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Manage risk and manage to survive

Good risk management is protection from problem contracts, clients and suppliers

As the global credit crisis deepens and the turmoil of recent weeks starts to bite it is almost certain that the UK construction industry will undergo a period of slowing activity.

There are limited ways contractors, developers, clients and funders can respond in the short term. One way is to make absolutely sure that new and ongoing projects are managed properly and that robust processes and controls are embedded and rigorously applied.

We are all familiar with the industry’s perceived poor record when it comes to project delivery, both in terms of cost and time. Clients, developers and funders will now pay even closer attention to these issues and you ignore them at your peril.

In those years of market stability and continuous growth, it could be argued that risk management had taken a lower priority in some organisations, as money was cheap and business was booming.

Sometimes this has resulted in a number of developers and contractors having poor and inappropriate risk management processes.

Risk management is often regarded by some as an academic and dull process. Many go to great lengths to avoid spending a day in a risk management workshop or dedicating time to develop robust controls.

We now see that many of those who had proactively invested in robust risk management processes and protocols are now far better placed to deal with the economic downturn.

They are less exposed to problem contracts, problem clients and problem suppliers. Kick-starting a proper risk management process during turbulent times might not be easy even though the consequences of failure to do so are there for all to see.

A prefabricated ‘one size fits all’ risk management approach is not suitable for every organisation. A much deeper understanding of the potential risks is required, based on the structure of the business, its strategy and its established ways of working.

While the first and most important point is to get your own house in order, don’t forget that individual organisations in your supply chain and client base have the potential to derail your business.

So it is equally important to ensure that they also have the procedures in place to manage their risks. This will minimise the probability that others’ shortcomings will adversely affect your business.

Generic risks

Another important point is that many of the risks that can lead to project failure are not purely related to the mechanics of construction and development – they are more generic.

Items such as communications, stakeholder management, clarity of objectives, change control and financial management are just as important as whether someone has performed a check on the structural design calculations.

Now is a crucial time for you to ensure that you have a proper risk management regime.

Those that have will undoubtedly be better equipped to deal with what the current market turmoil throws their way.

Nigel Shilton is a construction partner at Deloitte