The construction industry is experiencing a wide variety of risks due to the complexity of its project environment.
Risk is defined as the probability of setback, injury, loss, or disadvantage for a particular entity. In the construction market, risk entails the failure to achieve what is feasible as well as the predicted measures. Although there are many definitions of the word “risk” and how it relates to the construction industry, it is important to seriously take them into consideration when it comes to making decisions.
Types of Risks
In the construction market, risks are defined into three categories–known risks, known unknown risks, and unknown risk. Known risks are minimal variations that occur and are inevitable features of any construction projects. Known unknown risks, on the other hand, are events with a known probability of occurrence in any phase of the construction project. Lastly, unknown risks are events wherein the probabilities of occurrence are hard to predict.
Under these three categories of risks in the construction market, there are also sub-categories of human risks that make the risks way too complicated. These include risks related to design, logistics, legal works, physical limitations, environment, management, culture, finances, and politics.
How to Manage Risks in The Construction Market
Managing risks is very important among construction companies. Effective risk management means that such risks, when they occur in the future, can be dealt with in a proactive way. This is the reason why it is essential for construction companies to employ risk management strategies in order to identify and assess the risk as well as allocate and manage the project risk.
- Identify the risk: Identification of the risk is the most important aspect in managing risks. It is the base for all the next steps of risk analysis. When identifying risks, it is not only important to identify the exact risks but also to determine any opportunities or events that can cause problems to the construction project.
- Risk assessment: Risk assessment follows right after risk identification. Assessing risks uses available information to identify the frequency of occurrence as well as the consequences of risk management. During the risk assessment, several factors will be considered including the degree of the impact of the risk, timing of the occurrence, and its relationship with other risks.
- Risk responses: This refers to the actions that will be taken in order to address the identified and assessed risks. The actions that are taken are supposed to eliminate, reduce, or transfer the risk. It involves planning for the right action for a particular case as well as proposing different alternatives that to mitigate the risk and turn it into a positive response.
- Risk control: Once the risks have been identified, assessed, and responded to, risk control should take effect. It involves putting a risk plan into action and producing the right documentation to support the process flow within the construction company.
The presence of risks in the construction market is inevitable. But this does not mean that you should just let it happen and not put up some preventative measures. Managing the risk ensures the success of any construction firm. Let MKS&H help you assess your construction company for its risk and do the necessary plan to mitigate them.