The 6 Faces Of Construction Risk
When risk management professionals talk about risk, the term can seem vague and even confusing to many construction company owners. Construction is a risky business, but a risk management professional sees risk in many different ways. Every construction worker takes on a certain amount of risk when they step onto a jobsite, but the construction company takes on forms of risk that the worker would never even think of.
Work Performance Risk
Work performance risk is the risk workers take every day by stepping onto a construction worksite. It is the risk that someone may get injured while performing their job, or possibly even killed. For the construction company owner, there is the added risk of property damage, damaged equipment, and equipment loss that can all have a significant financial effect on the company.
Owning a construction company is stressful. Not only do you have to worry about constantly finding new projects to make payroll, but there are the challenges associated with the cyclical downturns in business at certain points of the year. The construction company that wins a job twice as big as anything it has ever done before also faces the risk of not being able to win enough work to keep all of the workers it hires for its big project.
Most construction contracts have a provision called liquidated damages, which is an amount of money the company is penalized each day it goes past the project deadline. Every contract has its penalties that can add up to a lot of money lost for the construction company that cannot complete its projects on time.
A project that is given an incorrect timeline will almost certainly go past the deadline and cost the company money. There is inherent risk involved in all management aspects of a project including hiring the right amount of employees, properly scheduling materials deliveries, and making sure the site meets all OSHA and other pertinent safety codes.
Acts Of God
While many contracts offer provisions to allow for unexpected “acts of God,” the construction company owner still has to absorb the costs associated with heavy rains, snow, earthquakes, floods, forest fires, and anything else that cannot possibly be predicted in advance. All a construction company owner can do is make sure they are properly insured for those types of events to prevent financial losses from shutting the company down.
Risk Of Trying To Be Too Aggressive
Your competition is there to drive you to be a better company, but it also creates a series of risks that can be damaging to your business. If you take risks on bids and decide to be too competitive, then you might win a series of jobs where you make little or no profit. The need to beat the competition is a normal part of the business world, but being too aggressive can sometimes be a risk that could put your company out of business.
Smart construction company owners have risk management professionals who take care of the many faces of construction risk. The biggest risk a construction company owner can take is to attempt to operate their business without the help of an experienced and professional risk expert.