De-risking Projects

Construction and development can be an extremely profitable business to invest in and work in, a worthwhile venture to commit financial investment into to get a healthy return out the other side.

Well, unexpectedly, there are two sides to every story. She said this; he did that. And where there’s a mountain of cash to be made, sinkholes are waiting to syphon funds out of your account faster than Donald Trump can say ‘Fake News.’

It isn’t and doesn’t have to be one or the other. Projects can be analysed before a commitment is made, before funds are expended, contracts are signed, and even during the process.

Risk can be revisited throughout a construction project. New risks could be identified at any stage of the design or build programme.

What is a risk?

In plain and simple terms, risk is uncertainty.

Risk can relate to various items such as tasks, events, finances, actions or the environment.

Risk is the uncertainty that an action or series of actions does not have a defined or secured outcome. The outcome might, in fact, be a poor one and detrimental to the aims of the original plan, project or investment.

In the world of construction, the likelihood of a risk-bearing fruit is one that will have a financial impact. Whether through project cancellation, aborted costs, more works or design input required, time delays.

Financially, the risk is deemed as the forecast investment gains being different from the actual returns. Therefore, a project percentage margin may be reduced, become a negative margin, or cancel the project altogether.

When to Identify Risks?

A risk can be identified at any time in the life of a project. However, the sooner risk is identified, the better. The better as it gives more opportunity to assess, react, resolve, or cancel the project, all before any or too much funds have been expended.

Identifying a Risk

Risks can be identified in several ways; visually, verbally, via investigation, experience/knowledge, design and during the build.

Within its revered design template, the Royal Institute of British Architects provides the opportunity to review risk within the template. Stage 1 of its eight stages (Stage 0-7 inclusive):

Stage 1 –  Preparation and Briefing – developing project objectives. Risk assessments will be carried out at this stage. Pre-application planning advice and discussions can take place with the local planning authority. Create Initial Project Brief.

See our Design Now, Save Later article.

Risks can be identified at a very early stage. For example, a review of online or historical data might tell you the location of potential World War II unexploded bombs, the route of nearby underground or overground railway lines, trunk sewers running across the site, overhead power lines straddling the site boundaries.

An area of Special Scientific Interest, a location of important archaeological finds, or even a flood plain are all risks that require identifying and can be done early on. However, each may need time and costs to be allocated against should they uncover remedial works.

Design can add risk. Should the project be in a conservation area, somewhere where the local planning authority insists on special design features or materials to be incorporated, like timber windows, metal rainwater pipes, zinc roofs, unique cladding etc.

All of these are desktop identifiable.

A site visit can tell you more. For example, a restricted access route would mean that large lorries will not reach the site. No-parking zones. A need to apply to suspend adjacent parking bays. Boundary and party wall concerns or issues. The presence of asbestos within the building that is due to be demolished, the dumped waste and tyres on the site, requiring disposal. Roosting bats.

Site investigation works such as ground investigation, asbestos surveys, ecological and archaeological investigations will inform of other risks.

What about capacity? If the site requires additional electrical loading from the grid, adding waste and runoff into the sewer systems, is there capacity to serve the site? If not, is a transformer or off-site works enhancements required.

The Design Team will utilise the ground investigation reports, existing services, flood risk assessment information to inform the required construction techniques—piling, floating foundations etc.

Changes in legislation can strike and add cost. For example, if a site has been mothballed or slow to secure planning, changes in building code could add thousands of additional and unplanned expenses.

Finally, the site has been inspected, investigated, designed, gained planning and is now being built. But it’s not the end of risk. What if companies carrying out the build go bust, or the housing market crashes, leaving a lack of prospective buyers. In the previously unlikely event that a global pandemic limits the number of operatives allowed on a site, national lockdowns occur, or supply chains are disrupted.

Once a risk is identified, it should be recorded on the Project Risk Register.

Risk Register

A risk register is an early warning system for your project.

The risk register allows you to list, record and store identified risks in a single accessible place. The register should allow you to enter the date the risk was identified, a description of the risk, who owns the risk, the likelihood of the risk occurring, the impact of the risk, strategy to manage the risk, the possible cost of the risk.

The likelihood of the risk occurring and the impact of the risk are categorised as low, medium and high and colour coded, green, yellow and red, respectively, depending on their perceived risk level.

It is essential to maintain the risk register, keeping it up to date. It can be used as a learning tool for forthcoming projects.

The project board will confirm their risk appetite. They may be willing to incur a certain amount of risk or associated costs; however, it may jeopardise the projects if the risk becomes too great.

DeRisking

Derisking or mitigating against risk are the actions that can be taken to remove or reduce the impact of a risk.

Sometimes, simply knowing that the risk is there so it can be monitored is enough. Other times, a project’s existence or likely success is dependent on the risk being mitigated against.

Summary

Risks exist in almost every aspect of life. Within construction, risk can determine the success or even the existence of a project depending on the level of risk, the implications of the risk and the risk appetite of the project board.

Identifying risks at the earliest stages is vital to mitigating against their effects and potential impact. A Risk Register will allow the risks to be recorded, measured, reported, and saved for future learning.

Photo by Loic Leray on Unsplash

About Matthew Griffiths

Matthew takes great pleasure in combining his two professions. One has seen him give two decades of service to the construction industry, from roles as an Estimator through to sitting on Boards. The second is his passion for the written word. He now has the best of both worlds, building homes and constructing written content.