from cash flow risk, and it has failed to solve this issue. Late and delayed cash flows are common in the construction industry - often with no repercussions - and the longer the industry accepts this, the more of a risk it becomes.
Regulations - Regulatory risk is a constant in the construction industry. Like all industries, government bodies and other regulatory bodies have a big say in how construction companies operate. Changes in safety, environmental and other regulations can really impact how a company does work and delivers projects, and these changes can have industry-wide effects.
Environmental pressures - The environment and environmental management has become more and more of a focus for the construction industry over the years. Today, environmental pressures form a bigger construction risk than ever before. These pressures can come from the environment itself through erosion and other natural outputs, and it can come from the public and other authorities who are increasingly focused on the fact that construction and construction companies shouldn't impact the environment.
Stakeholder relations -Stakeholders relations in general are a source of constant conversation for the construction industry. Keeping the public, local communities, authorities, government and all stakeholders satisfied and appeased is a constant requirements and constant threat to the construction industry.
Risks in construction contracts
Construction contracts are designed to reduce risk, like all contracts. Contracts tie their makers and signers to a specific outcome which creates stability and predictability.
While construction contracts do do this, they also raise their own set of headaches and construction risks.
Although a contract is always better than no contract, the construction industry is known for contract changes and disputes.
Change orders and variations -As previously mentioned, changes to construction designs, projects and contracts are relatively common. The construction industry has even designed documents and processes for changing contracts, like this change orders example.
While changes aren't inherently bad, they do pose a risk to construction companies because unexpected changes can throw projects and works off track and influence cash flows, resources and other inputs.
Disputes - One of the major risks in construction contracts is of course disputes which arise from the contracts. Disputes occur at a reasonably frequency on construction projects, sometimes because of a specific contract but usually because of what or what was not covered in the contract which occurred in real-life. Other disputes arise when companies are unsure who was at fault etc.
Delayed dispute resolution - On top of the financial and reputation risk associated with disputes, disputes also increase risk through delayed resolutions. Construction projects are successful when there are no delays and no disputes between parties. Once a project goes off track, it's hard to pull it back and delays often lead to more delays.
Delayed contract and project payments - Having concrete payment terms and scheduled in your contracts is a good way to increase the reliability of your payments, but there is still a fair amount of risk associated with delayed contracts and delayed payments. This is an industry-wide problem and risk, and one which some companies shoulder an unfair burden on.
Insolvency of contractors, subcontractors and other parties - One of the main construction risks in general is the risk associated with companies becoming insolvent and unable to deliver on the contract and on their promise. Insolvency of contractors, subcontractors and suppliers can wreak havoc on projects and project parties.
Construction safety risks
The construction industry hasn't historically had the best safety record, but it does mostly seem to be improving. Even so, construction safety risks are very real for projects, companies and of course for workers.
Some of the main construction safety risks include:
Poor safety procedures - Not all safety incidents are preventable, but some are caused because of poor safety procedures. Poor safety procedures and processes are a constant risk for the company and workers working with them - so getting them in order and improving your safety management system should always be priority one.
Health and safety - The health and safety of workers is a constant worry and risk for all companies. There are so many health and safety risks and hazards on construction sites that keeping everyone safe is a constant endeavour.
Unsuitable equipment - As we mentioned, plant and equipment is one of the major reasons for site incidents and injuries. Ensuring that all of the equipment people are using is the right fit for the job is a great way to reduce preventable safety issues.
Inexperienced workforce - No one is immune to construction safety risks no matter how experienced they are (especially if complacency creeps in), but inexperienced people typically have a higher risk of making mistakes or misjudging a situation - which typically lead to more issues.
Lack of training - On top of experience, ensuring that site workers are properly trained can have a big impact on reducing construction safety risk. This 'training' can include formal training for things like working at heights and operating power tools, and it can also include more informal safety meetings and safety talks.
Lack of resources - One of the 'things' which can increase construction safety risk across a site or workforce is a lack of resources. A lack of resources can result in improper or insufficient supervision, people working longer hours than safe, and people performing tasks which should involve more than one person by themselves. Ensuring a workforce is adequately manned and resourced is one of the best ways to reduce construction risk.
Poor communication - Construction sites are dangerous places, but they become exponentially more dangerous when risks are not communicated properly between and across people. This communication can involve verbal communication, and it can also include standard workflows and administrative controls too.
Construction worker risks
Construction companies and projects are exposed to a lot of different risks, but workers carry a lot of construction risk too. Some of the major risks which construction workers manage and deal with over the course of a day, project or career include:
Health and safety - As is very obvious from the above construction risk sections, the construction industry and construction sites are risky. This risk is immediately adopted by the people working on these sites and delivering these projects. Construction workers should be constantly aware of their own health and safety and do everything in their power to ensure they can get home safely.
Psychology and wellness - 'Wellness' has become increasingly important in most industries and in most walks of life, and the construction industry is no different. Construction workers have traditionally found it difficult to talk about their mental state and wellness in general, but it's becoming increasingly talked about and focused on. Things like regular physical exercise and pre-work stretching have also become more important to mitigate some of the construction workers risks they all face.
Prolonged exposure - Some construction worker risks are obvious, while some aren't. While big pieces of plant and equipment and activities like demolition are the obvious candidates for risk, prolonged and overexposure to noise, repetitive movements and vibrations are all very real risks for construction workers.
Employment - Hundreds of millions of people are employed in the construction industry, from labourers to project managers and engineers. While the construction industry is a good industry to be involved in and one with work, the nature of work (project-based) and changing environment of construction (technology replacing people etc.) do make employment a risk for construction workers.
Managing and mitigating construction risks
Looking at all of these construction risks paints a pretty bleak picture for the construction industry. But much of this risk is just 'risk', and companies and workers have found and continue to find better ways to manage and mitigate risks effectively.
Some of these new ways are developed from learning and exposure, while others are enabled through new construction technologies and tools.
The construction industry will always be riddled with risk - but life is also riddled with risk. We all have a role to play when it comes to managing and minimising risk - and being aware is always the first step.
About Lance Hodgson
Lance is the Head of Marketing & Growth at Sitemate. His aim is to bring awareness to a brighter future for the heavy industries where people and companies work smarter.