Risk Management in Construction ? It's All About Confidence

By Loren Padelford

Enterprise risk management (ERM) in the construction and engineering industry is no longer seen as just a function of health and safety, it is now regarded as a business-critical system across major projects. In fact, Andrew Wolstenholme, CEO of Crossrail, Europe?s largest infrastructure project that involves constructing a high-frequency rail link to run under London, is recently quoted as saying ?Managing risk and uncertainty is critical to the successful delivery of Crossrail.?

Effective risk management is a key driver when it comes to corporate confidence to hit goals, and deliver on time and within budget. As budgets come under closer scrutiny around the globe, times are definitely changing. Gone are the days of payments based on time and materials ? now fixed price and fixed time contracts are the order of the day. From the bid process to final delivery, the transparent communication of construction project risk management drives confidence both internally, with stakeholders, shareholders, regulators and most importantly: customers.

A fixed price and fixed term contract can be a daunting proposition to a construction company working on a $10 billion? project expected to last for 10 years. The ability to communicate, manage and mitigate risk to accurately predict the completion date becomes increasingly important. By integrating all the elements of risk and opportunity management into a single ERM solution, which can be run at project, program or enterprise level, leads to greater transparency and communication with stakeholders. Instead of valuable information being trapped or lost in separate spreadsheets and documents, risk data can become valuable and useful to all involved.

Recently, Active Risk, the first ERM solution provider to drive business performance by increasing an organization?s risk-bearing capacity, had a customer use its solution to identify potentially unprofitable contracts where the risk/reward relationship was not positive enough. That particular organization reduced its cost of sale by being more targeted in the business for which it tendered, substantially increasing its win rate and boosting confidence that successful bids would be profitable.

Likewise, major infrastructure customers understand that effective risk management becomes a competitive differentiator. It enables them to satisfy the market, customers, stakeholders, insurance brokers and banks that they are in control of their business and they will deliver what they promise.

The desire to change the perception of risk management from a negative to a positive is among the reasons a number of risk management organizations across the globe are supporting World Risk Day on June 26, 2012. World Risk Day is the first-ever awareness day focused on how taking smarter risks improves business confidence, drives corporate strategy and grows profits.

In a world economy increasingly driven by large capital projects, ERM removes the need for guess work, fixed percentages, excessive risk reserves and contingencies. Instead, organizations gain the confidence to deliver projects on time and in budget, ultimately, driving more profitable business.

About the Author: Loren Padelford is executive vice president and? general manager at Active Risk.

Have an idea about a guest blog for Construction Today? Contact alan.dorich@phoenixmediacorp.com or jim.harris@phoenixmediacorp.com.

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