By Aclaimant

May 22, 2024

You would never walk onto an active construction site without a helmet, right? Similarly, construction companies would never begin a project without a risk management plan in place. But risk management in construction goes beyond sheltering your team from physical harm: It helps mitigate any threat to a project’s success, from legal issues to scheduling errors.

An effective risk management plan is critical as your organization takes on increasingly complex construction projects that involve more stakeholders and technologies. With an understanding of your project’s unique risks, the right technology, and a data-driven strategy, you can proactively manage risk for a seamless project undertaking.

5 types of construction project risks

Risk is around every corner in the construction industry. Whether it’s dealing with inflated materials costs or heightened safety concerns due to unfamiliar equipment, team members need to identify risks before they impact the project. In general, there are five different types of risks your project team should consider:

  1. Safety risk refers to injuries, fatalities, or illnesses that occur on the job. This can be anything from sprains and strains to accidents with equipment that occur on the construction site. Companies need to find a Construction Safety Management system that fits their need

  2. Financial risk is any factor that could negatively impact profitability and cash flow in a construction project. This includes increased material costs, investing beyond what your company can afford, and inadequate allocation of project budget.

  3. Legal risk includes issues with contracts and non-compliance with rules and regulations, e.g., labor law violations. When violations occur, businesses, contractors, and individual contributors can face immediate legal action that may lead to long-term legal and financial consequences. 

  4. Project risk refers to factors that could impact project management, including ineffective task management, supply chain issues, and scheduling issues. Insufficient planning can have severe financial ramifications.

  5. Environmental risk includes any incident that could impact workers’ environments, including natural disasters or issues like site contamination.

Construction risk control 101

Every construction company’s risk management process will vary, but there are four key components to a risk management framework you should consider:

  • Risk identification: Before a project begins, your project team needs to identify risks unique to the project, like labor shortages or adverse weather conditions.

  • Risk assessment: Prioritize the risks based on the severity of the impact they could have on your project. The level of risk can range from mild to severe, and assessing potential risks will help your team respond appropriately and efficiently. For example, supply chain disruptions like port delays may seem severe, but it’s possible the ships containing the parts you need won’t be impacted. Without assessing risk in the context of the current climate, you can over budget (or in some instances, under budget) for mitigating certain risks.
  • Risk response: First, categorize your potential risks into categories based on how you and your team will manage them. Building a comprehensive risk response plan will help you avoid, transfer, mitigate, or accept each risk as needed. With a strong plan in place, your team can act accordingly by responding to each threat in question.

    Depending on your organization’s risk appetite, avoiding the risk means taking a course of action to circumvent the potential threat, while accepting the risk typically occurs if the potential threat’s impact is within the organization’s risk threshold. Risk transfer means shifting the responsibility to a third party, like signing up for a contractor liability insurance plan. Companies typically mitigate risks if a threat is beyond their risk appetite.

    Risk mitigation includes processes that proactively reduce the impact of a potential threat, e.g., conducting an additional safety test.

  • Risk monitoring and reporting: Continuous risk monitoring is critical in adapting to evolving project conditions. Construction projects can last months or even years, which means weather, regulations, costs, and other variables can change. It’s important to adapt accordingly to avoid non-compliance and unexpected costs.

Due to the wide scope of construction risk management, Excel spreadsheets are no longer enough to help effectively mitigate risk — which is the entire purpose of construction risk management. Instead, many companies are now turning to risk management technologies to keep workers safe and projects running smoothly. 

Take construction risk management to the next level

A risk management platform enables employees to digitally submit incidents and claims in real-time, compliantly fill out required forms, and securely store incident and claims files. Your strategy is important, but the right technology can significantly enhance the efficacy of your risk management framework.

The risk management processes in construction are becoming increasingly complex as companies are relying more heavily on technology and involving more stakeholders than ever before. With Aclaimant’s risk management platform, you can seamlessly manage risk in real-time to avoid costly fines and prioritize workplace safety.

Learn more about how you can better manage construction risk with Aclaimant’s insight-driven workflow solution.

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