Risk Mitigation Strategies

Risk Mitigation Strategies

While there are numerous methodologies for risk avoidance, the simplest and most widely used is a risk management spreadsheet. It is populated with a listing of the universe of typical construction industry risks as well as those posed by the specific project.

The risks are further evaluated with estimates of their probability of occurrence, the minimum and maximum adverse outcomes, the expected values of those outcomes (frequency x severity), the availability and cost of insurance for the specific risk for various durations, a list of reasonable mitigation steps and their costs, and an evaluation of the party most likely to prevent, absorb or insure the adverse result, if it occurs.

After an overall survey and in-depth project evaluation, a risk management plan is developed and implemented. It should be emphasized that construction worker and overall facility safety is a deep moral imperative and a grim financial reality and must never be compromised in any fashion whatsoever for a few dollars in short term savings.

During the course of certain projects, it may be appropriate to evaluate the potential gains that might be generated from certain activities versus their expenses and financial risks. Furthermore, each company may have a certain type or magnitude of risk with which it is comfortable.

For example, a company may wish to design and build certain types of water treatment facilities, refrain from operating them due to the different set of risks and insurance programs associated with such ventures.

As another example, a company may be willing to take on a design-build-operate water treatment project over thirty years, but not be willing to absorb the risk of the fluctuating cost of electricity, changes in environmental laws, or union labor rate changes. It may, on the other hand, be willing to accept the risk of variable interest rates on borrowed funds.

Obviously, any situation or risk involving personal injury or death raises the most serious concerns. Those concerns obviously go beyond a management or monetary analysis and encompass our basic moral obligations to each other and broad issues of ethical responsibility.

Some risks, unfortunately, cannot be insured, or avoided. Sometimes the magnitude of those risks makes it inappropriate to proceed with the project. Those risks may be financial, technical or inherent physical dangers.