In this installment of Risk Management Strategies, we will start by reviewing the basic concepts of understanding risk and the various options of addressing the risks inherent to construction operations.

Merriam-Webster defines “Risk” as the possibility of loss or injury; someone or something that creates or suggests a hazard; the chance of loss; a person or thing that is a specified hazard; the chance that an investment (such as a stock or commodity) will lose value.

It’s human nature to avoid risk. The word itself is negative and insinuates pain or loss, yet we all address risk in every day of our personal and professional lives.

For this post and purpose, our focus will address risks in the construction industry specifically.

There are internal risks (how a company chooses to operate and address their inherent risks), and external risks (hurricanes, pandemics; items outside of our control).

Risk is necessary to obtain a reward. In construction, you must take on a job and perform that job as described, in order to obtain the reward of profit.

Risk Management is how an organization chooses to respond to the identified risks, which are usually determined by management and can be broken down to four basic categories summarized below:

  • Risk Avoidance - completely eliminating an identified risk

  • Risk Mitigation – adopting controls to partially eliminate or reduce an identified risk

  • Risk Transfer – passing the risk to another

  • Risk Acceptance - affirmatively taking no action against the risk.

Risk Avoidance is fairly simple; it can be not bidding on a job you are not comfortable with performing, firing an incompetent employee, etc. Of course, there is no reward here as well.

Risk Mitigation can start with a safety plan that consistently adapts to your company’s operations. Pre-COVID that would have simply been hard hats, harnesses, lockout/tag-out, fire watchman. Post-COVID this includes the previous list along with strategies and ways for keeping your crews 6’ apart, wearing N95 masks, hand hygiene protocols, etc. It is important to periodically review your risk mitigation plan, as your various jobs will entail different risks accordingly.

A job site specific Safety Plan (which is also a type of Risk Mitigation Plan) should be reviewed from management down to each employee, followed by weekly to daily toolbox talks respective to the work at hand. Many companies have adopted additional strategies such as stretch & flex activities prior to the workday.

Risk Transfer is ceding the inherent risk to another entity, usually contractually. You can subcontract work to others or purchase an insurance policy (which is itself, a legal contract). It is important for you to understand how much of your risk (and/or liabilities) are transferred via those contracts when you enter them. I would suggest you have a licensed professional work with you on these items (i.e. lawyer, insurance broker, accountant).

Risk Acceptance is accepting the work and inherent risks at hand. An organization pursues this strategy when the cost of mitigating or transferring the risk is more than the anticipated loss of the risk actually occurring. This is the basis of our business strategies and the intent of being profitable.

I have worked in the risk management/insurance sector for over 25 years, and have seen firsthand the benefits of good risk management, and the failure (sometimes disastrous) of refusing to plan.

Taking the time to choose the best course of action for your business for each opportunity that comes your way is advisable, this ensures you understand the risk exposure for yourself, your crews, and your company.

Sit down with a trusted risk advisor (i.e. lawyer, insurance broker, accountant) to get their input.

With the proper time spent assessing your exposure in each of these areas, your company and employees should reap the benefits of safety, prosperity, growth, and wellness for years to come.

Oliver Dirks

Insurance Executive

CMC Workforce Member

Vetting Committee

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