Proactively Addressing Risk in Your Construction Business
Any leader, executive, and entrepreneur will tell you that one of the most important components of their job is risk management. It can be even more prominent in industries like construction because risk can include people's lives. As a leader, you never want to see anyone get hurt. That's why when managing risk, it's crucial to do it proactively.
In the construction industry, there are obvious risks like health and safety, but there can also be risks that aren't as prevalent on the day-to-day like project delays and equipment malfunctions. We've found the three most common risks that construction companies and leaders face are:
Let's dive into each of the risks a bit further and discuss tips on how to best manage them.
Labor Shortages
By this time, it's no secret that COVID lead to a mass shortage of labor over the last couple of years. According to the U.S. Bureau of Labour Statistics, in June of 2021, there were over 10 million unfilled jobs with a significant portion of those coming from the construction industry. While the industry's unemployment rate is still higher than average, there is a reason for optimism based on reports from Construction Dive. This is based on the fact that contractors are adding employees at pre-pandemic rates and the industry is at the highest staffing level since April of 2020.
While this is great news for the industry, as a business leader and project manager, being aware of industry trends like labor shortages is an integral part of your risk management strategy. According to the Associated General Contractors of America, a significant portion of general contractors, about 72%, still see labor shortages as their biggest business concern. That number is no joke.
According to some experts, the construction industry needs about two million workers over the next few years just to keep up with the growing demand for housing. That's not including all of the contractors that do landscaping, commercial complexes, and other construction projects. And with the lack of people entering the industry, construction owners and project managers are having trouble finding skilled workers that can help grow their businesses as everyone's hiring from the same limited talent pool. This also doesn't include finding the time to upskill and train any unskilled new hires as people with limited experience have had to become more of a necessity in the industry.
Not only is this a primary hurdle because your goal is to deliver projects on time and being short-staffed doesn't help, but it also leads to more injuries. As your staff gets overworked, it can lead to more fatigue and therefore poorer decision making. It can also mean that your employees are working on projects that they haven't been trained for, aren't best suited for, and can lead to more mistakes throughout a project.
There's no perfect solution to any of this, but here are some suggestions for how you can proactively combat the issue.
Hiring Practices
Creating efficient and effective hiring practices is a challenge for most leaders, regardless of industry. It's also incredibly time-consuming which can make you want to put it on the backburner. However, in the current environment, it is a growing necessity. Whether it's creating partnership programs with local colleges or education programs, being proactive and building relationships with local and national associations that are training staff can be a great first step. It also might be worth launching your own apprenticeship program as well to drive more students to your organization.
Health and Safety Practices
As mentioned, labor shortages can lead to more injuries. Being proactive about rest and encouraging your staff to treat their bodies well could really help in the long term. Also, developing your company's health and safety education and training programs can be effective in helping your employees recognize daily ways they can improve their workplace safety and wellbeing.
Beyond training, create a health and safety committee where your employees feel directly involved with the direction of safety practices. And lastly, create a culture that ensures health and safety are of primary importance. You don't want to give your staff the idea that their safety isn't a priority and that takes intentional conversation and leadership.
Project Delays
Another common risk for project managers is project delays. These can be some of the most frustrating risks to manage because they are often out of your control. Whether it's weather-related, change orders that are being requested, working with subcontractors who aren't delivering on time, or seasonal slowdowns, it's hard to prepare for these risks because they're unpredictable.
We know that project delays can be incredibly frustrating. Not only for the customer you're working for but also for yourself. Oftentimes, contractors and project managers have more than one job lined up and any delays to the first project can create a spiral effect, leading to potentially rushed work and unnecessary stress. This can lead to lots of unwanted headaches including customer management, impacting other contractors' schedules and more.
With a lot of it being out of your control, here are some ways we suggest managing project timelines and schedules.
Estimate For Delays From the Start
You've managed other projects before and know that even minor delays are inevitable. While it's important to understand what factors come into play regarding weather, it is rarely predictable and planning around it can only get you so far. However, most regions have their own familiar weather patterns and being aware of those trends can certainly help.
Change orders and subcontractors can also threaten the timeline of your project, but it really depends on the size of the issue at hand. Some change orders might only impact you by one or two days, but some can affect it for weeks. As for subcontractors, replacing them can be fairly easy, but replacing them quickly is another challenge entirely as you need to coordinate schedules.
Based on your experience with all the delay possibilities, give a reasonable window of time for project completion and manage the expectations of your client from the start. This can help you set clear and fair boundaries and also ensure that you've budgeted enough time for any unexpected delays that may happen.
Communicate Clearly with Involved Parties
Whether that's the client, subcontractors you're working with, or even your employees, setting clear boundaries and expectations before you get to work can speed things up. It can also help ensure that the subcontractors you're working with understand clearly what is expected of them. As contactor disputes can be one of the most complex project delays, clear communication can go a long way in delivering timely projects.
On that same note, always be diligent about working with the right subcontractors. Just as great relationships and subcontractors can help you deliver projects ahead of schedule, working with ones that slow you down is a huge risk to your word-of-mouth branding and customer experience. Always be auditing your relationships and subcontractors and don't be afraid to discuss performance after the project has finished so that you can both improve.
Equipment malfunctions
While we could have included it in project delays, we feel that equipment malfunctions deserve their own category. Picking the right equipment for the project is an important step in any construction project. Whether you're needing excavators to dig, rock trucks to haul, or lifts to move equipment and materials, mapping out all the equipment you need at each step of the construction job can put you ahead of or at least help you meet your ideal schedule.
However, if that equipment malfunctions, it's not ideal and often fixing it is time-consuming. Plus, you can only prepare for what you know and sometimes you might not have the equipment you thought you needed, slowing down the project timeline.
Here are a couple of solutions that we've seen on how to address equipment risk.
Managing Your Heavy Equipment Well
Whether you own or rent your equipment will determine which risks you need to better prepare for but the underlying message is the same: Ensure that you're using the right equipment for the job and make sure that you have equipment insurance in the case it malfunctions. As mentioned above, it can be crucial to map out what equipment you need and the expected timeline you'll need to maintain your schedule.
If renting, book it ahead of time to ensure it's on the job site at the right time and that you'll get the most out of its usage. With the amount of demand that is currently required for heavy equipment mixed with supply chain issues, shortages are a rising concern. Alternatively, if you own your own heavy equipment fleet, make sure that your equipment is all operating effectively, tuned up, and ready to be on the job site as well.
Equipment breakdowns can happen at any time. If renting, make sure the company you rent from has some type of rental equipment protection (REP) offering or you have your own. If you own your fleet, either hire an equipment expert in your company who is available to you whenever you need him or work with a heavy equipment maintenance service that you trust. Either way, having access to a supplier with a REP program or your own insurance and a trusted equipment repair expert can help with managing risks that arise from equipment.
Summary
While labor shortages, project delays, and equipment planning are some of the most common risks in construction, managing risk comes down to the following skills: creating a culture of health and safety, building great hiring practices, effective communication and planning, and preparing for the unexpected. If you can master these four skills, you're on your way to building not only a great team and company culture but also a risk management strategy that proactively addresses any underlying risk.
