How to Manage Construction Project Risk

Posted by MDA Projects on Monday, September 11, 2017 with 15 comments
The management of risk is one of the most complex aspects of a construction project, more so, when it comes to large projects. Right from the beginning, from the inception phase, risks must be identified, assessed and methods must be applied to mitigate them.

One thing that is certain is that each construction project is a bespoke process. From typology, geology, design and materials used to the workforce required to ‘assemble’ a project in all weather conditions, risks differ from project to project. Consequently different approaches must be used to address them. In addition, allowances must be made for variability throughout the construction project’s lifecycle: change is inevitable and the ripple effect of the risks associated with that change must be managed to ensure complete and successful project delivery.

Risk management in a construction project lifecycle

In order to better understand construction project risk it’s important to know the phases within a construction project lifecycle. Academically, the construction project lifecycle is a straightforward process that follows six clearly defined phases:

  1. Inception and brief
  2. Concept design
  3. Design development or detailed design
  4. Documentation and procurement
  5. Construction
  6. Close out 

In practice, however these phases do not necessarily happen sequentially. While each phase of the project lifecycle should be signed off before commencing with the next phase, some phases require an iterative process. In other words, decisions taken in a previous phase are revisited, perhaps a number of times, before final resolution of a particular issue. The risks therefore need to be continually updated during project implementation until each item is identified and resolved at least risk to the client.

Iteration in one phase can occur concurrently with another project phase. It occurs particularly in phases three to five (see diagram). Iteration can involve increased risk, which must be addressed, managed and reduced to acceptable levels.

Stakeholder risk management

Managing risk is not just about systems and processes though. It’s also about the people involved in the project supply chain. In fact, it is the human component of a construction project; the stakeholders especially, that potentially pose the greatest risk. What does this mean?

Essentially, there are three key stakeholders on a construction project: The client, the design team and the contractor team. The entire project is generally led by a professional project manager who reports directly to the client while managing the efforts of the design team and contractor team. The design team is usually led by an architect together with various other professional consultants whom themselves enlist other specialists as required. Similarly, the contractor team is usually led by a principal contractor, who enlists sub-contractors whom themselves have a host of suppliers and specialist service providers in support of the construction effort.

In other words, the project lifecycle involves many people and organisations each with their own business expectations, financial objectives and internal processes. While motivated by sound practices, these individual agendas are not necessarily compatible with overall project goals.

Mitigating stakeholder risk

While having the initial vision and a clear end goal, the client is not necessarily geared up to manage the construction project. In fact, the building contract itself is an agreement between the client and the contractor. It could be argued that the contractor should act as project manager. However, this is counter intuitive to maintaining project objectivity, something the project manager is able to do having no vested interest other than to ensure project goals are met without undue risk.

Ultimately, the mitigation of stakeholder risk as with all other project risks requires independent and even-handed management. It requires someone who has an all-encompassing perspective and knowledge of all the stakeholder roles and related processes, to eliminate or at least reduce stakeholder risk. To achieve this, impartial judgement and a professional communication interface between stakeholders is key. Ultimately, risk management is the domain of an independent and professional project manager who has nothing to protect except the client and the integrity of the overall project.