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Australia, Features, Technology

A look at risk management in the construction industry

The engineering and construction industry has historically taken an informal and improvisational approach to risk management, often leading to risks being identified too late in the project lifecycle, especially with regard to project schedules and delivery timelines.

Due to the ever changing COVID-19 regulations impacting construction sites across Australia, and the resulting labour shortages to unpredictable weather, the variables that can disrupt construction projects are numerous. To confront this challenge, construction organisations need to emphasise the development and use of comprehensive value delivery strategies and technologies that can help them adapt quickly to changing market conditions.

Organisations managing construction projects (or portfolios) are increasingly looking for ways to incorporate more comprehensive risk management practices, but many in the industry are not sure where to begin. A few proven steps can set these organisations on the right path toward an effective construction project risk management strategy.

Taking a comprehensive approach

It’s important to assess your risk profile at both the project and program levels. Where a project can be defined as a one-off initiative, bound by distinct cost, resource, budget, and/or time-constraints, programmes are a group of interconnected projects that complement and build on each other—often working toward a larger, long-term goal.

Some firms mistakenly only manage risks at the project level, which leads to an incomplete picture of exposure and performance. It’s important to expand that focus, elevating that visibility to the program level. This will allow teams across projects to better synchronise resources and adjust plans to realise successful outcomes.

Five ways to improve your risk management in construction scheduling

Here are five proven steps to help develop a thorough risk management strategy in construction scheduling:

1) Recognise the risks: The management team, at the beginning of a programme or project, should try to identify potential risks. Could poor weather or uncertain site conditions potentially delay construction? Is there a risk that material costs could significantly rise unexpectedly? It is impossible to identify and manage every possible risk, but the team should agree on any events that are most likely to occur and have the greatest impact. These are the factors that they will monitor and manage.

2) Evaluate your exposure: After identifying potential risks, the team should determine the likelihood of each risk occurring, as well as impacts to costs and schedules. Risks should then be ranked on the probability that they are to occur, and the impact they may have. Teams should prioritise how they will manage specific risks with the help of Monte Carlo simulations and scenario planning tools. This will allow users to create and run various what-if scenarios by changing key variables

While Monte Carlo analysis can be conducted via a spreadsheet, this approach is not suited to manage large, complex projects with thousands of data points that can change frequently, including calendars, resources, and the relationships between them. It is also not suited to conducting risk analysis across far-reaching programs. For these types of complex scenarios, it is best to use a true risk management application.

In addition, new AI tools leverage machine learning to analyse project data – both past and present – to continually assess schedule accuracy and provide predictive intelligence into potential risks on projects. Such tools can empower teams across the organisation to sharpen decision-making and take action on emerging risks before they become showstoppers.

3) Establish a response strategy: Teams should have a detailed plan of action on how they plan to mitigate high-impact risks. Scenario planning technology plays an important role here to assess what-if scenarios and determine costs and benefits of each mitigation strategy. While some risks ultimately can’t be avoided, such as building during unforeseen inclement weather conditions or changing COVID-19 restrictions, this step can reduce the impact on the project by building in appropriate schedule, labour, and supply chain contingencies.

4) Disseminate for clarity: The project team should communicate this information to the project owner after they have completed their risk assessment and defined mitigation strategies. This demonstrates an effort to take a proactive approach to reducing risk and allows contractors an opportunity to discuss the risks, mitigation strategies, and potential impact on the schedule and cost of the project with the project owner.

5) Track, adjust, and repeat: As risks continue to develop, program managers must build in regular assessments to their mitigation strategies as conditions change. Again, machine learning provides key support here by helping to identify potential risks and inefficiencies early, helping organisations make better decisions. As information about each risk and how they affect mitigation strategies becomes more available, project managers can make more informed decisions about the best path forward.

While risks cannot be completely eliminated, a methodical and collaborative approach to forward-looking risk management is key to reduce potential negative impacts. Good risk management strategies require the integration and analysis of diverse sets of information, including budget, cost, and schedule data. With this in mind, organisations managing construction projects will be well on their way to shoring up their risk management practices.

By Frank Malangone, Senior Director for Product and Industry Strategy, Oracle Construction and Engineering

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