Across the construction industry risk management is coming to the fore as a key differentiator and is increasingly becoming understood for the strength it adds not only to the bottom line but triple line. That is to say that as well as benefiting a business, it has advantages for the community and the environment.
While insurance is one way of mitigating financial risks, and good health and safety practices contribute to reduction of incidents, there is a whole wrath of wider business risks that face the industry. Any boardroom that is serious about achieving its corporate objectives needs to look beyond the project risk management framework into the true nature of minimising threats to profitability
So how do we do this? The board needs to make sure it is asking the correct questions. Why are we failing to achieve our overall target annual profit? Why are we not achieving our target profit margins? What financial processes are we adopting? Where are the financial controls? Where are the trigger points? What governance is in place? Why are our profits not increasing in line with turnover? What is stopping us from being competitive on tender bids? Are our operational costs higher than our competitors? If so, in what areas? We need to identify the weak spots and take action.
Adequate management of supply chain risk is fundamental to how well or badly construction firms perform over a period of time. While most construction firms will undertake financial checks on subcontractors before awarding work to them, how many have robust monitoring systems in place to identify whether these suppliers are experiencing financial difficulties along the way? What other intelligence do we gather?
How many main contractors carry out a thorough analysis to identify the key subcontractor that could have an adverse effect on completion of a project on time and within budget, and ensure that contingency plans are in place? Are these subcontractors working in a ‘niche’ market? What would our plan B be if the subcontractor was unable to perform its obligations? Failure to do this work can result in significant unanticipated costs for the main contractor.
Over the years I have found that too many people work within their own specialisms and this unfortunately creates silos. Often people will take actions in one area that has ramifications on other disciplines that they are just not aware of.
Communication is critical to ensuring relevant awareness is raised in areas that prompt people to engage with others outside their comfort zones. It thus supports the true embedding of risk management procedures and practices across an organisation.
So getting people challenging each other on risk is critical, but that is not to say that the standard risk management framework is not important. While we all appreciate the need to cut administration and streamline our processes, it is fundamental for organisations to clearly identify the key documents that are required and ensure that all staff understand the reason for and importance of compliance with these procedures. A positive risk culture is fundamental to the success of any organisation.
All too often people fail to complete a form – or complete it and fail to store it adequately. They may feel they are needing to prioritise other matters, but they need to appreciate that proper risk management is critical to business success, and that aside of major hits to profitability, their shortcuts could lead to HSE prosecutions and fines and/or civil claims being brought against their organisation.