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Risk Management: Conquering the Unknown Beast


12/15/15

A toddler who takes his very first step is immediately confronted with risk. Will that step result in a sudden fall? Or will the toddler take even more steps without having a plan or the ability to stop?

Like a toddler dealing with the perils of walking for the first time, construction industry executives have had many sleepless nights when thinking about risk issues. While this fear of risk is natural, and somewhat healthy, it must be controlled before it is allowed to dominate construction related decision making.

In a series of articles, CohnReznick and NOI Strategies, a division of CohnReznick, examine the elements of risk as they pertain to the construction industry. Some common risks include job site safety, field risks, and environment risks. Others are more directly focused on business issues and include compliance risk, job costing and estimating risk, IT security, and reputational risk. We also look at ways the industry can leverage real-time information, including new technologies, as a key step in developing a comprehensive risk management strategy.

Traditional Risk Management

Traditionally, construction companies dealt with risk in a predictive/reactive way with little ability to control outcomes in real time. At the onset of a project, traditional risk categories were examined, negative outcomes predicted, probabilities assigned, and overall project costs adjusted to reflect this risk. Through project completion, resulting losses were tracked only as they were reported and construction companies struggled to take corrective action in a timely manner. Without the ability to monitor and track risk and negative outcomes, companies worked in a reactive mode, doing little to monitor risk issues before they occurred.

Real-time Data Tracking and Risk Management

The arrival of real-time data tracking and increased accountability has changed the way construction companies manage risk. At the beginning of a project, companies still follow traditional risk assessment processes by initially identifying and addressing key areas of risk. However, once these risk areas are identified, construction executives can now access relevant data in real time, closely track contributing factors and, with data in the right hands, take corrective action to mitigate the situation before significant loss occurs.

Job Site Risk Management

Construction supervisors managing projects on-site have greatly benefited from the use of real time tracking tools. Once a risk is identified, supervisors can identify and monitor the contributing risk factors and make real time adjustments. For example, construction projects in regions affected by seasonal tropical disturbances can monitor storm activity and set alerts when storms reach certain intensity or come within a certain distance. Adjustments can be made quickly to the job site protecting assets and ensuring employee safety.

Why Focus on Risk?

Ask most corporate leaders about risk and the likely answer will be, “the higher the risk, the greater the reward”. A risk/reward scenario must be at the forefront of all risk analysis. However, corporations today have begun to shift their focus on risk to an equally important emphasis on the benefits of mitigating risk and the ability to lessen the downside consequences of risk. Examples of the benefits achieved when risk is managed include increased employee safety, fewer project delays, less environmental impact, and a reduction in cost overruns. By using real time data and shifting the monitoring and management of risk to the field, negative impacts can be proactively addressed and mitigated.

Lowering Cost/Increasing Benefit

The benefits of mitigating risk can often be tracked and assigned a dollar value. For example, construction firms will identify the risk of an increased price of raw materials as a result of recent shortages. By tracking prices real time, once a small price increase occurs, orders will be increased and inventories built up to help offset rising costs. Risk monitoring can also reduce the negative impact on issues for which a dollar amount does not exist. Factors such as human life lost, project accidents, or environmental disasters can be avoided through real time monitoring. Using the previous example, construction projects that are subject to storms and other natural disasters can quickly shift a work force to protect them from potential danger. Additionally, job sites can be modified (locked down) in order to reduce the impact on the environment from natural disasters.

What’s In It for Me?

Companies that monitor risk on an ongoing, real time basis, and move accountability to the field, can take advantage of the rewards that come with calculated risk. They will suffer less from the downside consequences when risk is not managed. CohnReznick helps construction companies and other clients develop processes to identify, assess, and mitigate risk. This helps them meet performance objectives by becoming more process and data oriented, leveraging technology as a competitive advantage.

Contact

To learn more about risk mitigation success strategies, to review case studies, and to learn how CohnReznick can help your company better address risk, please contact Anthony Nazzaro, Principal, NOI Strategies, A Division of CohnReznick. 


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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