How to walk a tricky risk tightrope

Managing risk is fundamental to success in the modern construction landscape. Here, our guest columnist Richard Brackstone weighs up the risk of not managing risk – and explains why metrics and measurement are essential to help navigate the pitfalls that lie around every corner

Construction is an inherently risky business, wherever you are in the supply chain – or should that be food chain? We’re all aware of the ‘eternal triangle’ and the often-discussed tripart of time, quality and cost that identifies our key project drivers.

Managing these often disparate priorities is a key cause of risk within the industry, but these three headline items only scratch the surface of today’s issues. Each of these key priorities has numerous other factors below them which also present risks, plus there are many other associated factors which contribute significantly to the overall landscape of risk that’s inherent in running any form of construction business.

These other factors include corporate governance and regulatory matters, HR and employment, health, safety and environment, workload continuity, insurance, payment and cashflow, to name but a few.

The financial implications of failing to manage these risks properly can be significant for an organisation, and potentially even terminal, especially if more than one ‘risk bus’ happens to come along at the same time.

With an industry that works on such slender operating margins – the average net margin of the major construction contracting organisations being 2.2% – the ability to improve profitability by making marginal gains is both essential and highly impactful.

As such, the effect of improving risk management can be significant, particularly given the myriad risks faced across the sweep of industry activities, with even the smallest incremental changes contributing to a significant cumulative effect.

The key to success

Managing risk is fundamental to success within construction. If you’re not effective at it, then you need to be incredibly lucky to be successful. However, the more effective you are at managing risk, the more likely you are to be successful.

And yet despite this, many companies in our industry aren’t good at managing risk, with many of the problems that contracting businesses face often self-inflicted. But when you stop to consider the nature of the industry, it’s hardly surprising.

Most managers are taught on the job by those who went before them. Their risk management knowledge is often only what they learn from mentors and from bitter experience. Everyone is under constant pressures – financial, technical and deadlines (there’s that eternal triangle again) – so having the head space to consider these issues can be extremely difficult.

Plus, many managers come from a trade background, working their way up from the coal face of ‘doing’ to a position of organising. They’re working hard to pick up knowledge as they go and learning fast, on the job.

After four decades in the industry, these issues are something that I’m only too aware of. So what’s the solution?

AT the heart of the matter

Early in the genesis of RBMC, we identified that construction companies don’t measure their abilities at risk management. So we asked ourselves why that was. We quickly identified that they simply don’t have the tools with which to do it, so we created a special report which gives companies the ability to measure how risk adverse they are and how effective they are at managing risk in their day-to-day procedures.

To do it, we stress test procedures across four key business pillars: health, safety and environment, corporate governance, operational performance and commercial management. We then spend time with the company to understand their existing operating procedures and current level of understanding of risk management. We take away this information, enter it into a weighted scoring matrix and produce a report which contains both a narrative and scored assessment, i.e. tangible metrics.

“the effect of improving risk management can be significant, particularly given the myriad risks faced across the sweep of industry activities”

We have no axe to grind, no hidden agenda. We simply record our findings and set them out for the company to consider, highlighting strengths and identifying weaknesses.

The aim of the report is two-fold: to provide an effective snapshot of the business’s current capabilities, but also to provide tangible metrics that give a baseline from which to establish, identify and measure continual improvement.

I’m a big believer in the adage “everything that gets measured, gets better”. If you can’t measure how good (or not) you are at something, then how can you possibly hope to improve it? And how do you identify or quantify that you have actually improved it?

Companies need to realise that incremental gains across the entire spectrum of business operations are fundamental to improving business performance, benefiting outcomes, increasing profitability and enhancing shareholder value. As I often say on social media, we all have to work to improve the industry’s perennially low, endemic margins. But the problem is as much self-inflicted as it is culturally endemic in the procurement and contractual models.

Richard is owner and CEO of RB Management & Consulting Ltd, a specialist construction risk management and performance consultancy that helps businesses improve their outcomes.

Find out more and contact him at www.rbmandc.com