As a construction company principal, director or project manager, you understand that risk is an inherent part of the work you do. Contractors and construction businesses know that there are several types of risks and threats to their company, their employees and their contracts.
From work zone hazards to cash flow issues and even risks that impact your clients, subcontractors and business partners, the success of your operations is dependent on assessing the things that threaten your company and having a plan. Implementing a construction risk management program should be a priority for your organization.
Acknowledging Risks Great and Small
When it comes to your business, there are many types of risk that need to be assessed and managed differently. For example, a crewperson in an active work zone will be exposed to various hazards that need to be managed. In this case, you might provide OSHA training to make sure the employee is aware of the dangers of working on ladders or in confined spaces. You’ll provide personal protective equipment or PPE such as hard hats and safety goggles for body protection. There will be specialized training for the operation of heavy machinery and power tools.
You should have a safety management plan that includes making sure the worker is proactive about maintaining a safe environment. Your business should have a workers’ compensation insurance policy to cover medical expenses should your employee be injured on the job. These are all risk management examples, but they’re specific to the project site. What about other business risks? Do you have an enterprise risk management system in place?
Understanding Enterprise Risk Management
Enterprise risk management refers to a strategic identification, assessment and control of threats from the perspective of the entire business or organization. Traditionally, risk management is executed on a division-by-division basis. An accounting manager may account for threats associated with tax compliance and collecting payment, while superintendents focus on the hazards for their particular projects.
ERM differs from a traditional approach as it calls for businesses to assess all their risks and implement executive-level decision-making to manage these from a company perspective. Enterprise risk management principles or ideals include the following:
- A company-wide approach to risk management that identifies all risks and considers their impacts on the entire organization
- Decisions to be made at the top level as part of an enterprise risk management framework
- ERM action plan available to stakeholders as part of regular reporting
- A chief risk officer or CRO to lead the creation and implementation of an enterprise risk assessment framework
A top-down approach applies the essentials of risk management to an organization as a whole that offers the following benefits:
- Business-wide awareness of risk management
- Proactive strategies and better risk response
- Improved communication and reporting of issues
- Attention focused on the most critical threats
- Better identification of opportunities
- Better understanding of sources of risk and elimination
In a construction company with strong enterprise and operational risk management, senior leadership may recognize that certain types of projects are risky when it comes to compensation. Instead of an account manager developing a special type of contracting process for those clients, company leadership may recognize that the reward for those projects isn’t worth the risk, leading to the decision not to pursue certain contracts moving forward.
Exploring the Elements of Organizational Risk Management
While the specifics of risk management vary between organizations, a strong ERM approach should cover the following aspects:
- Hazards: This includes determining exposures, including how often they occur and the extent. You would evaluate current procedures and identify better approaches. Implement them in a program (e.g. safety management program) and monitor for results and continued improvement.
- Internal monitoring: This includes evaluating current business process risk management and looking for ways to improve effectiveness and efficiency.
- Audit and review: Providing independent, objective and documentable review of internal monitoring and control
- Regulatory compliance: Construction companies don’t operate in a vacuum. There are local, state and federal requirements that include risk exposures such as safety rules, environmental practices, financial reporting, legal requirements and more.
Executing Enterprise Risk Management
Your ERM approach can be broken down by company-defined processes and workflows that define how your organization deals with risk, covering all the units and subgroups within. It is up to you and your company to develop an enterprise risk management system that involves all key people and the various members who play a role in how you mitigate exposures and threats.
This means not just having an ERM system, but one that includes enterprise risk management templates, generating the proper documentation for internal and external control.
Fluix is a cloud-based solution that offers the power and flexibility to help you come up with a customized approach to ERM. From automated workflows to form completion, document distribution and even presentation of enterprise risk management framework examples, it’s your scalable solution to ERM that works on any computer or mobile device for functionality at the main office, satellite locations and even a project site. Try our free, no-obligation 14-day trial to build better operations and outcomes with tech-based enterprise risk management.