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Construction must learn to deal with risk

AGENDA - Viewpoint

We can all learn from the debacle at Wembley, writes Michael Walker

FIRMS positioning themselves for major construction contracts to be awarded next year for the 2012 Olympics would do well to learn from Multiplex's experiences at Wembley.

The contractor's shares have fallen sharply in recent times and the City is speculating whether its senior management has the basic information necessary to help it understand what's going on. It seems patently obvious that the construction industry needs to get its head around managing risk better and improving the quality of risk training within the industry.

Very few industries have the risks and exposures of the construction sector. From technical to logistic, through contractual, operational, organisational, financial, insurable and political, the industry pretty much has them all. And that's where the primary danger lies - getting lost in the detail, micro-managing the silos and failing to see the big picture.

In the case of Multiplex, despite employing highly experienced, competent staff, management appears to have failed to appreciate the full dangers presented by committing to deliver a complex project, involving the management of multiple subcontractors, on a fixed price and fixed schedule. A basic error, perhaps, but one that has caught out Australia's largest construction and development company - and is not alone in suffering (remember Laing and the Millennium Stadium).

In an attempt to remedy the situation, Multiplex has adopted an increasingly aggressive stance with the English Football Association, blaming it for further anticipated delays at Wembley Stadium and claiming it is entitled to extensions until October 2007 before damages become payable. So what's the answer?

The experience shows us that risk management in silos does not work, and that decisions on pricing must never be taken in isolation of the decision on how to staff and deliver a contract. For a company such as Multiplex working on this type of project, supply chain risk, delivery risk and reputation risk are all inextricably linked.

Risk management is not something done in disparate parts or separately from the management of the organisation as a whole. It demands a holistic approach with companies establishing risk management as a general management skill.

To ensure risk management does not become disjointed, organisations need to develop a shared understanding of the manifestations and definitions of risk, plus a shared vocabulary and grammar, so that executives from different divisions and countries are forced to confront the commonality of issues.

This kind of focus can't be achieved without significant effort. To ensure companies develop the skills to do joined up thinking, they have to take on board a commitment to develop and maintain the skills. Lifelong education requires company-wide commitment and an ongoing investment in professional development.

The Institute of Risk Management focuses on the provision of relevant, quality 'life-long learning' in areas such as frameworks for managing risk; organisational decision-making risk and culture; business continuity and solutions for risk control.

As Mahatma Gandhi once said: 'Live each day as if it were your last, but learn each day as if you were to live forever' - this is a lesson the construction industry would do well to emulate.

Michael Walker is chairman of the Institute of R isk Management and director of consultants Currie & Brown.