Managing Construction Project Risks

Nahid Afsari , Brian Murphy


May 1, 2015

construction risk management

Construction projects involve coordination among multiple team members, including the owner, contractor, architect and stakeholders, as well as compliance with a host of laws, codes and regulations. Even in a small construction project, financial and reputational risks need to be accounted for and addressed proactively.

To mitigate these risks, one must be able to recognize, anticipate, evaluate and manage potential problems. If risks are not identified and addressed early, the project team could become disjointed and, consequently, less efficient. Team members may start pointing fingers, or lawsuits and litigation could develop that ruin relationships and reputations while significantly derailing projects.

Project management systems can help identify risks by bringing the construction team together to brainstorm where project goals and objectives might falter. In the planning and design phases, project management professionals consult with owners to understand their needs and work with team members to develop the project within a given budget. All stakeholders should voice their concerns over potential risks, drawing on previous experience to identify pitfalls. In fact, encouraging a mentality of continuous improvement, where lessons learned are formally documented and discussed, is a great way to generate conversation on what risks are likely and which new risks need to be examined.

The key is to have constant communication about risk and build trust among project partners. It is critical to own the project’s risks and work together to solve them. Risks are not just one person’s or one group’s problem if they affect the outcome of the entire project.

Once all project risks are identified, be sure everyone fully understands the risks and mitigation options. The project team should assess the probability of each risk occurring, the potential financial and scheduling implications, the timeframe needed for resolution, the parties who should be involved in the risk discussions, and the key decision-maker for each risk. The decision-maker needs to then determine how to resolve the risk and move forward.

Documentation plays a major role in how project management teams evaluate and mitigate risk. Project managers use program controls to create, administer and manage reporting of documents and systems. This reporting process helps support a continuous improvement mindset by documenting mistakes so the team can avoid them in the future.

One reporting system used to evaluate risk is a risk register, which identifies all the things that could go wrong and their impact on budget and schedule. A risk register should be initiated during the conceptual phase and continuously updated during design and construction. As part of the risk register, project teams also use quantitative risk management tools like Monte Carlo simulations to measure the likelihood and impact of risks.

After all risks are initially evaluated, project management teams track them on a regular basis to ensure that they are being managed. When new risks arise, they are added to the risk register report and their impacts are run through the Monte Carlo simulation. The resulting reports should be reviewed regularly and shared with the project supervisor.

Managing change also helps reduce overall risk. Project teams track change orders, analyze change order requests for entitlement, determine the reasons for change orders, and track relative-to-budget values and opportunities for mitigation.

There are a lot of working documents and moving parts involved in risk management for even the most straight-forward construction projects. To stay on top of all these components, project management teams often use customizable dashboards to combine all tracking documents from multiple projects into one interface. Project management information systems can help automate dashboard management, so everything is recorded on computers and customizable for each team member.

It takes the entire project team and all of the project stakeholders to manage and mitigate day-to-day construction risks. Project managers add value to construction teams by identifying risks and associated mitigation strategies, as well as improvement opportunities, from a project’s conception through its completion. Wisely managing a project’s risks often results in happy teams, lasting community impact, positive reputations and a successful overall result.
Nahid Afsari is vice president of the Wisconsin group at Cotter Consulting, a provider of program, project and construction management services.
Brian Murphy is senior project manager at Cotter Consulting.