Integrity Software: How to reduce risk in your construction company

Paul Corbet, Senior Account Manager, Integrity Software

Risk. It’s an ever-present force in the world of business, but those companies in the construction industry must manage more risk than most. It’s an industry with projects that take months or years to complete, with complex payment structures and contracts. When finishing a project, the economic situation (and the company’s finances) will be in a very different state to when the company first landed the project.

Therefore, risk management in the construction industry is a significant challenge. Thankfully, today’s construction management software and other technologies provide you with the tools to make the process somewhat easier.

#1 Identify individual project risks

Before taking on a project, spend some time (and money) assessing the risks. Risk assessments shouldn’t only cover health and safety issues. You should also explore other risks at this early stage, including issues with suppliers and subcontractors, rising input costs and cash flow problems. Would the project still be profitable if labour costs rose by 10% over the next 12 months? Could you afford a three month delay because of supplier issues? By determining the likelihood and severity of many types of risk, you can better understand the potential profitability of a project.
It’s also worth using job costing software to look back at previous jobs and see how the final budget compared with the initial budget. In which areas were costs most inflated? Which attributes of former jobs does the proposed project have?

Use data from the past to better formulate future plans.

#2 Sort out paperwork

We’re not lawyers, so we can’t advise you on problematic contract terms to look out for in agreements with suppliers and subcontractors – but terms and conditions aren’t the only paperwork-related ways to reduce risk. Document management plays an important part of managing risk. Documents should be carefully filed, easily accessible and display data in a consistent manner. By improving your document management processes, you can eliminate delays caused by lost paperwork, have a strong array of evidence to back up your claims, and reduce time spent on admin processes such as RCT verification. Effective document management is one of the easiest ways to reduce project risk.

#3 Subcontractors and Communication

As the main contractor, you carry out the bulk of the risk assessment but it is your subcontractors who will need to implement most of its findings. Therefore, it’s vital that you communicate risks (and preventative measures) with every subcontractor you’re working with.

While we’re on the subject of subcontractors, they can also be a significant source of project risk. First, opting for less competent subcontractors to reduce costs may actually cost you in the long run, if the project isn’t up to the client’s standards and you have to redo certain tasks. By providing plenty of avenues of communication with subcontractors (and using them) you can reduce misunderstandings and check that all parties are satisfied with the progression of the project.

Risk management involves combining data and a healthy dose of common sense to reduce exposure to the largest risks. The process itself is time-consuming and potentially costly, but it can significantly lower the long term costs of a project if carried out thoroughly. Of course, it’s impossible to eliminate all risk in a construction project, but through risk assessments, insurance and unambiguous contract terms, you can certainly limit your exposure.

If you’re looking for construction management software to help you with more accurate job costing and other elements of risk management, we can help you identify the right software for your needs. Give Integrity a call.

Integrity Software (part of the JDM Technology Group) are the providers of accounting and job costing software specifically for the construction industry in Ireland and the UK. Our software is used by contractors, engineers, facilities management and service, home building and property development companies, to manage the financial accounting and operational aspects of their businesses.

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T +353 (1) 4358531 / M +353 (0) 861723002

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