New study: Rigorous risk mitigation offers stronger profitability and productivity to construction firms, but most only assess risk

SAN FRANCISCO – 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 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% of owners, architectural and engineering firms, and contractors reporting that one quarter or less of firms use formal mitigation procedures. The groundbreaking report, sponsored by Navigant and Pepper Hamilton LLP, was released today 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," said Harvey Bernstein, Vice President, Industry Insights and Alliances, McGraw-Hill Construction. "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% of projects are delayed), budget and cost overruns (19% 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% of their projects get embroiled in disputes, and the average claim totals over $3 million," said Bruce Ficken, Pepper Hamilton Partner and Head of the Firm’s Construction practice. "While we can help with litigation if it goes that far, we would rather advise clients on how to avoid legal claims through risk mitigation. There is a lot you can do throughout the project lifecycle that will significantly reduce risk and unnecessary costs."
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). Over 70% of respondents report that using integrated teams and BIM software reduces project risk.

"We want to help the industry become more successful in overcoming challenges in complex construction projects," said Dave Tortorello, Managing Director and Leader of Navigant’s Global Construction Practice. "Risk mitigation can be a convoluted concept, as complex as the obstacles construction firms face. Navigant applies its sophisticated claims expertise to fill this knowledge gap, strategically guiding firms through all facets of risk mitigation. We are pleased to be able to offer this report to shed light on critical issues and start conversations around effective strategies for managing 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. Expert interviews and case studies offer insights from around the U.S. and world, such as the Pentagon Renovation Wedges 2-5, Utah’s I-15 Corridor Reconstruction, and NYC’s World Trade Center 2, 3, and 4.

McGraw-Hill Construction conducted the 2011 Risk Mitigation Study in October 2011 to assess the level of impact caused by risks, the scope of use of risk assessment and mitigation procedures, and the frequency and causes of litigation, particularly for firms that work on infrastructure projects worth $100 million or more. 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 (CURT) members. For more information or to download the report, visit https://bit.ly/s2auFZ.