12 Construction Project Risks (And How To Prevent Them)
Updated January 13, 2023
Construction projects often require a lot of time, planning and resources, and there may be a variety of risks that could arise during a given project. Being aware of these risks and taking steps to mitigate them can help a team increase the safety of a construction site while also allowing them to improve productivity and overall profitability. Learning about potential construction project risks can help you identify them more easily and take the actions necessary to prevent or mitigate them.
In this article, we discuss the risks you may encounter while completing a construction project and we offer tips to help you better manage these risks.
What are construction project risks?
Construction project risks are threats to a construction project's schedule or completion date that may create a potential loss. These risks may be present during every stage of the construction project life cycle, from the initial development and planning stage to completion. There are many types of project risks, and these risks can increase costs, cause schedule delays, reduce the quality of the project and affect team performance.
Successful construction project management requires personnel to manage these risks and plan for unexpected events. Construction managers are often responsible for continually evaluating their projects to identify potential risks and determine the best method for managing them. A comprehensive risk management plan can result in higher profits, better relationships with clients and subcontractors and increased growth potential.
12 construction project risks
Construction project risks vary depending on the type of project, the requirements for completing it and its associated work site. The ability to understand and assess these risks is often an important step in the risk management process. Here are a few typical risks you may encounter when completing a construction project:
Project delays: Construction contracts may not account for potential delays that may affect a project's timeline and schedule. There are a number of factors that may cause general delays, including improper scheduling or accidents involving personnel, and addressing these delays by creating contingency plans can help reduce their negative effects.
External uncertainties: Uncertainties about the scope of a project may cause changes in the task schedule and make it more difficult to maintain a correctly staffed team. Understanding the potential uncertainties and addressing them before beginning a project can help reduce the potential for disruption.
Safety issues: Inadequate equipment and tools, uninformed construction personnel and hazardous job sites can create safety risks. You can address these risks by communicating with construction teams on the importance of following proper safety procedures and ensuring that everyone involved in the project understands how to reduce these risks.
Lack of skilled labor: Strikes, illnesses and other disruptions to the planning process may create a reduction in skilled labor, which can increase risk. Scheduling challenges can also cause delays, which is why it can be important to plan for the unexpected when hiring new employees and engaging in scheduling activities.
Material pricing: Material prices can vary significantly, and construction project managers are often responsible for ensuring that the budget is large enough to pay for emerging costs. Material costs may increase with natural disasters, labor issues or increased demand, so it can be crucial to know how to budget to reduce the negative effects of rising prices.
Lack of quality contracts: Incomplete or poorly drafted contracts can increase the potential for ligation and create additional delays. To avoid poor-quality contracts, ensure that each contract supports your project goals and consider meeting with a legal adviser.
Inconsistency: New subcontractors may decide to revise project goals or timelines, which may affect other parts of a project, and clients may revise their requirements without warning. You can reduce this inconsistency by creating a plan for managing change and scheduling meetings with subcontractors, clients and other people involved in the project regularly.
Incomplete plans: Incomplete or inadequate project plans or architectural sketches can present a variety of risks and result in a project that doesn't meet legal or safety regulations. Before beginning a project, ensure that the plans for it are straightforward and include all the necessary information.
Lack of environmental analysis: Projects that lack an environmental analysis may experience an increase in costs and other disruptions. You can reduce this risk by collecting information about the project's external environment and the company's competitors during the development stage.
Change orders: A change order is a document outlining the adjustments required to work as a contractor or subcontractor. You can reduce the risk associated with change orders by ensuring that your documentation is up to date and submitting changes quickly.
Payment disputes: Since it can sometimes take a longer time for subcontractors to receive their payment, payment disputes may arise. Issuing payment notices on time and communicating with your team frequently may decrease the risk associated with a payment dispute.
Stop work orders: Stop work orders are orders requiring a company to stop working on the project. To reduce the potential for these orders, it's beneficial to address safety concerns as they arise and ensure that your team follows the applicable laws and regulations.
How to manage construction project risks
Here are three steps you can take to better manage construction project risks:
1. Assess the risks
Identify and list the risks that may affect the project from its beginning to its completion. Decide which risks are the most significant. You can then rank the remaining risks based on their consequence to the project. For example, the likelihood of a natural disaster may present a less significant risk to the project than an external labor shortage if natural disasters rarely occur at the work site where you're managing the project.
2. Minimize each risk
Once you've ranked all risks, review them carefully. Decide if it's possible for you to reduce the risk, use an insurance policy to transfer it to another party or accept it. Some risks may have few negative effects, and the costs of reducing them might be higher than the risk itself. Consider the solutions you might use for the risks you plan to eliminate.
3. Monitor the project for new risks
Since risk factors may change throughout a project's life cycle, continue to monitor it for new or emerging risks. Try to involve your team in this process as much as possible. For example, if a team member observes a new risk, you might create a system allowing them to report the risk to you automatically.
Tips for managing construction project risks
There are a variety of ways you can manage the risks associated with a construction project and ensure that you complete it on time and under budget. Consider the following tips:
Identify the risks early
Consider the risks associated with the project throughout its entire life cycle. You can begin by identifying the risks prevalent in its initial development stage. Consider including construction personnel, subcontractors, supervisors and other individuals in the risk identification process. They may be able to use their unique perspectives to offer you insight into other sources of risk you may not have otherwise considered.
Create a comprehensive risk management plan
After identifying and prioritizing your risks, create a comprehensive risk management plan to mitigate them. Consult with your team as you draft this plan and consider updating it based on budgetary constraints or external changes. Try to address each risk individually and, as you continue to monitor for risks, consider adding to your plan and reassessing your existing risks. This can help you increase the overall efficiency of your plan.
Leverage available technology
Certain technologies and automated systems may make it easier for you to identify and mitigate potential risks. For example, you could use an online project management platform to enhance your budgeting processes, streamline communications with subcontractors and identify new risks. Scheduling software may also make it easier to manage complex project schedules and reduce the risk of a delay.
This article is for information purposes only and is not intended to constitute legal advice; you should consult with an attorney for any legal issues you may be experiencing.
Explore more articles
- 12 Free Email Account Providers and How To Choose One
- 15 Consulting Questions To Ask a Client (With Tips)
- Pro Rata: What It Means, How To Calculate It and Examples
- How To Quit a Job You Just Started: A Step-By-Step Guide
- Budget: Definition and Types
- How To Use the Excel OFFSET Function (Examples and Tips)
- Exogenous vs. Endogenous Variables (Definition and Examples)
- How To Conduct an Effective 1-on-1 (With Example Topics)
- 5 Reasons To Take a Personal Day Away From Work
- How To Write a Letter of Agreement (With Template)
- How To Calculate Average and Compound Annual Growth Rates in Excel
- The 4 Types of Nursing Assessments