Risk Management in Construction Projects

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Risk Management in Construction Projects

Construction companies are aware that the job comes with many risks. However, there are ways to manage them. Here is what every Australian construction business owner should know about risk management. Risk management in construction projects; a detailed look.

Types of risks

First of all, let’s look into the types of risks that are common in the construction industry.

Financial risks pose a big threat to a construction project. They include material costs, payment delays, improper estimation, poor cash flow management, contractors’ incompetence, market demand, inflation, and oscillating exchange rates, to name just a few.

Then, there are socio-political risks that can lead to a disruption in the project. From changes in Australian laws and failed payments by the government to increases in taxes and bribery issues, there are many socio-political circumstances that can put construction projects at risk.

Environmental risks like severe weather conditions and natural disasters also threaten the completion of construction projects. Pollution, site accessibility and safety norms are also types of environmental risks that construction companies have to deal with.

There are various construction-related risks including; labour productivity and disputes, shoddy work due to an incompetent workforce or time constraints, failure of logistics, changes in design; and so on. These can all not only compromise the quality of a construction project but also put workers at risk.

Identification of risks

In order to be able to prevent and manage risk, it’s vital to first know how to identify them. With that in mind, all people that are participating in the project should gather and brainstorm to come up with all potential problems that could happen.

The Delphi technique can be used to determine potential risks, as well as, interviewing experts on their opinion on how factors that affect risk can be avoided and managed. Past projects that are similar in nature can also be review in detail to determine which factors played a crucial role.

Before a project begins, there should also be a predetermined checklist of all potential threats. 

Risk assessment and analysis

Having identified all probable risks, companies need to assess and analyse them based on qualitative and quantitative methods, which will help determine the frequency and consequences of various risks.

Typically, smaller projects use the qualitative method. Where all risks are listed, ranked by priority and rated; as high, medium or low. This approach is also used if there is not enough data or when the project’s timeline is somewhat short.

The quantitative method involves crunching data to analyse the possible effects of risks. It requires more effort and data and is used to get a precise analysis of bigger projects. Decision tree analysis, fault tree analysis, expert judgement and expected monetary value are just some assessment methods used here.

Responding to risks

Available options to prevent the identified risks should be discussed and implemented. However, companies can also opt for risk avoidance which means staying away from tasks that be accompanied by risks. Although this approach doesn’t mean that a company is avoiding all risks, it is a solution used by many. 

Another risk response is risk transfer. For instance, a company can transfer all risk to third parties that they outsourced parts of the project to. To be able to take such action, Australian companies turn to construction lawyers from Sydney that ensure their contracts are top-notch and protect them from all liability.

Businesses can also mitigate the risk by reviewing the project or toning down the complexity. On the other hand, construction companies also understand that every project carries certain risks, which is why many choose to accept them even though it is a decision that shouldn’t be made lightly as it can have an impact on both the project and the company’s bottom line. 

Risk monitoring

Keeping track of the proper implementation of risk identification, assessment and response are vital. Monitoring how each plan is executed will lead to determining triggers for various contingencies and allow companies to better prepare for all future projects.

From knowing about the types of risks and identifying them and knowing how to respond to various risks; risk management should not be overlooked.


Patrick Adams is a freelance writer and rock-blues fan. When he is not writing about home improvement, he loves to play chess, watch basketball, and play his guitar.

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