Construction risk management

Strategies for Managing Construction Risk

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A certain amount of risk is unavoidable. Whatever your business venture, some risk will remain. Construction projects are no exception to this reality.

However, it is important to focus on managing construction risk through proper preparation and a thorough review of contract documents at the beginning of a project. Allocating the responsibility for risk to the parties that are best able to manage them can minimize incidents and the cost of each risk. Keep these simple tips in mind when preparing for your next project.

Allocating Your Risk

A part of managing construction risks includes working together with all parties during contract preparation to anticipate potential risks and assign responsibility for them to the party best capable of handling them, if they should arise.

The owner would typically be best at managing flaws in design, placement and environment, while the contractor would be better at handling issues with personnel and performance. Management of indemnity and general insurance are key to managing construction risk in these scenarios.

Protection with Indemnity Policies and Provisions

Liability that arises from professional negligence is best managed through professional indemnity insurance. Most indemnity policies contain a contractual liability that is equivalent to professional negligence. Many professional consultants are required to carry such insurance. A proactive way of managing construction risk before beginning a project is to ensure that your coverage is up-to-date and will meet the needs of your particular project before beginning.

  • Product Liability Insurance – This coverage protects against liability for injury to people or damage to property that arises from products supplied by a business. Suppliers of equipment to a construction or engineering project, such as lifts or escalators, may be required to maintain such insurance. You may want to hire a consultant to ensure that the insurance carried by the supplier matches the needs of your project. Indemnity clauses regarding product liability should place responsibility squarely on the contractor.
  • Public Liability Insurance – Liability arising from death or personal injury to third parties and for damage to property belonging to third parties falls under this type of coverage. Normally you would provide adequate security to ensure that public liability remains at a low-risk during your construction project. However, by assigning responsibility through definitive clauses, you are ensuring that should the risk arise, it will be handled with the care that is required for such incidents.
  • Latent Defects Insurance – This insurance generally protects the owner against the cost of remedying the structure of a building due to unknown and unforeseeable defects. While an owner would typically cover this, individual provisions may be made for material placement and quality-of-work issues that revolve around the contractor’s intrinsic responsibility regarding these facets of the project.

Managing Construction Risk in Funding and Feasibility

Two other forms of risk that commonly have a negative impact on construction projects are funding risks and feasibility risks. These are often described as “invisible risks” because they are rarely evident until they arise. However, careful preparation and research can go a long way towards preventing them. Both require different strategies to manage, but both come from the same source – the reliability, solvency, and professionalism of the available contractors.

Feasibility risks arise from hidden weaknesses in the original business plan proposal. They can include (but are not limited to) environmental concerns, including:

  • Unforeseen factors in location
  • Issues with coding and zoning laws
  • Weather-based delays

A proper analysis of location, as well as a review by an expert in local zoning and coding is necessary to ensure that both the contractor and the owner are prepared for the hidden costs of feasibility defects before signing the contracts for your project.

Funding risks are inevitable but are rarely prepared for. They can include a multitude of situations such as:

  • Subcontractors refusing to abide by original quotes
  • Cost of potential fines
  • Expenses associated with extended service contracts

While it is impossible to entirely avoid funding risks, setting clear budgetary limits for contractors and the proper examination and mitigation of feasibility risks will go a long way towards preventing unexpected costs from derailing a project.

Risk Management Is “Management”

Realizing that managing construction risks is just that…managing, not preventing, is necessary for coping with the inevitable. Remember these three steps: “Research, prepare, assign.” This is considered an important mantra for any successful owner or contractor. Ensure that you have identified all the factors that may be potentially problematic before beginning a project by:

  • Consulting with experts and professionals
  • Preparing your proposal and budgetary restrictions
  • Ensuring that responsibility and its accompanying insurance and indemnity is appropriately assigned before finalizing your initial contracts
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crane lifting safety tips

How to Communicate Safety Standards Throughout Your Company

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Buying Into the Safety Culture

One of the best ways to prevent job site injuries is to get your employees and managers to buy into the safety culture. This can be done when you make it a priority to clearly communicate safety standards on a consistent basis.

In reality, many employees often turn a blind eye to risky behaviour. There is usually a gap between how workers perceive their role in safety and how they feel about others on the job site. For example, in the Safety Culture Survey by Safety Performance Solutions, 74 per cent of respondents said they’d like their peers to point out safety issues, but only 28 per cent thought other people would appreciate feedback.

How to Communicate Safety Standards Internally

Part of the problem is that many employees don’t want to insult older or more experienced coworkers, and don’t feel qualified to give safety feedback. In an effort to make our workplaces safer and to prevent accidents, we’ve compiled advice for building constructive safety environments.

  • Praise: It’s important to praise employees who perform their work safely. One-on-one, genuine praise works effectively. This encourages positive behaviour to continue by rewarding safe practices.
  • Training: Access to training and educational resources helps employees take responsibility and pride in their own safety practices in a way that simple top-down orders cannot. Regular training programs can help safety practices become an organic part of the culture, while signs and regulations serve as static reminders.
  • Post Signs: That said, reminders are a good thing. Written warnings and reminders reinforce good training and provide gentle guidance in the most important safety requirements. People respond more to visual information than written words, so it’s a good idea to include pictures or diagrams of expected behaviours wherever possible.
  • Toolbox Talks: Toolbox talks and group meetings are a great way to build a culture that is comfortable to communicate safety standards. The Safety Culture Survey found that 90% of people feel they should point out risky behaviour, but only 60% actually do. Toolbox meetings are a great way to provide safety-related feedback in a personal but indirect manner. This is important since employees are more likely to respond defensively to direct, rather than behavioural, feedback.
  • Make it Part of the Job: Safety standards should become part of the employee review process, in terms of both corrective feedback and reward for consistent safe work. By emphasizing standards in performance reviews, you send the message that safety isn’t optional in your work culture.

Protect your Employees

Some employees fear reprisal if they bring up safety issues in the workplace, and don’t want to be seen as complainers. In 1997, the Department of Labor found that workers who brought up complaints were very vulnerable to punishment or reprisal. We can work to change that. Employees working on the job site have the closest and most personal view of safety issues, so it’s important that managers protect and listen to their opinions.

Skipper Kendrick, the manager of Industrial Safety and Hygiene for Bell Helicopter Textron, suggests a “Day of the Pig” on which employees can bring up any health and safety or environmental problems without fear of fault finding, and with a promise of management accountability. Following through on employee complaints reassures them that their input matters.

It is in everyone’s interest to promote the best possible workplace, and employers can make this a reality when they clearly communicate safety standards throughout the company.

photo via www.delynsafety.co.uk

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