Using Software to Perform a Construction Risk Analysis

Discover how construction software can increase transparency and equip you to make better decisions.Construction companies are accustomed to managing risk. They face it every day-whether it is on-the-job safety, the engineering of buildings or making sure each project comes in on time and on budget. As the market becomes more competitive for fewer projects and every last dollar is squeezed from the budget, risk inherently increases. Does your company have the right tools to manage this increasing risk effectively?

History has shown an unfortunate number of companies did not have the proper risk measures or tools in place. A bold example of poor risk management is the construction of a national art gallery in Washington, D.C.  In this particular case, marble panels that were too thin were used with gaskets that were too narrow, causing 468-pound panels to fall off the building when exposed to the stifling heat of D.C.’s sunshine. The costly result was replacing every panel at an unexpected cost of $85 million dollars for this ongoing project that remains unfinished.

With a workforce spread across multiple jobsites, a construction business owner can find it tough to keep track of people and equipment. Unless there are systems in place for collecting and sharing data, each employee will evaluate, interpret and produce reports in the manner he/she sees fit. Often times that translates into incomplete and inconsistent ways of reporting data uniformly across the organization-or worse, receiving outdated and useless data.

Key types of risk are outlined as follows:

• Liability if something goes wrong: cost for fixes and lawsuits due to injuries and/or death
• Cost overruns: Not knowing if you are on budget can rapidly eat up your profits.
• Damage to brand: If you do not deliver on time/on budget, your company’s reputation could suffer, resulting in less work in the future.

To be safe, you need daily in-depth data to understand your level of risk exposure, allowing you to make informed decisions. Fortunately, construction-specific software is available that provides real-time data and lowers risk by allowing you to make decisions on the fly. The key to achieving this level of analysis is a central database that stores the data everyone in your company accesses to make decisions. This shared database enables consistent reports rather than a collection of disparate spreadsheets tucked away on someone’s hard drive. A modern ERP software solution can help-it uses a single database accessible to everyone.

Along with the latest, easy-to-access data, you need experience to interpret that data and the ability to act upon it. Experience will provide a gut-level instinct to know when something is seriously wrong. For large, complex projects you might want to model different what-if scenarios, predicting the effects of various decisions without actually experiencing those effects. Then you can pinpoint the risk at each level, finding ways to minimize the risk while meeting your time and profit goals. No data is foolproof, and even the best computer models cannot accommodate all of the specific environmental impacts on a project. However, simply having that data gives you a huge boost.

Boost Productivity

An added benefit to implementing software with real-time data is a boost to productivity across all departments. Your data is more accurate. With the increasing availability of managed services, you can operate more nimbly and with less risk-and managed services have redundant systems in the event of fire or hardware failures.

Find Subcontractors

For general contractors, effectively finding and qualifying their subcontractors is important to keep projects moving. While most general contractors keep a file or portfolio of preferred subcontractors on hand, some are not able to share them across their organizations. That is where a pre-construction module can help. 

By storing data in a central database, everyone knows which subcontractors can be accessed and is able to review notes to find the right ones for each project. The module also makes it easy to gather consistent data from all of your subcontractors. Ensuring that everyone is pulling from a pool of approved and tested subcontractors keeps your sterling reputation intact.

Construction Risk Resources

AGC has a great tool for determining your current risk exposure. An in-depth form available on their website, the Risk Profiler, collects pertinent data about your operations, staff and business affiliations to provide a clearer picture of where you stand today. If you have not done so already, utilizing this resource would be a great and inexpensive place to start.

Technology provides access to the tools and data that make it easier to see risk exposure across your entire company. It increases transparency and speeds the decision-making process, allowing you to correct your course before serious damage has been done. An investment in technology pays dividends in many ways, from less risk exposure to more productive, collaborative teams and better profit management.

18 Ways Software Can Measure and Lower Risk

• 1. Increase your overall gross-profit percent by improving control over change-order work and reduction in non-billable out-of-scope work.
• 2. Reduce subcontractor default costs through better compliance tracking.
• 3. Reduce downtime, repair costs and mechanic labor by controlling equipment maintenance automatically.
• 4. Reduce materials and consumables waste by controlling purchasing.
• 5. Improve bid capture and bidding accuracy by using more accurate historical cost data.
• 6. Reduce job profit fade due by improving budgeting and field productivity tracking.
• 7. Reduce time required for crews to finish a job with better crew communication.
• 8. Reduce equipment maintenance costs through automated alerts on pending warranty expirations and warnings when creating work orders on pieces of equipment currently under warranty.
• 9. Improve equipment usage and job cost accuracy by reporting “meter” hours versus “charged” hours.
• 10. Save time with automated outside hauler payables and in-bound vendor materials payables.
• 11. Obtain accurate cost control from plant/pit summary reports showing costs and revenues by material category.
• 12. Improve cash-flow management via current and pending job cash flow reporting.  Roll both current and scheduled backlog into your projections.
• 13. Receive early indications of potential job cost overruns and cash flow issues from integrated “cost/revenue to complete” system.
• 14. Forecast more accurately with integrated pending/approved change order/cost to complete analysis.
• 15. Eliminate “cost shifting” in an attempt to hide true costs on specific projects through projection-trend reporting and security.
• 16. Improve your oversight by getting real-time graphical reports for ratio analysis and working capital.
• 17. Improve your hiring and avoid bad hires with an integrated HR and PR application for applicant tracking, benefits eligibility, safety administration, salary/hourly increases, accident tracking, etc.
• 18. Increase your safety tracking with an on-demand HR reporting database including OSHA 300, 300A, 301 and MSHA 7000 reporting, exception reporting and automated alerts for drivers license expirations, skill expirations, benefits eligibility, safety administration, drug testing, etc. you will 

Construction Business Owner, November 2010