Susan Adibi is the risk management service leader for the New York office of Faithful+Gould, a New York-based construction consultant and member of the Atkins group of companies.

Industry Should Embrace Risk Management Tools

Using enterprise-wide risk management can go a long way toward successfully completing projects in the building industry.

by Susan Adibi

Risk management is quickly emerging as a necessary tool to successfully complete projects in the construction industry. And the latest trends in the discipline call for companies to approach risk management as an enterprise-wide process that collectively considers the risks facing various projects and connects these factors to the overall corporate strategy.

A project is considered successful when it is completed within budget, ahead of schedule, and meets or beats the objectives set out by the owner. And achieving those goals usually means that the project team was able to counteract, minimize, or eliminate risk.

There are at least two parameters typically associated with each risk: the probability of occurrence and the consequence or impact of that occurrence. Risk management is the process of identifying, describing, and estimating or modeling the impact of each risk, and then developing a method to mitigate that risk.

In the construction industry, typical risks could include, but are not limited to, difficulties getting building permits, lack of contractor availability, changing or increasing scope, and inability to get materials or equipment on time.

The traditional project-specific approach to risk management has many limitations, such as a lack of transparency across multiple projects, no holistic view of project risks, and no access to company-wide information. Within the past 10 years, a new paradigm has evolved involving increased executive support, development of industry standards, and improved technology – all contributing to the development of a method called enterprise-wide risk management. 

Construction companies in general have begun to promote cultures that embrace risk management processes, starting with leaders at the executive level who are more supportive of the effort.

Government legislation and the development of industry standards also have fostered risk management compliance. The goal of setting industry standards is to specify the elements of risk management and to identify best practices against which organizations can measure themselves, but not to inflict uniformity across the implementation of the process. Some examples include the Risk Management Standard, known as IRM, and the federal Sarbanes-Oxley Act of 2002.

It is critical that risk management standards remain generic and not specific to one industry type or economic sector. Implementation of a risk management system should be influenced by the varying needs of an organization and its specific objectives.

Fortunately, the evolution of new standards has dovetailed with the development of Web-enabled, real-time applications that simplify information collection, analysis, and reporting, allowing a company to assemble a portfolio of different projects to compare and correlate.

The more recent development of the enterprise-wide risk management model has benefited from business trends, particularly in Australia and the United Kingdom, encouraging an integrated approach to managing risks across business streams. This approach is also known as “integrated risk management” or “holistic risk management solutions.”

The goal of the enterprise-wide model is to maximize returns, increase shareholder value, and bring about an efficiently managed business. Organizations that have adopted this integrated approach to risk management have experienced significant benefits as a result.

But adopting this new risk management methodology shouldn’t be a blind leap. Companies should first gain comfort with the concepts of the enterprise project management approach, under which companies manage their project portfolios by continually identifying, prioritizing, and investing in projects that are aligned with corporate strategy and activities that feed the bottom line.