THIS ARTICLE FIRST APPEARED ON CHAS by Alex Minett
Risk management in construction is a vital component of the industry — one that’s characterised by complex challenges and high-stakes risks. In 2024, the construction landscape will be shaped by evolving legislation and new supply chain trends, among other things.
Risk management is a cornerstone of successful construction projects. In an industry characterised by its dynamic work environments and myriad potential hazards, managing risks effectively is not just a regulatory requirement but also a necessity for safeguarding personnel, ensuring project completion, and maintaining financial stability.
What Are The 3 Primary Risks In Construction?
Construction projects inherently involve a spectrum of risks that impact the well-being of employees and the general public. However, these risks typically fall under three primary categories.
Source: HSE
These safety concerns threaten workers’ physical well-being and carry potential legal and financial repercussions for companies due to non-compliance with health and safety regulations.
2. Project Delays
Project delays are another prevalent risk in construction. Delays can stem from various sources, including unforeseen environmental conditions, supply chain disruptions or workforce shortages. The impact of these delays is multifaceted: they can escalate project costs, lead to contractual penalties, and damage the firm’s reputation.
The specific financial impact of project delays in the UK construction industry for 2023 is challenging to quantify precisely due to various factors. However, a 2022 survey found that 28% of respondents said over 50% of projects experienced delays of some kind — up from just 15% in 2016.
Perhaps even more concerning is how project delays have become more expensive. Specifically, the proportion of respondents who estimated that delays added more than 20% to the cost of construction projects rose significantly. This figure increased from 27.7% in 2016 to 47.56% in 2022, indicating a growing concern about the substantial cost implications of delays in the construction industry.
3. Financial Risks
Financial risks refer to any factor that can adversely affect a business’s financial health. In the construction sector, common examples of these risks include the following:
- Cost Overruns: Exceeding the initial budget estimates for the project.
- Delays: Project timelines extending beyond the scheduled completion dates.
- Risks Associated with Human Resources, Materials, and Equipment: Challenges related to workforce management, material availability, and equipment reliability.
- Lower-than-Expected Revenues: Earning less income from the project than originally anticipated.
- Scope Creep Risk: The project undergoing changes or expanding beyond the original plan, leading to additional work and costs.
Effective financial risk management involves assessing various potential scenarios and their impacts on the company’s finances, followed by thorough planning to address these possibilities.
