MHC Report Finds Rigorous Risk Mitigation Offers Stronger Profitability and Productivity

The complexity of construction projects creates greater risks for inefficiencies than those faced by other industries; thus, good project management must include good risk management, offers McGraw-Hill Construction's (MHC) latest SmartMarket Report, "Mitigation of Risk in Construction." Mitigating risk can yield significant cost benefits, yet risk assessment procedures are more widely adopted than risk mitigation, with 43 percent of owners, architectural and engineering firms, and contractors reporting that one quarter or less of firms use formal mitigation procedures, according to an MHC news release. The report, sponsored by Navigant and Pepper Hamilton LLP, was released December 15 at the 26th annual Construction SuperConference in San Francisco.

Investing in risk mitigation represents a great opportunity for firms in the construction industry to improve their bottom-line and increase productivity," says Harvey Bernstein, vice president of Industry Insights and Alliances, MHC, in the release. "The results reveal that the industry understands the key risks and the strategies, like BIM and integrated teams, that help address risks. The firms that will have an edge in this difficult construction market are the ones that understand the value of risk mitigation and recognize they can no longer continue business as usual."

The in-depth report identifies the risks the industry is most concerned about today: schedule and scope creep (24 percent of projects are delayed), budget and cost overruns (19 percent go over budget), project process approvals, safety and site conditions. Bottom-line and performance risks are regarded as the most serious. However, these factors are under a firm's control, so effective mitigation strategies can directly have a positive impact.

"Construction professionals estimate that 11 percent of their projects get embroiled in disputes, and the average claim totals over $3 million," says Bruce Ficken, Pepper Hamilton partner and head of the firm's construction practice, in the release.

Addressing risk early helps firms reap the full benefits of risk mitigation and is one of the chief recommendations in the report. The report also suggests strategies such as building a strong project team, communicating clearly, embedding risk management into firm culture, implementing a rigorous risk assessment and mitigation process, engaging in activities that reduce the likelihood of litigation, and utilizing technologies such as building information modeling (BIM). More than 70 percent of respondents report that using integrated teams and BIM software reduces project risk.

The most complex projects in the construction industry are often those in the infrastructure sector, and the report takes an in-depth look at this sector, while also detailing risks related to the energy sector, healthcare, insurance considerations and sustainability, as well as insights into how design-build and integrated project delivery can reduce risk.

MHC conducted the 2011 Risk Mitigation Study in October 2011. In addition to the primary study and dozens of interviews, an online survey focusing on risk mitigation in the energy sector was also carried out among Construction Users Roundtable members.