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Use Risk Management To Increase Construction Profitability

Written by Randal DeHart | Sat, Aug 25, 2012

Today's Article Is From James Clements MBA, Director of Project Plan Online

Risk management is now an integral part of any project management system in mature project environments, particularly for small to medium enterprises. As competition is increasing and margins are decreasing, you need certainty in your estimates and to create an environment in which your projects can succeed.

Studies like PwC’s 2012 third global survey on the current state of project management, shows that in the circa $10 Million contract range, poor estimating accounted for the single largest reason for project failure, a staggering 30%, 15% more than the next highest project failure cause, lack of executive sponsorship.

Winning Risk Management is a training guide and tool aimed specifically at identifying and treating the cause of these failures, from bids, to projects and the corporate levels through specific context based risk management strategies that address each phase of the project lifecycle, and the risks posed within the organization, to achieving project success.

When the decision is made to develop a project proposal for competitive tender the primary objectives relevant to this process are to win, but at the same time, to reduce the risk of project failure and maximize opportunities to shift risk and reduce cost. The opportunities to make significant gains, only present themselves in the bid phase, once the project is underway, this opportunity is significantly reduced.

The actions taken in the bid phase greatly determine whether a project will be a success or not, if it is setup poorly during this period that allows the most influence on outcomes for the least effort, the project has less chance of success.

Understanding and dealing with risks in the bid phase will greatly increase the veracity of your estimate and decrease the likelihood of variance during the project, remember the project scope, schedule, budget and contract terms are all set and agreed before the project even gets hold of them, so you need to get it right in the bid phase!

That said, there probably isn't a project in history that has been handed over to the project team in perfect trim, so it is the PMT's responsibility to continue the risk management process, to identify all of the risks the project faces that may stop it achieving its objectives, develop and implement risk mitigation strategies, some of which will already be underway as a result of a solid Bid & Proposal Risk Management process, report on their occurrence and all the while, identifying and treating new risks as they occur.

On top of this, Projects are very much at the hands of external influences, the work done in the bid phase, the culture and work practices of the organization, senior executive support which we noted as a key cause to project failure (15% of failures), so we also need to take a more strategic approach to risk management at the enterprise or program level to ‘clear the path’ for projects.

Specifically from a strategic perspective, on at least an annual basis, we need to develop a system for identifying risks to projects that are outside the reasonable ability of the project to control, i.e. they are organizational and not project risks, we need to analyze the organizational environment, develop risk and opportunity control strategies that address the organizations strengths, weaknesses, opportunities and threats, treat them and ensure the program(s) of projects have a smooth path to success.

Project Plan Online has developed a Risk Management System, Winning Risk Management® that provides targeted training, process and tools for bid and proposal, project and program risk management, which can be implemented as stand alone modules, or form a complete integrated risk management approach.

James Clements MBA, Master Project Director, is the Director of Project Plan Online, with in excess 30 years in heavy engineering and construction, he has taken the tools and a strategy he uses to deliver successful projects and makes them available, practical and inherently useable for all project teams and organizations.

For more details contact James +1 631 464 3889, jclements@projectplanonline.com, www.projectplanonline.com/risk-management/

QuickBooks Expert Specializing In Construction Bookkeeping Services

 

About The Author:

Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor and QuickBooks For Contractors Expert. This combination of experience and skillsets provides a unique perspective which allows him to see the world through the eyes of a contractor, Project Manager, Accountant and construction accountant. This quadruple understanding is what sets him apart from other Intuit ProAdvisors and accountants to the benefit of all of the construction contractors he serves across the USA. Visit http://www.fasteasyaccounting.com/randal-dehart/ to learn more.