9 Risks in Construction Projects and How to Avoid Them
We’ve all heard the stories.
Construction projects that have come in way over budget, suffered accidents or wound up embroiled in ugly legal battles.
As a contractor, you are well aware that construction is a risky business.
What can you do to minimize the risks, keep your employees safe, and come out on top?
Read on to discover the most common risks in construction projects and what you can do to avoid them.
Table of Contents
- Flexbase: Get Paid Faster With Our Cash Flow Management Solution
- 9 Common Risks in Construction Projects and How to Avoid Them
- #1: Delays
- #2: Weather
- #3: Missing Paperwork
- #4: Health and Safety Issues
- #5: Shortages
- #6: Bankruptcy
- #7: Final Cost Exceeds the Projected Budget
- #8: Change Order Disputes
- #9: Poorly Defined Scope of Work
- Simplify Risk Management in Construction Projects With Flexbase
Flexbase: Get Paid Faster With Our Cash Flow Management Solution
What if there was a way to quickly and easily manage your cash flow by automating all your construction paperwork and compliance documents?
That’s exactly what Flexbase is all about.
The Flexbase app makes it ridiculously easy to …
- Send invoices
- Create and maintain your construction schedules
- Manage your cash flow
- Send automated payment reminders; and
- Automate all of your forms
… all in one place and in just 2 minutes or less.
9 Common Risks in Construction Projects and How to Avoid Them
Staying aware of risks as a part of your business management process can greatly reduce the occurrence of those risks and yield significant financial benefits to your business, including:
Increasing the safety of your employees
Boosting your profits
Enhancing your efficiency and productivity
Improving the quality of the execution and delivery of your projects
Streamlining and improving your ability to make decisions
- Disputes; and
Below, we’ll take a look at the 9 most common risks in construction projects and what you can do to keep from running into them.
Ask almost any contractor what the most common risk involved in construction is, and they will most likely say delays.
You can have the most well-planned construction schedule and the perfect timeline, but if your supplies are delivered late, you’re sunk.
Whether the delay is due to …
- Materials availability
- Poor product management
- An accident
- Change order; or
- Inspector scheduling
… delays happen regularly.
And if you have union workers, a strike could shut your entire project down overnight, preventing you from finishing on time.
Keeping an open line of communication between all parties involved in the project is the best way to minimize the effect of project delays.
Another of the big risks in construction projects is the weather.
Conditions such as …
- Sleet; and
… can delay a project and do serious damage to supplies and completed work.
The truth of the matter is that weather can be a very difficult risk to avoid.
#3: Missing Paperwork
Staying ahead of the paperwork shuffle on a construction project can be a full-time job.
The best way to be proactive in avoiding the risk of missing paperwork is by getting yourself organized.
Clear your desk — and the dash of your work truck — by using Flexbase to organize and automate all of your construction paperwork.
- AIA forms
- Schedule of values
- Lien waivers
- Insurance docs
- Preliminary notices
- Prevailing wage
- Change orders; to
… Flexbase has you covered.
#4: Health and Safety Issues
When we’re talking about the importance of risk management in construction projects, health and safety are right at the top.
Health and safety concerns on construction projects are ever-looming and can’t be underestimated.
According to the National Safety Council’s 2019 report, the construction industry is ranked as one of the top 4 most dangerous jobs in the US.
There’s a lot going on at a construction job and accidents happen, even with the most vigilant safety supervision. Conditions at a site change minute by minute, and unexpected hazards can show up at any time.
The last thing you want to see is a safety inspector pulling up to your site and finding violations and issuing stop orders.
How can you be proactive when it comes to minimizing health and safety risks in construction projects?
Keep everyone updated on the hazards that may be present during each stage of the project.
And be sure to provide your employees with plenty of training on:
- Safe work practices
- The selection and appropriate use of personal protective equipment (PPE)
- Basic first aid practices
Keeping a watchful eye on potential safety risks on your construction jobs will keep …
- Your employees safe
- Your project accident-free; and
- Your timeline right on schedule
The next item on the list of risks in construction projects is shortages.
Shortages in the construction industry can come in the form of:
- Labor - Finding reliable, hardworking skilled laborers always seems to be an issue in the construction business.
And once you find them, you hope and pray they are reliable and will actually show up to work.
Lacking the manpower needed to perform on the job can drag out your construction schedule and create delays in delivering the project on time to the owner.
- Materials shortages - Consider the North American lumber shortage of 2021.
The COVID-19 pandemic shut down lumber production, causing a major issue with the wood supply chain throughout 2020.
According to the National Association of Home Builders, the price of lumber shot up more than 300% between April and May in 2020, increasing the average price of a newly built single-family home by nearly $36,000.
It’s no secret that the financial failure rate in construction is frighteningly high.
Sometimes the easiest and fastest way out is to file for bankruptcy.
One company may file, restructure, and re-emerge stronger than ever — while another may vanish into thin air.
Bankruptcy affects everyone on the job and may cause:
- Progress on the project to freeze
- Repossession of equipment; and
- Suppliers calling for financed materials
#7: Final Cost Exceeds the Projected Budget
You can check your numbers and then run them again, but sometimes even the best-laid plans go awry, and your final cost is far above what you had planned.
Reasons for the project totals exceeding the budget include:
- An incorrect budget
- Too many changes or variations on the project
- A poorly defined project scope
- Unexpected site conditions that add to your costs
- An increase in the price of materials
- Not padding enough wiggle-room into the budget
- Doing a lump-sum contract
Taking the time to think through these potential issues can keep your job from turning upside down.
#8: Change Order Disputes
Change orders are unavoidable in the construction industry.
If they are managed carefully, change orders don’t have to result in you:
- Losing money
- Eating costs; or
- Missing opportunities
How can you reduce the risk of disagreements over change orders?
Remember that a change order is really a mini contract, and treat it just as you treat all contractual risks in construction projects.
Don’t even think about entering into a verbal agreement — write everything down and get it signed.
If you’re looking for an easy solution for keeping track of change orders, login to Flexbase. You can easily document and submit any changes that may arise — and avoid the risk of a payment dispute.
#9: Poorly Defined Scope of Work
If your scope of work is vague and unclear, you are going to struggle big-time to keep your project on track.
Never underestimate the beauty of good communication and a clearly laid out plan.
Managing Risk in Construction Projects: Risk Assessment
Risk assessment and management in construction projects are top priorities and are designed to …
- Plan; and
… the measures that are necessary to prevent exposure to risk.
This can be done by:
- Identifying any hazards
- Assessing the extent of the risk
- Finding the appropriate measures to control the risk; and
- Managing any residual risks that may arise
In every construction project, you will want to assess the risk for:
- The contractor
- The client
- Health and safety; and
If you’re a contractor, you know quite well that your biggest time of risk is when the project timetable and price commitments are being hashed out.
The best way to proactively assess contractor risk is by evaluating the bill of quantities. If this is not accurate, you may be set to take a huge loss.
Client risks tend to revolve around time and quality.
Assessing and managing client risk includes:
- Design risk: Deciding upon the level of control you will keep over the project’s design and how much will be given to the client.
- Funding risk: Making sure the necessary funds are available to pay the contractor.
- Feasibility risk: Determining if the project is possible, considering the options, and presenting a plan to the client.
Health and Safety Risk
The risk of safety should never be underestimated.
According to The New Civil Engineer, the construction industry has a death rate that is 4 times higher than the all-industry rate.
Even the smallest project should have a health and safety plan.
Fire is an ever-present risk on any construction site.
To be proactive in preventing the risk of fire, it is critical to adhere to all fire codes and regulations.
Simplify Risk Management in Construction Projects With Flexbase
Minimize your risk factors in construction projects with Flexbase.
Our online platform provides the resources and tools you need to help manage construction businesses just like yours.
We automate all of your business paperwork and compliance by generating payment apps with:
- Insurance documents
- Lien waivers
- AIA forms
- Prevailing wages
- And more
And besides saving you time, Flexbase also brings you peace of mind in knowing everything you need is in one place.