Risk Management in a Downturn

December 4, 2019

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Risk Management in a Downturn

By Bill Zuurbier, co-founder and managing director of risk management consultancy, Equib

With construction output and orders in decline, concern is growing that the sector is facing a protracted slowdown brought on by Brexit deadlock and the possibility of the UK’s exit from the EU with no deal. For many contractors and their suppliers, the risk of business failure has become an operational reality.

At a time when operational risks are intensifying, some contractors could be tempted to cut risk management budgets and contingencies in order to optimise margins for as long as possible. But can they afford to relegate risk management in this way, or should they be investing to improve the resilience of their business?

As economic uncertainty grows, the role of the project or risk manager on medium- and large-scale construction projects comes into sharper focus. As data custodians, they are often first in line to answer questions about the impact that specific cost-reduction measures could have on the outcome of projects – in terms of both cost and time efficiency. Where cost reduction strategies are being applied, they may also be required to review risk assessments more optimistically to support contingency reductions.

Of course, their ability to advise the project accurately relies very much on the quality of the data they have at their fingertips. For example, have they got data from past jobs revealing how specific processes or design solutions played out and could this information guide their decision-making now? Without access to quality data it may not be possible to make the right decisions in the right timeframe.

For many projects and businesses in general, the reality is that databases have been poorly managed and are unable to deliver such insights. To improve resilience, senior managers should be investing time in reviewing and integrating systems in order to harness meaningful data, which will help them to identify operational risks and opportunities. For example, if a project manager is being challenged to cut costs on materials, utilising data from an earlier project where a cheaper solution has been applied could help to identify any potential risks as well as helping to quantify the cost reduction opportunity.

One of the most obvious areas to attract the attention of those looking for cost reduction opportunities is the risk management role itself. Outsourced consultants are often used to deliver specialist risk management support, reporting to the project manager, and these roles can come under scrutiny. Removing these skilled individuals from the project could prove a false economy; leaving the role in the hands of an unqualified and untrained staff member - increasing operational risk significantly.

There is also a danger that in the drive to reduce costs and optimise margins, risk management processes and procedures could become detached from the business objectives. Without this layer of strategic advice, it could become even more difficult for the project manager to navigate the challenges that lie ahead and ensure value for stakeholders.

The industry will be hoping that the Government’s much-touted National Infrastructure Strategy gives enough in terms of real commitment and clear timings to support the industry through this challenging period. Whether this is forthcoming or not however, the role of risk manager must be elevated, not relegated, to increase business resilience and improve outcomes.

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